It is enough to read this article about the Ethereum merger

1. What is The merge?

“Merge” is the name of the event when the Ethereum blockchain changes from using Proof of Work (PoW) to Proof of Stake (PoS).

It’s called a “merge” because it’s a merger of two separate blockchains currently running in parallel, meaning the mainnet is “merging” with a special-purpose blockchain called the “beacon chain.”

Beacon Chain launched on December 1, 2020, and has only done one thing so far, being a proof-of-stake (PoS) blockchain. There are no transactions on the beacon chain, no tokens or DeFi applications. It is an empty blockchain, a blockchain that only runs the proof-of-stake consensus mechanism.

Because the beacon chain is an empty chain, it can be merged with the Ethereum blockchain to replace the PoW mechanism of Ethereum without caring about any other variables.

Once the two chains merge, Ethereum’s PoW verification will be replaced by a brand new PoS consensus mechanism.

2. Why is the merger so hot?

The merger is considered one of the biggest events in crypto history since the birth of Bitcoin.

In the history of cryptocurrency, no blockchain has undergone such a major change. We need to know that blockchains don’t change the operations of key parts of it very often, and there has never been a blockchain like Ethereum that made changes after it was built on such a large and powerful economy.

Today, the market cap of ETH assets is $203 billion (was $550 billion before?), and based on its mainnet, it is worth more than billions of dollars. Ethereum is by far the largest and most robust economic ecosystem in crypto, and the security of all these economic activities will move from a PoW-based economy to a PoS-based economy.

Therefore, mistakes are definitely more risky, which is one of the main reasons why this merger took so long, because there is a lot of testing and refinement involved.

3. How will the merger affect Ethereum?

The merger has had a huge impact on Ethereum’s economy, especially for investors. The merger will change the economics of Ethereum in two ways: by reducing the amount of Ethereum issued, and by using Ethereum as a native yielding asset.

Reduce Ethereum issuance

The merger will reduce the annual ETH issuance from 4.3% to 0.43%.

This is because the PoS consensus mechanism has been fundamentally improved. PoS is designed to provide the highest level of blockchain security at the lowest cost, and by reducing the amount of ETH that is issued to maintain security, these saved ETH are more beneficial to Ethereum.

PoW is expensive and requires a lot of resource overhead to compensate miners’ servers.

In contrast, the cost of PoS security is only the opportunity cost of capital and does not represent any real-world commodity or tangible cost. Unlike PoW, PoS does not require a large number of tokens to be issued to maintain security. Therefore, these lower security costs make the PoS consensus mechanism more efficient.

Due to the reduced need to pay PoW miners, Ethereum was able to reduce the annual ETH issuance from 4.3% to 0.43%. A reduction in new ETH issuance is generally considered a bullish sign. This is because PoW miners receive most of the rewards for selling immediately, and over time the portion that is sold makes up close to 90+% of total mining.

But PoW proponents argue that the high cost of PoW blockchains is a feature, not a flaw. They argue that these costs prevent centralization by creating churning in asset holdings, as it forces sellers to pay PoW miners. While PoW may indeed guarantee asset decentralization, it also creates security centralization.

The difference is that once PoS is adopted, Ethereum will reduce production by more than 90%, and the management cost of being a PoS verifier will basically be reduced to 0.

4. Why would a merged Ethereum be deflationary?

This time last year, Ethereum introduced EIP-1559, a program that changed the way Ethereum’s transaction fees are managed. Rather than simply paying miners the full transaction fee, most of the transaction fee is burned.

There are many reasons to do this:

After the merger, the production of Ethereum will be reduced by at least 90%, and the proportion of Ethereum destroyed in each block will also increase accordingly.

When Ethereum’s gas fee is 7gwei or higher, the rate at which ETH is destroyed will be greater than the rate at which ETH is issued, reducing the total supply of ETH. At the peak of the bull market, gas prices remained at 200 gwei or higher for several months, making the 7 gwei threshold a very low threshold.

Historical Gas Fees: https://dune.com/hildobby/Gas

Simulate the combined issuance of ETH: https://ultrasound.money/

5. Will the merger reduce the gas cost of Ethereum?

Won’t.

This is a misunderstanding between “Ethereum 2.0” and “merger”.

ETH 2.0 is the name of the future state of Ethereum that is no longer used by the Ethereum community. ETH2.0 refers to a future version of Ethereum that will enable PoS and sharding.

There was a time in the history of Ethereum when it was thought that the two updates, PoS and Sharding, would come at the same time. As R&D progressed, the developers realized they could do these updates separately.

Sadly, the “ETH2.0” nomenclature has always been around.

Sharding will reduce Ethereum gas fees on L1, but for end users, the realization of really low gas fees or even 0 Gas fees will eventually happen on L2, such as Optimism, Arbitrum, Polygon, StarkNet, zkSync or other L2 .

When Ethereum L1 gas costs are reduced, L2 fees will be reduced by an order of magnitude. Ethereum’s gas fee solution was never to lower them on L1, but to move users to L2 and let them enjoy the fast and cheap transaction experience there.

