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Ethereum Merge is one of the most anticipated events in the history of blockchain.
Many people have contrary views on its effect on Ethereum's future and the NFT market.
Here's 10 key takeaways regarding this event for a non-technical person. 🧵🧵👇🏽
Many people have contrary views on its effect on Ethereum's future and the NFT market.
Here's 10 key takeaways regarding this event for a non-technical person. 🧵🧵👇🏽
1⃣ One of the main drawbacks of Ethereum is that it consumes a huge amount of energy.
A single transaction on Ethereum requires as much power as an average U.S household uses in 6.96 days.
Ethereum's total energy consumption annually is comparable to that of Netherlands
A single transaction on Ethereum requires as much power as an average U.S household uses in 6.96 days.
Ethereum's total energy consumption annually is comparable to that of Netherlands
The Eth Merge will reportedly reduce the network’s energy usage by 99.95%.
This exponential reduction in power consumption will make Eth more suitable for mass adoption,
and invite more participants to use the network.
This exponential reduction in power consumption will make Eth more suitable for mass adoption,
and invite more participants to use the network.
2⃣ The merge will see the network switch from Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS) system
Let's break that down,
Consensus mechanism is a way to decide who can add blocks(bundles of transactions) to the ethereum blockchain to secure the network
Let's break that down,
Consensus mechanism is a way to decide who can add blocks(bundles of transactions) to the ethereum blockchain to secure the network
PoW system has users compete with each other to secure the network.
They compete by solving complex computational puzzles. This is called mining.
An individual's mining capacity depends on their computational power, and thus it is extremely power consuming.
They compete by solving complex computational puzzles. This is called mining.
An individual's mining capacity depends on their computational power, and thus it is extremely power consuming.
On the other hand, the PoS system replaces miners with ‘network validators’.
Validators can stake 32 ETH with the Ethereum network for a chance to get randomly selected to add blocks (public ledgers of transactions) to the chain
Thus PoS networks consume less energy.
Validators can stake 32 ETH with the Ethereum network for a chance to get randomly selected to add blocks (public ledgers of transactions) to the chain
Thus PoS networks consume less energy.
3⃣ The process of transitioning to PoS started back in December 2020,
When a new chain called beacon chain was launched parallel to the PoW chain.
Beacon Chain introduces Proof of Stake into Ethereum and coordinates the network.
When a new chain called beacon chain was launched parallel to the PoW chain.
Beacon Chain introduces Proof of Stake into Ethereum and coordinates the network.
Many reasons for launching beacon chain earlier than now,
- Reducing potential risks from one huge network change
- Testing without having any direct impact on existing PoW network
- Give enough time to ensure the staked eth amount is sufficiently large to secure the network
- Reducing potential risks from one huge network change
- Testing without having any direct impact on existing PoW network
- Give enough time to ensure the staked eth amount is sufficiently large to secure the network
Currently, the number of network validators on Ethereum's beacon chain is over 400,000.
And over 13million Eth now locked in staking.
And over 13million Eth now locked in staking.
4⃣ Ethereum will now have two chains operating parallely:
one with a PoS network and other with a PoW network .
Everything you have on the PoW network at the time of the merge, will exist on both chains.
However, after the merge....👇🏽👇🏽
one with a PoS network and other with a PoW network .
Everything you have on the PoW network at the time of the merge, will exist on both chains.
However, after the merge....👇🏽👇🏽
All Stable coins and Defi Applications on the PoW network will falter immediately and become worthless
NFTs on the PoW network will also become valueless and fade into obscurity
Over the long term PoW network will cease to exist and you probably won’t even notice the transition
NFTs on the PoW network will also become valueless and fade into obscurity
Over the long term PoW network will cease to exist and you probably won’t even notice the transition
5⃣ The Merge Opens the door for the Ethereum scaling roadmap
The roadmap consists of 5 major levels:
The Merge (expected to be completed today), The Surge, The Verge, The Purge and The Splurge.
Today, Ethereum network can process about 15-20 transactions per second.
The roadmap consists of 5 major levels:
The Merge (expected to be completed today), The Surge, The Verge, The Purge and The Splurge.
Today, Ethereum network can process about 15-20 transactions per second.
At the end of this roadmap, Ethereum will be able to process 100,000 transactions per second.
At this point, the Ethereum roadmap is 40% complete
After The Merge, it would be 55% complete.
At this point, the Ethereum roadmap is 40% complete
After The Merge, it would be 55% complete.
6⃣ Merge creates a deflationary token supply which is good for the token
After the Merge, with new PoS mechanism
the validators will consume less energy
Meaning the network will pay reduced rewards to them.
Under current PoW mechanism, annual issuance of Eth is around 4.5%
After the Merge, with new PoS mechanism
the validators will consume less energy
Meaning the network will pay reduced rewards to them.
Under current PoW mechanism, annual issuance of Eth is around 4.5%
Post Merge, annual Eth issuance will drop by 10x to about 0.4%
Simply put, if $10million worth of Eth is rewarded to miners daily for energy costs
After the merge it will only be $1million
Many consider this bullish as it causes a simple supply and demand function to play out
Simply put, if $10million worth of Eth is rewarded to miners daily for energy costs
After the merge it will only be $1million
Many consider this bullish as it causes a simple supply and demand function to play out
7⃣ The merge also brings scaling and security benefits.
With staking, users can participate in securing the network by running a validator node on a normal laptop
This makes it easier for users to set up a network validator
Hence scaling the network is much cheaper and faster
With staking, users can participate in securing the network by running a validator node on a normal laptop
This makes it easier for users to set up a network validator
Hence scaling the network is much cheaper and faster
Being a network validator will no longer be mainly for institutions and sophisticated miners
Staking pools also allow individuals to stake without having 32 ETH
This further decentralizes the network and makes it even more resistant to attacks
Staking pools also allow individuals to stake without having 32 ETH
This further decentralizes the network and makes it even more resistant to attacks
8⃣ The Merge has made Ethereum more attractive for environmentally conscious investors
Currently, carbon emissions of Ethereum is equivalent to that of Singapore.
Reducing Eth’s carbon footprint by over 99% removes a key hurdle for investors - Environmental Concern
Currently, carbon emissions of Ethereum is equivalent to that of Singapore.
Reducing Eth’s carbon footprint by over 99% removes a key hurdle for investors - Environmental Concern
Now large institutions and big money can enter the space while being authentic to their values.
ESG(investments that meet environmental, social and governance factors) investors can comfortably add Eth to their portfolios,
and help in advancing the space forward.
ESG(investments that meet environmental, social and governance factors) investors can comfortably add Eth to their portfolios,
and help in advancing the space forward.
9⃣ The Merge is NOT expected to reduce Ethereum’s high gas fees and slow transaction speeds.
The Merge is simply a change of consensus mechanism.
It doesn’t change capacity or fundamentally speed up transactions.
The Merge is simply a change of consensus mechanism.
It doesn’t change capacity or fundamentally speed up transactions.
The purpose of the Merge is to greatly reduce the network's energy usage.
It definitely makes transactions environmentally efficient but that does not lower gas fees.
It definitely makes transactions environmentally efficient but that does not lower gas fees.
🔟 Finally, the best way to handle the merge is by doing nothing.
All important exchanges and wallets have agreed to support the Merge
So, make sure your assets are stored in an exchange/wallet you can trust
Just be aware and trust Vitalik to pull if off!!😛
All important exchanges and wallets have agreed to support the Merge
So, make sure your assets are stored in an exchange/wallet you can trust
Just be aware and trust Vitalik to pull if off!!😛
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