As we near the date of the Ethereum merger, users have been speculating about what this will mean for projects and the broader ecosystem. Some argue the merger will have little impact on gas fees and believe transaction speeds could improve.
In general, however, most regular users won’t notice much of a change. The real changes for average users will not be visible until the sharding mechanism is rolled out six months later.
The merger will reduce energy consumption and increase security
The merge is a planned update to the Ethereum network scheduled for September 15th. It will shift transaction validation from Proof-of-Work (PoW) to Proof-of-Stake (PoS). PoS has been part of Ethereum’s plans for many years, but it has taken some time to develop the required level of technical sophistication. It means a transition from miners responsible for validating blocks to the plugged owners of ETH.
Related: How sharding-based blockchains could process more transactions than Visa
This will have several large and significant long-term consequences. First, it means a huge reduction in Ethereum’s power consumption (up to 99.9%). Although PoW is a very effective means of validation, it has been shown to consume the same amounts of electricity as entire countries, which means it is very harmful to the environment.
Under PoS, validators only need to stake 32 Ether (ETH). The change also means a plus in terms of security. This is because it reduces the risk of a 51% attack (required to take over the network), which is more likely on a PoW system. With a PoS system, the risk of launching an attack is the ETH staked – as opposed to the cost of electricity with PoW – so there is an inherent penalty for failure.
While a failed PoW attack results in the loss of electricity costs, cutting a validator’s share is the PoS equivalent of a miner burning down an entire PoW server farm in one failed attack. The economic incentive drops significantly. Ultimately, the merger will also create a level playing field in economic terms.
Don’t expect better speed or lower gas fees
Despite the fact that the merger does not currently require major actions from the projects themselves. However, there is still the question of how the merge will affect the users of the projects.
Many users have certain assumptions and guesses about how the system will change after the merge. But in fact many of these assumptions are wrong.
Low impact on gas charges
The Ethereum Foundation, the organization behind the Ethereum blockchain, has claimed that the merger will have little impact on gas fees. This means gas fees will remain relatively high depending on demand and supply of computing power.
Ethereum Average Transaction Fee YTD. Source: BitInfoCharts
Improved speed
Claims that transaction speeds will be improved have been repeatedly denied by Ethereum Core developers. They argue that it depends on the app using the blockchain, not the chain itself.
High NFT fees
To create a new non-fungible token (NFT) on the Ethereum network, you need to pay a transaction fee. However, switching from Ethereum’s current PoW consensus algorithm to its upcoming PoS system will not impact NFT minting fees.
Rewards from staking
Those who have wagered their cryptocurrency will find that the rewards remain locked. These will be locked until the Shanghai upgrade, which is the next major post-merger upgrade. When this happens, new ETH accumulates on the Beacon Chain and remains locked for at least six to 12 months.
In general, regular users won’t notice much of a change, but there are a few points to keep in mind.
ETH price is likely to increase
The price of ETH is expected to increase immediately after the merger, partly due to predictions following Goerli’s success and a potential system to hedge the risk. But the notion that this will burn ETH fees is flat out a myth. Instead, unburned fees and execution-level tips are sent to stakers. Validators receive 30% of transaction fees.
Related: Ethereum merge on track as Goerli test merge completes successfully
Commissions remain the same and withdrawals are not instant
Much has been said about how the merger will change commissions, fees and withdrawals. However, these things are unlikely to happen until the next phase of the network’s transformation. Many of these benefits will materialize as Ethereum proceeds to the next sharding upgrade step. Then the commissions should drop. Similarly, users can withdraw merged ETH at this point (a matter that has sparked significant speculation).
Becoming a validator can lead to errors or blockchain out-of-sync
For users who want to become validators, there is a chance of errors and blockchain out-of-sync. The best thing you can do is take care of updating customers and looking for specific risks related to the changes in consensus. However, most aspects are performed automatically.
What does it look like to be “ready” for the merger?
While the merge was designed to have minimal impact on smart contract and decentralized application developers, there are a few small things developers should be aware of. Basically, the merge brings with it changes in consensus, which also include changes related to:
- block structure
- Slot/Block timing
- Opcode Changes
- Sources of on-chain randomness
- Safe head concept
- Completed Blocks.
Therefore, if your app or service relies on reading the block structure, you must update it. Any app that reads the state of the blockchain, like a central exchange, needs to update its nodes. The project’s “readiness” for the merge actually means that the changes that occur during the merge should not affect the project’s customers in any way. However, the specifics of each project are unique. If the process goes smoothly, decentralized apps and services should not be affected, although Ethereum has never undergone a comparable update in the past.
The next phase of the process
Users will see significant changes following upgrades planned after the merger, most notably the Shanghai Hard Fork, which will allow withdrawing staked funds and increase scalability. And in 2023, the sharding mechanism will be deployed. Sharding will increase Ethereum’s bandwidth even more and likely reduce network costs as well.
The merger holds great promise for the future, but it’s just one step in a long process. Users need to understand this in order to reap the benefits and be prepared.
Sviatoslav Dorofeyev is the CEO of TheWatch and a crypto enthusiast with more than 15 years of product development experience. He has launched and led products in multiple areas including OTT/IPTV, gaming, travel (OTT), e-commerce and fintech. Previously, he was Chief Product Owner at one of the largest banks in Eastern Europe.
The opinions expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph. This article is for general informational purposes and should not be construed as legal or investment advice.
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