6. Will the merger increase the transaction speed of Ethereum?

This is actually the same as the core of the previous question, but expressed in a different way.

The transaction volume and transaction costs in the encrypted network will affect its supply and demand changes.

Ethereum’s block time (how often blocks are added to the Ethereum network) did get slightly faster after the merger, going from an average block time of 13.6 seconds to 12 seconds.

This means a 12% increase in transaction capacity and a 12% reduction in gas cost.

But this is an insignificant amount and should not be considered a “gas fee reduction”.

7. Will the merger reduce Ethereum’s energy consumption?

Yes, it will be greatly reduced, which is one of the main achievements of The Merge and PoS.

After the merger, Ethereum will consume approximately 99.95% less energy than current usage.

PoS is about securing the blockchain with capital, not energy. Therefore, the energy required to keep Ethereum running after the merger is comparable to basic computer usage: like what you are doing now, such as reading this article, sending a tweet, downloading a movie to your hard drive, etc.

With PoS enabled, the energy cost of Ethereum is just running a node – about 2.6MWh per year. That’s about 1,300 times less than the entire US gaming industry consumes.

Ethereum will actually be the greenest financial system in the world.

8. Will Ethereum stakers dump their Ethereum after the merger?

Do not! They won’t.

The Ethereum in the pledge cannot be withdrawn immediately after the Ethereum merger. This is to keep things as simple as possible, after all this is the biggest and most complex upgrade Ethereum has ever experienced in the industry.

The Ethereum in the withdrawal pledge is expected to be unlocked within 6-12 months of the merger.

So will stakers sell ETH immediately after unlocking?

Maybe, but there are still limitations. There is a withdrawal/deposit queue that limits how fast people can stake and unstake. This is again a mechanism to keep the chain stable, and will not let the rapid fluctuations of the Ethereum application layer affect the security of the chain.

The deposit/withdrawal bottleneck is limited to X/ETH per day, where X is equal to: number of validators / 65536, rounded down to the nearest whole number.

The number 65536 is 2 raised to the 16th power. For some reason, Ethereum developers love these square numbers. It’s called ChurnLimit Quotient, and you can read about it here and here.

Currently, there are 433,916 Ethereum validators on the Beacon Chain. To find how many validators per epoch, divide it by 65,536 and round down to the nearest integer.

433,916 (total validators) / 65,536 6 validators per epoch

So the activation/deactivation count is 6 validators per epoch. An Ethereum epoch is 6.4 minutes, 225 epochs in 24 hours.

Therefore, the current rate of validator activation/deactivation is 1,350 per day.

225 epoch*6=1350 epochs/day

Each validator has 32 ETH, so a maximum of 43,200 ETH is unlocked per day (32*1350).

Also, the APY of being an Ethereum staker increases after the merger, as Ethereum stakes also charge transaction fees.

This is expected to increase Ethereum yields from 4.2% to 5%+, and even higher when gas consumption is high.

9. Why 32 ETH?

Why does it take 32 ETH to run a node and not 31, 33 or any other number?

The answer is that the more nodes, the more total message passing between nodes. If there are fewer Ethereums, more nodes can come online. While this is good for decentralization, it limits Ethereum scalability.

Choosing 32 ETH is the best compromise, also because it is a square number: 2 to the 5th power.

Since node messaging is exponential, reducing the ETH validator requirement from 32 to 16 would increase the amount of messaging for all nodes by a factor of 4. 32 was chosen as the minimum amount of ETH stake that can also yield “finality” in 768 seconds or “2 epochs”.

It is enough to read this article about the Ethereum merger

Is 32 ETH permanent?

uncertain! It can of course be modified to 16 or lower with improved consumer hardware, message compression and better signature aggregation.

10. PoS is not on-chain governance

A common challenge (mainly from the Bitcoin camp) is that PoS is equivalent to the “fiat system” we are trying to get rid of.

What they mean is that whoever has the capital has the power.

This is a very wrong position, and many of those who often support it may be spreading it maliciously to discredit any consensus mechanism other than Bitcoin.

It is enough to read this article about the Ethereum merger

The role of an Ethereum validator is exactly the same as that of a PoW miner. This is a 1:1 comparison.

Ethereum holders have no governance rights over Ethereum, as in Bitcoin, this power is held by non-validating node operators, aka the “community”.

Ironically, these camps advertise PoS as a scheme to “make the rich richer,” when the indisputable fact is that PoW mining facilities lead to higher returns on investment for wealthier capital.

PoS Ethereum with ETH native yield is the most democratized consensus mechanism as it offers the same proportional rewards as 32, 320, 3200 or 32,000 ETH.

They all get the same yield of around 5%.

This is in stark contrast to PoW miners, where a $100 million investment in a mining facility would generate well over 10x more computing power than a $10 million investment due to all the economies of scale that PoW hardware and energy costs bring.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/it-is-enough-to-read-this-article-about-the-ethereum-merger/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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