what exactly do people mean by fusion?
eth2, ethereum 2.0, eth 2.0… the project has been called by many names in the past, but earlier this year the ethereum community settled on “fusion”.
Simply put, the merger is a long-planned ethereum upgrade aimed at improving the network. such updates are common, but this is the biggest to date, and its success will pave the way for developers to introduce a host of new features to the network.
Reading: Bitcoin and ethereum merger
The merger, well, will merge the current ethereum mainnet, or the main public ethereum blockchain used by everyone, with something called a beacon chain. currently, both strings exist in parallel. but only the ethereum mainnet, which currently uses a mechanism called proof of work, is processing transactions.
once the merger is complete, the ethereum mainnet will stop using proof-of-work and instead adopt the beacon chain proof-of-stake mechanism.
what is proof of stake?
Proof of stake (pos) is a type of consensus mechanism that differs from the traditional proof of work (pow).
a consensus, what?
A consensus mechanism describes how ethereum, or other blockchains, determine the legitimacy of transactions posted on their network. this is how a blockchain governs itself.
ethereum can be viewed as a distributed database of nodes, or computers that run software to verify blocks and the transaction data within them. In order to reach consensus on the network and make a decision, a majority of nodes must agree, and the choice of consensus mechanism determines how they do so.
so how does proof of stake work?
Once ethereum switches to a post-merger proof-of-stake consensus mechanism, the network will rely on trusted entities known as validators to verify transactions and add new blocks to the blockchain. a random validator will be chosen each time a new block is added, which will happen approximately every 12 seconds after the merge.
Anyone can apply to be a validator by depositing 32 ethereum (about $61,000 in mid-August prices), a sum intended to ensure participants have a stake in the success of the network, and running updated software.
As the ethereum foundation explains, potential validators will be added to an “activation queue that limits the rate of new validators joining the network.” once a validator is “activated”, it will be eligible to review and approve new blocks that the ethereum network proposes to add to its blockchain.
In exchange for protecting the network, validators will get Ether as a reward.
While the 32 ether staked as collateral serves as a great incentive to behave appropriately, there are also punishments for validators who are incompetent or malicious. that is, they can be sanctioned with the loss of part or all of their deposit.
The merge has not happened yet, but the beacon chain already has more than 415,000 validators.
and what is proof of work?
Proof of work is another consensus mechanism that has been used by the ethereum mainnet since its genesis. other older blockchains, notably bitcoin, continue to use it.
The “work” in proof of work comes in the form of mining, where miners expend energy in the form of computing power. Although its supporters (mostly bitcoiners) love proof-of-work and say it is the most secure mechanism, the process is notoriously bad for the environment, which has been a key factor in driving the switch from ethereum to cryptocurrency. proof of participation.
why is fusion so important?
For one thing, ethereum is the most widely used blockchain and powers ether, the second largest cryptocurrency, with a market capitalization of $202 billion. Ethereum also hosts numerous decentralized applications (dapps) and decentralized finance (defi) protocols and establishes the authenticity of millions of non-fungible tokens (nfts).
This means that the outcome of the merger will affect not only the Ethereum blockchain, but a wide constellation of products and services that depend on it. And given the size and influence of Ethereum, the fate of the merger is likely to have a ripple effect on the crypto industry as a whole.
Meanwhile, the move to proof-of-stake will affect thousands of people who mine ether, many of whom have spent significant capital on the effort. most will likely resort to mining other proof-of-work coins, but the merger is likely to hurt their bottom line.
but while the merger is bad news for miners, the vast majority of the ethereum community and beyond see the end of mining as a good thing, helping both the planet and ethereum’s reputation. “Switching from proof-of-work to proof-of-stake [will] reduce ethereum’s total power consumption by 99.9% or more,” ethereum lead developer preston van loon told fortune. that’s not a joke.
Another important consequence of a successful merger will be a reduction in the emission of new aether. After the merger, Ether is likely to become “the biggest deflationary currency,” according to Lucas Outumuro, head of research at blockchain intelligence firm IntoTheBlock.
In his latest newsletter, outumuro predicts that since cryptocurrency will no longer be awarded to miners, the amount of new ether issued will drop by approximately 87%. “net eth issuance is now projected to range from -1.5% to 0.5% based on data from the last three months, compared to -4.5% to -0.5% using numbers from the first quarter to second quarter,” he wrote on August 2. 19.
This decline in issuance, in turn, means ethereum could dwarf bitcoin in market capitalization over the next 12 months, according to a report Aug. 1. 12 report from the research firm fsinsight.
