The Ethereum blockchain is among the most relevant in the industry with thousands of projects running on it. Due to its growing popularity globally, the blockchain infrastructure lacks scalability and it can no longer attend to its high global demand for transaction processing speed leading to congestion and high transaction fees.
To this effect, the Ethereum team decided to adopt some upgrades (ETH 2.0) to balance the three main aspects of the blockchain, decentralization, security, and scalability.
General Notes on Ethereum Upgrades
Ethereum Mainnet change its consensus mechanism from Prof of Work (PoW) to Proof of Stake (PoS). The former hardly scales due to its limited number of validation and the blocks mine at a fixed rate. But the Ethereum 2.0 is more secure, sustainable, scalable, and still decentralized. The Beacon Chain marks the first Ethereum major upgrade introducing PoS to the ETH ecosystem. It was first adopted on December 1, 2020, as Phase 0. With this Chain, users can either run a consensus to secure the protocol or stake their ETH tokens for rewards.
The Merge, therefore refers to the original Ethereum Mainnet merging with a separate proof-of-stake blockchain called the Beacon Chain, now existing as one chain. The Merge targets to solve Ethereum’s scalability issues by integrating two independent chains (the consensus-Beacon Chain and the execution layer) into its ecosystem.
In the PoS mechanism, Nodes or validators mint or forge blocks periodically instead of mining them. They are incentivized to perform their tasks with transaction fees and staking rewards. With the periodical selection, nodes do not compete before adding a new block and unlike the PoW, PoS takes fewer transactions at a time to enhance the network’s sustainability.
Impact of the ETH Merge
During its launch, Ethereum has an initial supply of 72million ether. Because of its PoW consensus, a large portion of this token was used to incentivize miners to keep the network secured. But with the Merge PoS, there will be no mining rewards and the percentage of ETH issuance will reduce. This could probably cause the ETH price to rise depending on the laws of demand and supply.
This is the token version of the ETH staked on Binance. After the Merge, the transaction fees and staking rewards formally given to miners will go to the validators. They will also receive a percentage of the Maximum Extractable Value (MEV) rewards. The entire process may increase the Annual Percentage Rate (APR) of the network.
However, the Merger will not affect ETH token holders, Binance users, and its products. Instead, it will delist ETH and halt ETH deposits, borrowing, and withdrawals. The blockchain will improve to handle more transaction loads.
Summarily, these are the important Facts You Need to Know
The Merge simply defines the intersection of the Mainnet and the Beacon chains.
The Merge has activated a transition from the energy-consuming PoW to the simpler and more efficient PoS.
The transition is more of a system upgrade than corporate based on financial flows.
Again, The Merge seeks greater adoption and a deeper network. Hence, ETH price pump may not likely happen and gas fees is not gonna reduce at least, for now.
Using the blockchain and validating transactions requires you hold and stake ETH — the reserved asset of Ethereum.
The Merge will foster better scalability, decentralization and eco-friendliness.
With its bond-like features, ETH will attract more investors to the network, which in turn, leads to the growth of the Ethereum network.
The Merge will also enable validators to earn more, but being called to validate a transaction will depend on the number of validators available.
Finally, the network’s infrastructure will make it convenient for anyone to build upon it and perhaps, this merge will stimulate many NFT developers who circumstances have forced to Solana to contemplate migrating back to Ethereum.
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