Ethereum Upgrades And Merge: An Explainer

Ethereum was built upon doing things differently. While the co-founder Vitalik Buterin began his relationship with the blockchain back in 2011, it was only while trading Bitcoin and running the Bitcoin Magazine that he realised there were other ways in which the blockchain could be utilised. In his own words, the members of the Bitcoin community were more preoccupied with individual applications, explicitly supporting each use case in a “Swiss Army Knife protocol”.

After spending time with Bitcoin and understanding the workings of the blockchain, Buterin envisioned a platform that went further. In 2013, he released a white paper for what would later become known as Ethereum. A year later, he launched a crowdsourcing campaign selling ET

H (Ethereum tokens), raising about $18 million to get the platform off the ground. Ethereum then went live in 2015, taking the moniker of Frontier before growing rapidly into the platform that we know today.

This drive to do things better has stayed intrinsic within the platform. Today, anyone looking to trade Ethereum would be looking at a price of $1,050. Although this is lower than Bitcoin’s price of $19,050, it is worth remembering that Ethereum remains a very young platform. In 2017, the value of the coin rose by 13,000%, and this is only expected to soar in the near future, with many cryptocurrency experts predicting Ethereum to overtake Bitcoin as the leading global cryptocurrency in the next ten years. This is largely due to the aforementioned innovative nature of the platform itself. While Bitcoin was paving the way for a cryptocurrency market back in 2011, Ethereum was waiting around the corner to take over the reins. Now, in 2022, that drive to do better is just as strong as ever.

Ethereum 2.0

In December 2020, Ethereum eased in the first phase of a total reinvention. Known originally as Ethereum 2.0, this reinvention was a direct result of its awareness of blockchain technology and its utilisation across the entire market. In many ways, the sustainability and longevity of other coins such as Bitcoin or Dogecoin can be called into question, especially when it comes to security, scalability and the environmental mining impact which has had a spotlight placed on it over the last few years.

Realising that Ethereum is running into the same sort of troubles, the founders have decided to do something about it, revolutionising the cryptocurrency landscape by re-morphing into a whole new platform which tackles the issues head on. Although the first phase of Ethereum 2.0 has already been introduced, there are two more phases which are still due to arrive on the platform. Since 2020, the process of these upgrades has been acknowledged as “the merge”, helping users to distinguish the upheaval as an evolution of the original concept, rather than a totally new platform. Once the merge is achieved, Ethereum is set to become a scalable, secure and environmentally friendly blockchain platform, predicted to rise above its counterparts as the leading crypto exchange as the world transitions into Web3.

The Beacon Chain

As mentioned, there are three notable phases of the merge to consider. The first of which, the beacon chain, has already been introduced. This is the bedrock on which Ethereum 2.0 is set to be built. While the original version of Ethereum still exists, the beacon chain is essentially a new structure which is being developed alongside it, slowly but surely putting the pieces in place to accurately pull off the merge.

The most substantial aspect of this phase is its introduction of the proof of stake (POS) consensus mechanism, designed to integrate smoothly into the Ethereum ecosystem. This means that the beacon chain is responsible for new methods of POS, such as the validating of blocks, the storage of data, the managing of staked ETH and the enforcement of POS rules. Once it has merged with Ethereum Mainnet, this new consensus mechanism will entirely replace POW, leading to a more stable, secure and sustainable blockchain platform.

Proof Of Work

To understand why this phase is so crucial to the reinvention and sustainability of Ethereum, it is first important to consider how the POW mechanism works and why the crypto landscape is due a switch in operation. Looking specifically at the leading crypto exchange, if a user is going to buy and trade Bitcoin then one of the easiest ways to do it is to become a miner in the blockchain.

The blockchain in question is essentially a link of blocks which are configured and validated by users. With each user mining new blocks and configuring the hashes, a new block can be created and the miners who have validated the correct hash can earn themselves more BTC to spend, hold or trade. So far, this has been an effective way to keep operations safe and subvert the danger of hacks, seeing as any changes to blocks will result in an altered hash. Having said this, the environmental issues that have come to light have been damaging.

Proof Of Stake

Despite cryptocurrencies aim to be the future of decentralised finance, many critics have cited POW’s power consumption as a pitfall which halts crypto’s progression. With every miner competing against each other to solve a hash, the computing power needed to keep up with each validation is enormous, leading to an abundance of energy wastage which is unsuitable for an already disintegrating ecosystem. With POS, however, Ethereum has its eyes on changing the script.

Under the new beacon chain, the POS mechanism is designed to be a far more sustainable alternative, cutting the need for excessive hardware and energy to secure blocks and validate the hashes. It does this by allowing users to deposit their ETH into a smart contract, placing them in a random draw which then chooses users to validate a block and earn themselves ETH based on a simple algorithm.

