Ethereum (ETH +0.22%) developers have successfully launched one of the last test upgrades before The Merge goes live. With the completion of the recent Bellatrix Upgrade, Ethereum co-founder Vitalik Buterin believes The Merge will officially happen sometime between Sept. 13 and Sept. 15.
As the day gets closer, there have been a handful of misconceptions circulating about exactly what will happen once Ethereum gets its highly anticipated upgrade. One surety of The Merge is the transition to a proof-of-stake consensus mechanism. By moving to proof-of-stake, Ethereum will use less energy, become more secure, and be better for implementing new scaling solutions.
Currently, Ethereum runs on a proof-of-work system that requires large amounts of energy. While on proof-of-work, Ethereum miners use high-powered computers to solve complex math problems to add blocks to the network and earn new tokens. By switching to proof-of-stake, it's believed that energy consumption will fall by 99.95% since there is no need for powerful computers to solve those math problems.
On a proof-of-stake blockchain, miners will now be replaced with validators who will have to pledge, or "stake," 32 ether, or ETH, tokens to have a chance at earning the block reward. Once staked, the funds are locked and serve as collateral to eliminate any possibility of malpractice. The proof-of-stake consensus mechanism selects validators at random, but validators with the most money that has been staked the longest increase their chances of creating the next block.
What won't happen after The Merge
The move to proof-of-stake is one of the more well-known aspects of The Merge. However, some assumptions about this transition have begun to gain traction. One in particular has to do with speeds on the Ethereum blockchain post-Merge.
Since Ethereum has become one of the most popular and widely used blockchains, its transaction speeds have taken a hit. During peak times, users sometimes have to wait hours before their transactions are finalized on the blockchain.
Many users have been optimistic that the move to proof-of-stake will speed up these lagging transactions. Unfortunately that is not the case. Straight from the Ethereum website itself, readers will find an excerpt stating "though some slight changes exist, transaction speed will mostly remain the same" after The Merge. Those changes being referenced have to do with the speed at which blocks are added to the blockchain. On proof-of-stake, blocks are produced roughly 10% faster. Surely a nice perk, but not enough to be noticed by users.
Another assumption that goes hand in hand with the supposed faster speed is cheaper gas, or user, fees. Again, that is unfortunately not the case. Gas fees are calculated relative to the network's capacity, and the move to proof-of-stake won't increase Ethereum's capacity, so gas fees could remain high when traffic is congested.
What will happen after The Merge
Changing to proof-of-stake lays the foundation for Ethereum to support more use cases in the future. In fact, Vitalik Buterin believes that the blockchain will only be at roughly 55% of its development after The Merge.
The next goal of Ethereum developers is to introduce a process known as sharding, which will divide the main blockchain into smaller, more efficient chains. You could think of sharding as Ethereum's transformation from a dirt road into an interstate highway. Once live, speeds will be faster and those pesky fees will likely come down. It will also further reduce the amount of data validators have to store on their machines, meaning they could operate using a laptop instead of a bank of costly computers.
Ethereum is building for the future
While the move to proof-of-stake is only one step in a long-term vision for Ethereum, it is the most vital step.
So, even though The Merge isn't likely what you originally thought it might be, that doesn't mean this momentous accomplishment should be glanced over, or that Ethereum looks less attractive as an investment. For those with a long-term investing horizon, it actually looks more promising.
Ethereum has lost about two-thirds of its value since hitting an all-time high in November 2021. At that time, Ethereum was only at 40% of its development in Buterin's eyes. With prices worth just a fraction of what they once were, and the transition to proof-of-stake set to take place in less than a week, consider me a buyer at today's prices.
