There are countless articles, tweets, podcasts and interviews that we can find, this last month, about the famous Ethereum Merge. After so much information dumped on the same event, how to create a different piece of information? From Bitnovo we proposed, after explaining what the Merge is, to present arguments from different angles, which justify the launch of the most important technological event in the blockchain world after the birth of Ethereum.
It is clear that such a transformation on the second network, in terms of market capitalization, of the crypto ecosystem, which comes with enormous risks, must be justified from several points of view and far from being a decision taken lightly.
By reviewing the various arguments that support a technological transition of such magnitude, we can understand the need that the founders of Ethereum found, from the moment of its conception, to change the consensus of the blockchain.
After years of predicting the arrival of the Merge, we can finally roll out the red carpet to welcome it as it deserves.
In simple words, what is Merge?
The English word “merge” can be translated as “merger” or, perhaps more colloquially, “union”. Literally, this is what will happen when the Merge takes place, a merger between two blockchains, which until that moment work independently. The famous event will unite:
- Ethereum’s main chain, which we have used since its inception and has a Proof of Work consensus.
- With the Beacon Chain, a network that replicates the functioning of the Ethereum blockchain, but achieves its consensus through the Proof of Stake system.
But what does it mean that the two chains will merge?
Explained in simple terms, the Merge involves what:
- Ethereum, on its main chain, will undergo a fork or split in two.
- The merge will take place when the next block of the Ethereum main chain is produced by the Beacon Chain and added to the end of the main network.
- After the creation of this block, users, nodes and validators will recognize the blockchain with the new block created by the Beacon Chain as the Ethereum mainnet.
If you’re wondering, how they can so casually claim that all Ethereum stakeholders will recognize this new network as the main one, it’s thanks to a concept that the blockchain has possessed since its inception, the difficulty bomb.
What is the difficulty bomb?
Like Bitcoin, Ethereum has a mechanism that allows it to increase the difficulty of creating the next block. This mechanism becomes extremely useful at times when it is necessary to delay the production of blocks. Example situations, we have plenty of them. Let’s list some of them:
- In case of an attack, the difficulty is increased and is restored once the problem is solved.
- As the mining equipment improves, the difficulty pump allows to return to the desired mining time of a block.
- After the occurrence of the Merge
Indeed, once the merger between the two chains takes place, the Proof of Work network will see this bomb in action. It will raise the difficulty to a level at which Ethereum Proof of Work will become unusable and enter the so-called “ice age”. Let’s imagine that it takes Ethereum miners 10 minutes to create a block. In a blockchain that supports smart contracts, such a waiting time has no reason to exist.
Now, what should we, the users, do?
Once the Merge, or the union of the two chains, has taken place, the network will rely on a new system to reach consensus and produce valid blocks, while the entire history of the main chain will be “behind” the block that gave rise to the Merge, remaining intact.
Thus, we come across perhaps one of the most fascinating features of this great event. Users, in case the Merge happens as the Ethereum Foundation has been planning for so many years, will not have to take any action to start interacting with the network, which will have a new system to reach consensus.
Now that we know what the Merge is about, it is time to know the reasons to carry out the biggest technological change in the incipient crypto-history.
The philosophical foundations of Merge
From the time when Ethereum was still an idea in gestation, the inner core of its co-founders were already having discussions as to which type of consensus was the most appropriate for the network. In this first argument, I will review the philosophical foundation of the Merge and the shift from PoW to PoS consensus.
Lack of sanctioning power of the Proof of Work consensus
Throughout these academic-level discussions surrounding the early years of the Ethereum network, Vitalik Buterin argued that he was concerned about the lack of punishability or sanctioning power of the Proof of Work consensus. Vitalik, by this concern he meant:
- In a Proof of Work network, if a miner behaves dishonestly, he does not receive a sanction
Let’s understand with an example, what the co-creator of the Ethereum blockchain was referring to. In case a miner of, let’s suppose, the Bitcoin network validates transactions that should not have been contemplated, he will not receive an effective sanction. What will happen, is a penalty by omission. Once the network reaches the consensus that he acted maliciously, he will simply not receive any reward for having expended the energy necessary to create the invalid block.
Positive sanction in the Proof of Stake consensus
On the other hand, in a PoS network, there is a cohesive sanction on the network validator who acts dishonestly. Recall, that to be a validator of this type of network, it is necessary to make a deposit, in the native currency of the blockchain, in this case the sum of 32 ETH. If the validator does not act according to the expected code of conduct, he will be penalized with a forfeiture or loss of his deposit.
Vitalik uses the concept of “marginal cost of attacking the network” to assert the need for migration to this consensus system. This concept tells us that to coordinate an attack on the Ethereum network, the attacker must collect at least the amount of ETH that the number of validators needed to perpetrate this attack puts at stake by acting dishonestly.
