Regarding the merger of Ethereum, it is enough to read this article

Author: David Hoffman
Co-founder of Bankless

The article was translatedby Pro, a friend who makes trends

1. What is The merge "merge"?

The "merge" is the name of the event when the Ethereum blockchain changed 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 that are currently running in parallel, meaning that the mainnet is "merging" with a special-purpose blockchain called the "beacon chain."

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

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

Once the two chains are merged, 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 cryptocurrencies, no blockchain has undergone such a major change. We need to know that the blockchain does not often change the operation of its key parts, and there has never been a blockchain that has built such a large and powerful economy before making changes like Ethereum.

Today, the market capitalization of ETH assets is $203 billion (previously it was $550 billion), and based on its value on the mainnet, it is more than billions of dollars. Ethereum is by far the largest and most powerful economic ecosystem in the crypto space, and the security of all these economic activities will change from a PoW-based economy to a PoS-based economy.

Therefore, if something goes wrong, it will definitely bring greater risks, which is one of the main reasons why this merger took so long, because there are a lot of related tests and improvements.

3. How will the merger affect Ethereum?

The merger had a huge impact on Ethereum's economy, especially for investors. The merger would change the economics of ethereum in two ways: reduce the issuance of ethereum, and make ethereum a native yield asset.

Reduce Ethereum Issuance

The merger will reduce 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 issued to maintain security, these saved ETH are even more beneficial to Ethereum.

PoW is costly and requires significant resource overhead to compensate miners' servers.

In contrast, the cost of PoS security is simply the opportunity cost of capital and does not represent any real-world commodity or tangible cost. Unlike PoW, PoS does not need to issue a large number of tokens 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 their rewards by selling them immediately, and over time, the sold portion accounts for close to 90+% of the total mining output.

But PoW proponents argue that the high cost of PoW blockchains is a feature, not a flaw. These costs, they argue, prevent centralization by creating churn in asset holdings, as this forces sellers to pay PoW miners. While PoW may indeed ensure decentralization of assets, it also creates centralization of security.

The difference is that once PoS is adopted, Ethereum will reduce production by more than 90%, and at the same time, the management cost of being a PoS verifier will basically drop to zero.

4. Why is the merged Ethereum deflationary?

This time last year, Ethereum launched EIP-1559, a change in the way Ethereum transaction fees are managed. Instead of simply paying miners all transaction fees, most transaction fees are burned.

There are many reasons for doing 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 the gas fee of Ethereum 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 height of the bull market, gas prices remained at 200 gwei or higher for months, making the 7 gwei threshold a very low one.

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

Simulate the circulation of ETH after the merger: https://ultrasound.money/

5. Will the merger lower Ethereum gas costs?

Won't.

This is a misunderstanding between "Ethereum 2.0" and "merger".

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

In the history of Ethereum, for a period of time, people thought that the two updates of PoS and Sharding would come at the same time. As R&D progressed, the developers realized they could separate these updates.

Sadly, the "ETH2.0" nomenclature has stuck around.

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

When Ethereum L1 gas fees decrease, L2 fees will decrease by an order of magnitude. Ethereum's gas fee solution was never about lowering them at L1, but about migrating users to L2 and letting them enjoy the fast and cheap transaction experience there.

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

This is actually similar to 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.

After the merger, Ethereum's block time (how often blocks are added to the Ethereum network) did improve slightly, from an average block time of 13.6 seconds to 12 seconds.

This translates to a 12% increase in transaction capacity and a 12% reduction in gas costs.

But this is an insignificant amount and should not be considered a "gas reduction".

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

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

After the merger, Ethereum will consume approximately 99.95% less energy than it currently uses.

PoS secures the blockchain with capital rather than energy. So the energy required to keep Ethereum running post-merge is comparable to basic computer usage: like what you're doing right now, like reading this article, sending a tweet, downloading a movie to your hard drive, etc.

With PoS enabled, the energy cost of Ethereum is just to run 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?

No! They won't.

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

Withdrawing staked Ethereum is expected to be unlocked within 6-12 months of the merger.

So stakers will sell ETH immediately after unlocking?

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

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

The number 65536 is 2 to the 16th power. For some reason, Ethereum developers love these square numbers. It's called the 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 there are 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 amount is 6 validators per epoch. An Ethereum epoch is 6.4 minutes, 225 epochs in 24 hours.

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

225 epoch*6=1350 epochs/day

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

Additionally, the APY of being an Ethereum staker increases post-merger, since Ethereum staking also charges transaction fees.

This is expected to increase the Ethereum yield 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 there are, the more total messaging between nodes. If the number of Ethereum is less, more nodes can be 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 will increase messaging across all nodes by a factor of 4. 32 was chosen as the minimum number of ETH stakes to also yield "finality" within 768 seconds or "2 epochs".

32 Is 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 objection (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 controls the capital controls the power.

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

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 promote PoS as a scheme to “make the rich richer,” when the indisputable fact is that PoW mining facilities generate higher ROI for wealthier capital.

PoS Ethereum with ETH Native Yield is the most democratized consensus mechanism because it offers rewards in the same proportion as 32, 320, 3200 or 32,000 ETH.

They all earn the same 5% or so yield.

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

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