Plenty has been written about the Ethereum Merge. Here’s what to expect.
As Ethereum’s long-awaited transition from Proof of Work (PoW) to Proof of Stake (PoS) consensus draws closer, excitement about the upgrade builds. The Merge is scheduled based on reaching a ‘Terminal Total Difficulty’ or TTD rather than a specific date. Currently the TTD looks like it will be reached on September 13th.
It’s only natural that, alongside this excitement, several misconceptions and misunderstandings have sprung up. Here are three of the biggest and most common misconceptions about The Merge along with real takeaways.
1. “Ethereum Will Get Cheaper and Faster Once The Merge Happens.”
Perhaps the most prominent misconception about The Merge surrounds Ethereum’s transaction speed and network gas fees. Discussion often includes talk of gas fees coming down, which will make transacting on Ethereum cheaper. This is likely wishful thinking; the switch to PoS will do nothing to lower gas fees by itself. However, there is good news: The Merge paves the way for sharding. Sharding will increase Ethereum’s throughput, which should eventually reduce transaction fees.
The Merge won’t actually make Ethereum faster, either. But it will initiate changes that should make it far faster in the future. Validators will be able to create a new block every 12 seconds, down from about 13, but this change won’t be major. The real improvement will be after sharding goes into full effect. Some observers believe Ethereum will then achieve a throughput of 100,000 transactions per second.
2. “Users Can Withdraw Their Staked Ether After The Merge” and “Users won’t be able to withdraw staking rewards.”
Thanks to Lido Finance and other platforms, many investors already have some Ethereum holdings locked into staking on the Beacon Chain. They cannot withdraw or trade this staked Ether (stETH) nor will they immediately after The Merge. Later, when the Shanghai upgrade (the next major upgrade in the queue after The Merge) is implemented, holders can withdraw their staked Ethereum, but this isn’t expected to occur for at least six to twelve months. For now, stETH will remain illiquid.
That said, while users can’t withdraw stETH until after Shanghai, they can earn staking rewards in the form of fees once The Merge is complete.
3. “The Merge Will Shut Down or Interrupt Ethereum.”
Some Ethereum network participants are understandably wary that such a massive and unprecedented migration to a new chain will cause the network to stall or shut down, or that data may be lost. But after conducting multiple test runs, most recently the Goerli testnet, Ethereum developers and most observers are confident that The Merge will be fairly seamless. After the successful completion of the Goerli Merge on August 10, 2022, Ethereum core developers aimed for a mainnet activation of The Merge around September 13th. The Merge will take place primarily through two hard-forks known as Bellatrix and Paris.
After Bellatrix, the Beacon Chain will constantly monitor the Ethereum mainnet and track the network’s total hashrate. As the hashrate of Ethereum grows, the network will inch closer to a total terminal difficulty threshold also known as the TTD. An approximate TTD value of 58750000000000000000000 was proposed after the Goerli Merge succeeded, and this milestone will activate the second hard fork of the Mainnet Merge called Paris. Given current hashrate projections, it is expected that a TTD value of 58750000000000000000000 will be reached on the network about ten days after Bellatrix. No history will be lost; when the Mainnet merges with the Beacon Chain, it will also bring the entire transaction history of Ethereum.
What Benefits Will The Merge Bring?
It’s understandable that some misconceptions have become widespread. The good news: while some benefits of The Merge have been overstated or misreported, there are still plenty of genuinely tangible ones.
The Merge will make Ethereum less energy intensive; it’s predicted that the move to PoS will reduce Ethereum’s energy usage by 99.5%. The network will become more decentralized which improves security, and more users can participate in earning rewards and validating transactions. The monetary policy of Ethereum will change as issuance of new Ethereum will slow dramatically; Ethereum should eventually become deflationary. Misconceptions aside, there’s plenty to look forward to with The Merge, and BitGo is here to help walk you through the process.
To learn more about how BitGo is supporting The Merge for our clients, read our blog and connect with us.
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