With early blockchain projects needing to adapt to demanding market needs, Ethereum has implemented a network shift called the ETH Merge, which would modify the network consensus mechanic to facilitate faster and cheaper transactions. The Merge was finalized on September 15th, 2022, as the network merged with the Beacon Chain, which has operated a PoS consensus since 2020. The Merge marks the start of a new era for Ethereum as the network moved away from a high energy and hardware-dependent PoW onto a more sustainable and efficient way of processing blockchain transactions. What also changed during the Merge is how transactions are processed and how the network became secured through staking rather than mining!
How does the Ethereum Merge benefit ETH users?
While the Merge might have seemed like a complicated and long-lasting event in the crypto space, it did help the industry as the second-largest cryptocurrency by market capitalization became cheaper to use. During peak network activity before the Merge, NFT communities would be part of Gas Wars, which would see the price of gas (transactions fees paid to the miners to verify transactions) reach as high as thousands of dollars. This made Ethereum a very expensive chain and forced dApp users and developers to move to other chains.
For example, swapping $10 worth of tokens during peak network times would cost users even $100. As such, NFT communities and DeFi projects sought alternatives such as pre-minting off-chain and mining on-chain outside of peak hours to avoid hefty transaction fees. Even so, transactions would still be slow, so the Merge did users in a few ways.
The Ethereum Merge resulted in network users paying lower fees as miners were taken out of the process. In addition, transactions would be much faster because the consensus mechanism has also changed. As Vitalik iterated in an Ethereum roadmap update, the network will aim to process over 100,000 TPS following a series of updates.
Why Ethereum implemented the PoS protocol?
Bitcoin’s early PoW success was mimicked by Ethereum, launching the first smart contract platform that would provide utility to the blockchain space and allow dApps to be created. However, PoW had drawn much criticism as the industry evolved because it didn’t allow networks to scale according to industry demands.
PoW has a lot of disadvantages, from being too dependent on energy usage, needing more ability to scale to more transactions per second, damaging the environment, and requiring a lot of expensive hardware to operate.
Ethereum developed a PoS mechanism implemented once the Beacon Chain was fully operational. In a PoS environment, the network uses validators instead of miners to validate transactions and secure the network. Nodes act as security measures in the protocol, and each node must stake a specific amount to be approved on the network.
Thus the PoS consensus protocol allows Ethereum to scale and use validators and stakers to verify transactions and remove miners from the entire blockchain process.
During the switch from PoW to PoS, Ethereum implemented Vitalik’s Casper, which allowed the protocol to work in tandem across both chains before the Merge was finally concluded. While Casper is just one piece of the puzzle for improving Etheurem’s scalability, it did satisfy the need to create faster transactions through a PoS transition.
Benefits of Etheruem's Merge to PoS
Cheaper gas fees & faster transactions
Without a doubt, the biggest advantage PoS brings to the blockchain space is that transactions on the second-largest network are much cheaper than before. The average transaction fee ranges around $0.20 per transaction and can compete with other Layer 1 or Layer 2 protocols which implement the same pricing model.
Energy consumption
Bull runs have always led to a spike in cryptocurrency mining, and for ETH, this was highly convenient as users could get ETH by using GPU cards. This lead to a price increase, stock depletion, and higher energy output which makes mining very damaging to the environment. The new PoS doesn’t rely on heavy computation and is done through blockchain staking.
Token burning
Since the Ethereum London update went live, Etheurem burned 2.9 million ETH tokens. In addition, the London update introduced the EIP-1559, which helps reduce the inflation of tokens that occurs with the shift from PoW to PoS. As tokens have a higher emission, Etheruem’s EIP-1559 works to balance the network and avoid increasing the supply, which would damage the entire economy. Instead, the update helps the network stabilize the price and even transforms Ethereum into a deflationary token.
New passive income opportunities
PoS is known for providing validators with incentives, similar to how PoW rewards miners for their activities. However, staking doesn’t require investments in heavy equipment, and ETH holders can generate additional revenue by locking and securing the network through their assets and yielding 5.6% APY.
The way forward
Ethereum’s Merge allows the network to continue to scale while ensuring a high-security level. Although the process started in 2017 and was only finalized in 2022, it was an enduring and test-heavy process to guarantee that the network won’t be vulnerable to any security threats, as seen on other protocols like Solana or Thorchain.
The network continues to implement updates that would push Ethereum to its final ETH 2.0, or “Serenity,” which amends scalability and interoperability issues. All in all, the update was successful and provided a lot of benefits for the overall crypto community.
Reviewed and Fact Checked by Eugene Abungana , Investment Analyst, Financial Analyst, and Institutional Trader