The higher this cost, the more difficult it will be to attack the network and, therefore, the more secure it will become.
Vitalik’s academic opponent
The philosophical dispute over effective punishability in the blockchain, as a necessary factor to ensure greater resistance to attacks, had as representative of the opposite position the Italian Silvio Micali. This academic, a professor at MIT, brought his idea to reality by creating the Algorand blockchain, which uses the concept of Proof of Stake to achieve consensus, without falling into the need to apply sanctions of the kind Vitalik considers essential.
The technological foundation
During the Ethereum Community Conference in Paris last July this year, Vitalik stated that:
“Ethereum will be 55% complete, after the Merge.”
Perhaps it is a phrase that has surprised many, but those who follow closely the statements of this great contemporary mastermind, know that Ethereum is still far from finding its final form.
The blockchain trilemma and the place of the Merge
Blockchains, regardless of their characteristics, will sooner or later face the “blockchain trilemma”. This type of network has three fundamental conditions:
- Scalability
- Security
- Decentralization
The trilemma arises when the blockchain, in order to enhance one of these properties, reduces the level of one of the other two. The crypto market has given us a large number of examples in which, in order to increase the transaction processing speed and scalability, the decentralization of the network decreases.
In short, by solving this trilemma we try to maximize the performance of each of these three conditions without undermining any of them. The results that the Ethereum network will obtain, after the Merge in the eyes of Vitalik and his circle will directly influence the security of the network, as we understood in the section on the philosophical foundation.
In any case, Ethereum reaching its consensus through the Proof of Stake system lays the groundwork, without diminishing its expression to date, to maximize its:
- Scalability, facilitating the adoption of sharding and interaction with L2 solutions.
- Decentralization, opening the game to the participation of previously excluded agents as network validators.
Definitely, from a technological point of view, the Merge lays solid foundations on which to make Ethereum the “World Computer”, as its creators longed for from the beginning.
The economic rationale
As the way in which blocks on the Ethereum network are created changes, so do the returns for compensating those who carry out this task. For a miner, who uses his computational power to create new blocks in a blockchain, the costs necessary to fulfill his task are much higher than the expenses involved in the performance of the role of a validator of a Proof of Stake network.
This reduction in the costs of sustaining the operation of Ethereum, thus implies a sharp decrease in the need to issue its native currency, ETH. The phrase, which has been popularized on this matter, beyond seeking to generate impact, does not cease to be real. I refer to:
“The reduction in ETH issuance, following the Merge, is equivalent to a triple halving of Bitcoin.”
Halving is an event that takes place every certain number of blocks in the Bitcoin network, which coincides approximately, in our way of counting the passage of time, with about four years. In the Bitcoin network, every time halving takes place, miners’ rewards are halved.
Estimates, shared by the Ethereum Foundation, indicate that the issuance of ETH will be reduced, with the “simple” merger of the two networks, by about 90% annually. The time has come to grab a calculator and do some math at home.
The environmental rationale
Lastly, we come up against the environmental protection rationale that “The Merge” implies. The reduction in energy expenditure involved in leaving behind the mining of new blocks through the use of computational power, which is nothing more than electricity, to turn to a model in which the greater the amount of ETH deposited, the greater the chances of “getting through” and thus mining the next block, is undoubtedly of exorbitant magnitude. Estimates on this point indicate that the energy consumption of the network will be reduced by 99.95%.
However, it is necessary to clarify that the aforementioned fundamentals take precedence over the present argument when making the decision to make the most important technological change in the short history of blockchain technology.
Going back to 2016, we can find statements in which Vitalik minimizes the ecological rationale. However, he does not downplay its importance, but considered that by the time the Merge happens, renewable energies would take precedence over fossil fuels.
Today we know that the prediction of the young creator of Ethereum is far from being fulfilled. Therefore, the environmental rationale takes on greater preponderance.
The future of Ethereum after the Merge
If you have reached these lines it means that you have successfully endured the battery of fundamentals that support the move from the Proof of Work consensus to the Proof of Stake consensus in the Ethereum blockchain. The purpose of this article, is to make the point that this decision has not been taken lightly.
From the moment of its conception, the Merge was contemplated in Ethereum’s development roadmap. In the technical document known as Yellow Paper, created by Gavin Wood in 2015, there is a perceived concern about the scalability of the incipient blockchain. Vitalik, who believed that this event would take place in 2017, has been one of the most prominent standard bearers of this consensus system.
The amount of work, study, testing and dedication behind this change lead us to observe it with some positivity. In any case, we are talking about updates to one of the most delicate environments in science, software, where the slightest error can trigger the most violent catastrophes ever observed. Therefore, the alarm bells are on.
Regardless of the outcome of this update, what we cannot deny is that we are witnessing the development of the blockchain technology story before our eyes. From the places we occupy, let’s try to enjoy an event of such magnitude as we should.