Mining power, therefore, will be determined only by how much coin a user has deposited. The more ETH deposited; the more the chance of being chosen as a validator. Not only is this a far simpler means of mining blocks, but it is also safer, more secure and more efficient, seeing as there is no longer need for a number of computer calculations to slow up the network and hinder speed of transactions.

Sharding

The third and final part of Ethereum’s merge is known as the sharding phase. This is the process of splitting a database to spread the load of data, allowing for increased transaction speed and reduced network congestion. For Ethereum, this is the best way to scale without increasing the size of the existing database (which would be counterintuitive to the new POS mechanism, seeing as a larger database would increase the need for powerful computers, making the whole system far less accessible). With sharding, validators will be able to confirm the data has been made available by the network as a whole, meaning they do not have to store the data themselves. This will eventually allow them to run Ethereum on their own hardware, no matter how limited, leading to more participation on the platform across the board.

Essentially, this will allow the running of nodes to become much easier. Full Ethereum nodes already take up at least five terabytes of space, with each one only growing larger and harder to run as more users join and participate on the platform. Sharding will cut all of this down, leading to each user storing just a fraction of the changes to the database as opposed to the entire blockchain history.

It is, however, one of the most complicated and impactful changes to the system, which is why it is not due to launch until 2023. Users will need the time to understand how to operate inside a shard, and (more importantly) Ethereum will need the time to work out if it is truly feasible. After all, if a node is cut up into five pieces, then one of those pieces will need to know the data coming from the other nodes are valid. This is why developers are still seeking a solution, as neither Ethereum nor its users will want to lose out on security in search for scalability.

The Merge And The Future

Although the merge is an exciting prospect for many current and future investors, the process of a complete upheaval takes time and, so far, Ethereum has already played for a lot of it. Originally due to launch in early 2022, Ethereum has since delayed the switch in systems, leading to many critics to be outspoken on how successful the merge will actually be. Although POS is undeniably a more environmentally-friendly validation process, it is so far relatively untested, with only a handful of cryptocurrencies using the mechanism. When one considers how big Ethereum is now, as well as how big it is predicted to become in the future, a new system such as POS is leaving doubts about just how efficient and secure it will be for investors.

However, despite the concerns, new facelifts such as the merge need time to get right. In Ethereum’s own words, the merge is like a spaceship docking into a new system. It should be done slowly, methodically, with a number of trials and a streamlined strategy to merge the old with the new. Right now, there are no plans for competitors such as Bitcoin to undergo such a reinvention. This is important when considering Ethereum’s future, as the potential for market capitalisation and scalability will be far greater than Bitcoins if the merger is to be pulled off. Until it is actually achieved, however, investors will undoubtedly be sticking with the tried and tested databases that other crypto exchanges are intent on keeping.

FAQ’s

Why Exactly Is Ethereum Merging?

Put plainly, the merge is happening because Ethereum cannot be assured of its potential for growth, security and environmental impact on the present system. When it comes to cryptocurrency, the general consensus is that digital finance and decentralised organisations are going to overtake banks and centralised organisations as a means for transactions and trading. Without sustainability, security or scalability, however, then cryptocurrencies such as Ethereum will not be able to fulfil this potential.

If Successful, Will Other Coins Follow Suit?

It is hard to say whether other coins will follow suit with Ethereum, simply because the merge itself has not been put into practice. Until Ethereum is running on an entirely POS system and sharding has been recognised as an effective power-minimising tool, then no one can foresee how other coins will react. The price of Ethereum, too, will be a big indicator, as we are yet to discover just how many investors will be taken in by the system and choose to buy ETH.

Will Ethereum Overtake Bitcoin?

With Ethereum already pipped to overtake Bitcoin, it is highly likely that a successful merge will lead to Ethereum becoming a market leader in the cryptocurrency landscape. However, with Bitcoin’s price, currently, far ahead of Ethereum, any change in leadership will not happen for a good few years yet.

Does This Make Ethereum A Good Investment?

With the merge still being worked on, now is potentially a perfect time to invest in ETH. Although there are concerns and negativity about, there is just as much positivity and excitement about what the future for Ethereum holds. This means that, if you were to buy and hold onto your ETH, there is a good chance it will be worth a lot more once Ethereum 2.0 has come to fruition.

What Does The Future Look Like For Cryptocurrency?

Just as the value of cryptocurrency is constantly fluctuating, it is relatively difficult to pin down any future predictions for digital finance. However, with Ethereum’s sights set on a sustainable, secure and efficient blockchain, as well as the introduction of Web3 on the horizon, it is acceptable to predict cryptocurrency becoming a prominent feature in everyone’s lives over the next decade. The sun is currently rising and, if things go well, it isn’t looking to set any time soon.