The Merge
There’s already a lot being written and said about the upcoming Ehereum upgrade dubbed “The Merge”, so I will give you here just the key points and advancements that you need to know about.
By 15th September, Ethereum is about to get a whole lot more efficient. As you’re probably aware, Ethereum has been experiencing scalability issues since 2017 and this is holding back its development. However, the team have been working on something called sharding which will bring about a 900% increase in throughput. This means that all transactions can be processed simultaneously instead of taking place in sequence as they do now. The switch to Proof of Stake (PoS) will also help improve efficiency when it comes into play later this year and there’s even a lesser known, but very instrument factor that will kick-in with the upgrade that will make Ether a deflationary token.
Breaking Down The Specifics
The Merge will mark the completion of the second of three phases in Ethereum’s transition to PoS. The process began in December 2020 with the launch of the Beacon Chain. The Sept. 15 event is a significant milestone for Ethereum, but the Merge only means a change of mining consensus. Key benefits such as high transaction capacity, lower gas fees and a reduction in energy consumption will come after the completion of the third phase.
The switch to Proof of Stake will be the biggest change to the Ethereum network.
Proof of Stake (PoS) functions differently to PoW: instead of miners spending time and money on computing power to solve complex problems, validators have their capital locked up as stake in order to participate in block validation. The more you stake on your own node, the greater chance you have at being selected as an eligible validator for mining blocks. PoS gives token holders (who become stakers) voting power which increases their chances of generating new blocks and receiving rewards from them.
Then there’s the Sharding – this is a way to split up the burden of processing ezpzd transactions so that more transactions can be processed faster. As we all know, if you were to send someone a transaction with Ethereum right now, they would have to wait hours or even days before they could see that transaction in their wallet. With sharding, this wait time will be significantly reduced because your transaction will not compete with everyone else’s for space on one blockchain—it’ll just go through one part of the network at a time.
Sharding will bring about a 900% increase in throughput
The Ethereum community has been exploring the idea of sharding, which would split the network into multiple partitions. Each partition will have its own transaction history and consensus mechanism, but all partitions will share a common set of validators.
Each partition will process transactions in parallel with one another and be able to work on different blocks at once. This means that if you have 50 shards working on individual blocks, then your throughput increases by 50x compared to having just 1 shard processing all transactions in series (the current model).
The main benefit is that if you have x number of shards, then your overall throughput increases by x%. In other words: with 4 shards we can add 400% more transactions per second; with 20 shards we’ll get 8x more transactions per second!
Ethereum Becomes Deflationary
Deflationary tokens are a type of cryptocurrency or digital asset whose supply decreases over time. The supply of these assets is fixed, and the total number of tokens in circulation goes down over time as more people use them. Since there’s less money in the open market at any given moment, deflationary tokens can be more valuable than non-deflationary ones.
With the changes in the Ethereum protocol, we will see a lower rate of issuance of new ETH and at the same time, we already have a burning mechanism in place – this was introduced back in 2021 with the London hard fork. Every transaction on the Ethereum network incurs a fee – a portion of this fee is now being burned, thus reducing the circulating supply of Ether and while we don’t have a hard cap on the maximum supply (meaning we can mine ETH indefinitely), the changes that are coming with the latest upgrade will make Ethereum deflationary because we will see more ETH being burned than new ETH being produced, thus effectively reducing the current and the future supply of the token. This is surely going to be a catalyst for the market value of Ether.
These are all the key points, summarised and laid out in a simple language. If you liked this read, make sure to follow this blog and leave a comment below.
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