You are currently viewing Ethereum Merge explained in detail!  |  by Sheefa Jalali |  Coinmonks |  Sep 2022

Ethereum Merge explained in detail! | by Sheefa Jalali | Coinmonks | Sep 2022

Everyone is wondering why did the Ethereum Merge happen? This is a quick explanation of what happened with Ethereum’s recent “Merge” update. Here is what you need to know about the Ethereum Merge.

After many delays, the Merge finally took place during the early hours of Sept 15, Ethereum made the transition from a power-hungry, proof-of-work system to an environmentally friendly proof-of-stake system. Ethereum Mainnet uses proof-of-stake, but this wasn’t always the case. This switch is known as the “merge”. The Merge refers to the original Ethereum Mainnet merging with a separate proof-of-stake blockchain called the Beacon Chain, now existing as one chain. The Merge reduced Ethereum’s energy consumption by 99.95%

What is Ethereum Merge?

This Ethereum upgrade or “Merge” as it’s being referred to, changed how new crypto transactions take place on the blockchain. Previously, the Ethereum blockchain, like the Bitcoin blockchain, ran on a proof-of-work model, which involves nodes — computers that are part of a large network — competing with one another to solve complicated math problems. The successful ones are then able to mine the next block of a transaction and create new coins.

The upgrade transitioned Ethereum to the proof-of-stake model, which is a more energy-efficient and environmentally-friendly system. It entails nodes being selected via an algorithm that has a preference for nodes that hold more of a network’s currency. In other words, their “stake” in the network is rewarded over the computer power that’s rewarded in the proof-of-work system.

The Merge was the joining of the original execution layer of Ethereum (the Mainnet that has existed since genesis) with its new proof-of-stake consensus layer, the Beacon Chain. It eliminated the need for energy-intensive mining and instead enabled the network to be secured using staked ETH. It was a truly exciting step in realizing the Ethereum vision — more scalability, security, and sustainability.

How does Ethereum Merge work?

Ethereum started with a Proof of Work consensus mechanism. After the merge, Ethereum will use the Proof of Stake consensus mechanism only.

Proof of Stake asks people to put up their crypto assets as collateral for the chance to have their record of transactions made official, and earn the rewards for doing so. It’s considered better for the environment since there’s no energy-intensive computing to be done, and fairer because it’s not just people who can afford vast computing arrays that can hope to earn rewards.

The more you stake, the better your chances of being chosen as the next person to add their copy of the ledger to the blockchain. Anyone trying to cheat the system should, as with Proof of Work, be called out by the community for doing so, and they would also lose the assets they’d staked for the opportunity they’d bought themselves. While it is better for the environment, it does favor people and organizations who can afford to stake the most crypto — funneling more assets to the already asset-rich.

How does the Merge affect the Users and Holders?

The Merge did not change anything for holders/users.

As a user or holder of ETH or any other digital asset on Ethereum, as well as non-node-operating stakers, you do not need to do anything with your funds or wallet to account for The Merge. ETH is just ETH. There is no such thing as “old ETH” or “new ETH” and wallets work the same after The Merge as they did before — people telling you otherwise are likely scammers.

Despite swapping out proof-of-work, the entire history of Ethereum since genesis remained intact and unaltered by the transition to proof-of-stake. Any funds held in your wallet before The Merge will be still accessible after The Merge. No action is required to upgrade on your part.

New to trading? Try crypto trading bots or copy trading

Leave a Reply