Finally, the merger is considered a critical step for the overall development of ethereum. according to ethereum creator vitalik buterin, the network is now about 40% complete and, after the merger, “ethereum may become 55% complete,” he said.
Also in the ethereum roadmap there are four other phases happening in parallel which the developers call “surge, edge, purge and splurge”, all of which aim to make ethereum much faster, more secure and more decentralized. “By the end of this roadmap, ethereum will be a much more scalable system… by the end, ethereum will be able to process 100,000 transactions per second,” buterin said.
why is merger controversial?
While the majority of the ethereum community strongly supports the merger, a vocal minority denounces it as a colossal mistake. while some of this criticism is rooted in self-interest, i.e. miners concerned about losing revenue, there are also ideological concerns.
i.e. critics say proof-of-stake will make ethereum more centralized and less secure, pointing to the dominance of a few entities that own stake ether (ether deposited on the beacon chain). As data firm messari has pointed out, lido finance controls a whopping 31.2% of all ether staked on the beacon chain, while coinbase controls 14.7% and kraken 8.5%.
The large holdings of lido and others reflect the fact that they are custodians of thousands of smaller ether holders, and don’t actually own most of what they do, but fears of centralization persist nonetheless.
These concerns include the fear that validators may be treated as a target for censorship or surveillance by law enforcement. buterin himself addressed this on twitter. he noted his support for burning the bet of any validator that censors the ethereum protocol if we ask them to. regulators
“I think the ethereum community is strong enough to fight base layer censorship,” ethhub co-founder anthony sassano tweeted on August 2. 16. “Bitcoin is prone to the same censorship risks as Ethereum, no matter if it’s pos or pow.”
even coinbase CEO brian armstrong suggested 1 aug. 17, he would rather stop the crypto exchange’s staking business than comply with any potential censorship sanctions.
another concern around “mev”, maximum mineable value (formerly miner mineable value), and possible mev boost issues after the merge.
mev is the profit a miner or validator can make by selecting, excluding, or reordering transactions within blocks. mev-boost is optional software built for proof-of-stake ethereum. allows validators to sell block space to so-called block builders and outsource block production to maximize their reward, effectively outsourcing some of their validation tasks.
Although mev and mev-boost have advantages, both can also be used by bad actors maliciously. specifically, some within the ethereum community are concerned about the censorship of mev-boost “relay operators” or entities that connect validators to block constructors, among other things.
questions related to mev and mev-boost post-merge have increasingly consumed the attention of countless users on crypto twitter, to the point that they were even addressed during the most recent ethereum core dev meeting. Although the developers understand the concern, they are hopeful that mev-related issues, especially those related to censorship, are not frequent threats and remain focused on building ethereum as a censorship-free protocol.
Finally, there are other fears about proof-of-stake, notably the risk of a 51% attack, in which bad actors conspire to seize more than half of the network’s computing power and disrupt the Blockchain registration to steal tokens. but with proof of stake, an attacker would need majority ownership of ether to achieve this, and that would be incredibly expensive to obtain.
buterin itself doesn’t consider a 51% attack to be “fatal” and the ethereum community has also downplayed concern, reminding others of the ability to reduce a validator’s involvement, among other things.
will the merger lower the gas rates everyone is complaining about?
gas fees refer to the cost of conducting a transaction on the ethereum blockchain. gas fees are paid in ether (denominated in the smallest unit of ether called gwei) and often skyrocket during busy periods due to increased demand for transaction processing.
Gasoline fees are considered a big problem for ethereum users. This is not surprising since, during the busiest periods on Ethereum, gas fees can run into the hundreds of dollars, making the network unfeasible for many.
The merger will change ethereum to proof-of-stake, but will not expand network capacity. therefore, it will not affect the price of gas rates.
buterin predicts that gas rates will fall in the future. he estimates that over time, after the merger, gas fees could be as low as $0.002 to $0.05 because of digests, a technology called layer 2 that “gathers” a multitude of off-chain transactions, processes, and then writes a compressed version to the main ethereum blockchain. and as the ethereum foundation says, “the transition to proof of stake is a critical precursor to achieving this.”
any other major merge errors?
yes, there are many.
For one thing, the merger will not speed up the time it takes for ethereum to process transactions. Although the time for the creation and settlement of new blocks (or purpose) will change slightly after the merger, it will not be important enough for ethereum users to notice, says the ethereum foundation.
Another misunderstanding about the merger has to do with the time period during which investors can withdraw their staked ether after the upgrade.
