The time has come! On September 15th, Ethereum 2.0 began its final stages of launch as the consensus layer merged with the Ethereum Mainnet to create the (finally) proof of stake network. This is a big moment in history, and it took a long time to come to fruition, as this merge was originally outlined in December 2020.
But what does the merge mean for Ethereum users? Read on to learn more about the merge and what you can expect now that it has officially happened.
What is the Ethereum Merge?
For those who are confused, the Ethereum Merge is the name given to the combining of the two Ethereum blockchains. You probably didn’t notice, but over the previous two years Ethereum have been running two parallel blockchains, the one you are familiar with, as well as one that is new which runs on a proof of stake consensus mechanism.
The merge day was the date that these two blockchains would merge to become one. As is true for any software development plan, it kept getting pushed off as problems would arise that would delay the merging of the two chains. But on September 15th, 2022, this ended as the official merge took place.
The two separate blockchains were called Ethereum 1 and Ethereum 2, and now that they have merged, the blockchain is simply called Ethereum 2.0 going forward.
What Does the Ethereum Merge Mean?
There are many differences and upgrades between Ethereum 1 and Ethereum 2.0, but the main difference, which affects the majority of users is that the platform has gone from being a proof of work consensus mechanism to a proof of stake consensus mechanism.
This means that all the transactions on the Ethereum blockchain are now verified by stakers instead of miners, and that all previous Ethereum miners are now out of a job. These miners can become stakers however, as long as they have 32 ETH they can lock into a smart contract to begin.
If they don’t quite have this amount, there are staking pools that miners can join in which they contribute a portion of the 32 ETH along with other miners and split the rewards. It is currently expected that staking Ethereum has an annual yield of 4%-7%. The only drawback to either option is that, in the early days, this 32 ETH is illiquid, meaning it cannot be withdrawn from the staking pool it is in.
Although this is bad news for miners, this is great news for users of the platform as changing to a proof of stake mechanism will allow the platform to grow and scale with ease. It also means that transactions should process faster than before.
Additionally, it was said that a switch from a proof of work consensus would also make the Ethereum blockchain greener, as it would leave less of a carbon footprint.
Was the Merge a Mistake?
Many users of the Ethereum platform have been eagerly awaiting the merge for months, but now that it has happened, some are saying it was a mistake. These criticisms are coming from somewhere unexpected—the diehard fans of the coin.
The diehard fans of the coin are upset, and rightfully so, as they claim that the merge took away some of the decentralization from Ethereum, and it did. Before, while it was easy (and somewhat inexpensive) to set up an Ethereum node, you now need 32 ETH, or over $40,000 USD to do so. While the mining pools on Coinbase and other platforms seek to remedy this, the diehard believers in Ethereum point out that this leaves Ethereum widely in the hands of corporations and single rich investors.
Following these claims, it does appear that Ethereum did centralize itself overnight, because it is true, gone are the days where anyone could mine Ethereum. Instead, it has become more capitalistic in that anyone with sufficient funds can now mine the coin. (As a side note however, remember that mining Bitcoin is only for the wealthy these days as well).
But, some of the users of the coin are arguing that this isn’t all bad because the coin is now better for the environment. It’s true, it will now take less electricity to mine Ethereum, but it’s important to remember that Ethereum wasn’t the main technology harming the environment in the first place.
The environment is more affected by mining fossil fuels, driving cars, and a shift towards complete animal husbandry. If people really wanted to save the environment, they would stop all of these things before they worried about switching Ethereum to a new consensus mechanism.
That being said, as of now, it doesn’t appear that the Ethereum merge was a mistake. In time, however, the thoughts on this matter may change, especially as the barrier for entry into staking raises with the price of one ETH. While the coin is more centralized than it was before, it is still possible for anyone to stake it, meaning it is still, at its core, decentralized.
The Future of Ethereum
Even though the merge was created to solve problems, many believe it actually created new ones, namely that Ethereum can now be considered a security and there is a possibility that the US government may try to regulate it (as well as other governments around the world).
It is not clear how soon this regulation may occur, but many fans of the blockchain claim that when this happens it is game over for Ethereum, because, at that point, all the wealthy people in the US government (who already control the money supply) will also control Ethereum. Then, it will truly no longer be a decentralized currency.
In the meantime, Ethereum is still performing well both as a blockchain and from an investment standpoint. But, if you are concerned about Ethereum becoming centralized, know that there are other options out there. Many proof of work blockchains, like Bitcoin, are still around and are much further from possible government regulation.
Either way, no matter where you decide to invest your money, Ethereum is on a growth trajectory and the merge was just the first step. It will be interesting to see what it becomes in the future.