Investors won’t be able to withdraw their staked ether immediately after the merger occurs, and will have to wait until the shanghai update, which is “the next major update after the merger,” says the ethereum foundation. “this means that newly issued eth, even if accumulated in the beacon chain, will remain locked and illiquid for at least six to 12 months after the merger.”
for ethereum core developer tim beiko, the biggest misconception about the merger is that it takes 32 ether to run a node, he told fortune. “you do not. running a node is free,” he said. “thirty-two ether is just needed to run a validator”, as mentioned above.
See also: Running A Full Node – Bitcoin
validators can’t change protocol rules either, beiko said. “all nodes validate protocol rules, therefore validators cannot change them on their own.”
okay so what happens technically to achieve this?
To prepare for the merge, and any other ethereum updates, developers rely on ethereum testnets (testnets) to practice running code before deploying it to a mainnet. testnets are similar enough to the ethereum mainnet that developers can run tests and look for bugs or security holes to prevent such deficiencies from affecting the main blockchain.
Prior to the upcoming merger, testnets kiln, ropsten, sepolia and more recently goerli transitioned to proof of stake as dress rehearsals for the actual event.
In addition, ethereum developers introduced a series of blockchain changes known as hard forks to pave the way for the merger, including the so-called london hard fork in 2021. london had a few purposes: it aimed to stabilize transaction fees by permanently destroying (“burning”) a portion of said fees, removing that ether from circulation. The london hard fork also delayed the so-called difficulty bomb, a mechanism meant to incentivize the network to move away from proof-of-work by exponentially increasing the difficulty level of the puzzles required for mining, causing mining to continue. be unfeasible.
After London, other forks like Arrow Glacier and Gray Glacier pushed the difficulty bomb even further and changed its parameters. there was also altair, which improved the chain of beacons.
Developers have also done 10 “shadow forks” of mainnet where they executed the merge using a small number of nodes. this was useful as the shadow fork process is minimal enough not to disrupt the mainnet, but useful enough to assess any potential issues before the big mainnet merge. As the developers continue to prepare for the merger, they plan even more hidden forks.
The mainnet merge triggering process itself is complex and involves three major steps, as christine kim, research associate at galaxy digital explains.
to kick it all off, an update called bellatrix, named after a star and not the harry potter villain, will happen first and kick things off. will prepare the beacon chain for the merge. The network should then reach a final Terminal Total Difficulty (ttd) value, which represents the potential difficulty level for mining, once the bellatrix update is complete. nodes will watch it, and once reached, it will indicate the final step, called the paris update. paris will remove the dependency on proof-of-work and mining difficulty by, among other things, preparing the network for beacon chaining and proof-of-stake.
given the complexity of all this, the process will definitely not happen overnight. ethereum devs predict there will be a 14 day window between bellatrix and the mainnet meltdown.
how could things go wrong?
Many things can go wrong and it is difficult to predict, despite years of testing and preparation.
Ultimately, the merger is far from a success and various issues may arise, such as mishaps with customers or the software that verifies transactions and application failures, among others, which are so complex that they can be difficult to plan. bad actors could also try to sabotage the process.
but ethereum developers and engineers are working to be prepared for any potential issues and claim to be prepared.
Do I need to do something with my ether?
not. be very careful with anyone who tells you otherwise.
as the ethereum foundation says:
“as a user or holder of eth or any other digital asset on ethereum, as well as non-node operating participants, you do not need to do anything with your funds or wallet before the merger.
“Any funds you had in your wallet before the merger will still be accessible after the merger. no action is required to update on your part.
“As we get closer to the Ethereum mainnet merger, you should be on the lookout for scams trying to take advantage of users during this transition.”
Some people who aren’t happy with the merger may try to branch out and create their own projects and variations of ethereum, but none of it will ever be ethereum.
for example, a cohort of miners are planning a post-merger ethereum hard fork to create what they call “ethpow”, in an attempt to continue a proof-of-work chain and retain their revenue. but even though this project sounds like eth, and somehow includes ethereum in its name, it is not correlated to ethereum and will have its own token and apps if it succeeds.
do we merge?
Ethereum developers are targeting the week of September 1st. 15 for the merge, with ttd set to 5875000000000000000000.
However, many factors can change that time frame. ethereum devs made it clear that time is an estimate and nothing has been finalized yet.
but it’s safe to say that ethereum is closer than ever to proof of stake. as artist jonathan mann sings after every successful merge test on every developer call, ethereum won’t resist the “urge, the urge to merge”.