The Ethereum Merge, planned for September 15, is touted as the biggest event in the crypto ecosystem this year.
Ethereum’s process of validating crypto transactions will shift from an energy-intensive proof-of-work (PoW) mechanism to energy efficient validation process proof-of-stake (PoS) after the Merge. This process of validation is done to verify and secure the network. The Merge will also instantly cut 99% of Ethereum’s carbon emissions, according to the Ethereum Foundation.
So, what exactly is the Merge? What are its implications for the customer and the crypto world? What are the benefits, misconceptions, and risks involved? Let us decode it here.
What is the ETH Merge?
Presently, Ethereum uses the proof-of-work mechanism to validate transactions. Merge is Ethereum’s shift from PoW or the adoption of the PoS mechanism. This shift was planned at the inception of the blockchain in 2014 itself.
Merge: The gains
The Merge is part of ‘Ether 2.0,’ a series of upgrades intended to reshape the blockchain’s foundations.
The Merge is expected to reduce energy consumption by 99.95%. This should enable mass adoption by various organisations and enterprises who have concerns about the environmental effects of mining.
The Merge, however, will result in a net drop in annual issuance of about 90% annually as the rewards to miners under PoW will no longer exist.
Additionally, variation in block time (time needed to verify transactions) will lessen to some extent. After the Merge, the blocks will be divided into 12–13 seconds each instead of a fixed slot of 13 seconds, resulting in faster transaction confirmations.
Merge: what may not be affected?
Gas fees: While the Merge will change the consensus mechanism; it will not increase the capacity of the Ethereum network and hence, will not result in decreased gas fees (fees required to execute transactions).
Withdrawal of Staked ETH: ETH staking is a method that involves engaging your crypto asset to support the blockchain network to confirm transactions and earn rewards on it.
After the Merge, this staked ETH cannot be withdrawn. Validators will only be permitted to withdraw their stake and incentives after the next major upgrade following the Merge. This is done to prevent validators from withdrawing all their stakes.
During the transition, the present Ethereum mainnet will continue to run normally. Therefore, any problems during the integration could cause the entire network to go down temporarily and will have to be restarted, which may lead to brief panic in the market with price fluctuations.
In the worst case, if the restart does not happen during the Merge owing to any issues, the blockchain might have to be forked. This is effectively the reverse of merging, which would imply that the Merge was unsuccessful.
The mining community is unhappy about the transition as Ethereum moves from Proof-of-Work to Proof-of-Stake. In a PoW system, the miners carry out the validation, whereas, in a PoS, staked ETH is used to carry out the validation. To continue mining, the miners have stated that they are working on a hard fork in the current network.
This implies that there might be two distinct blockchains, each with its own protocols, tokens, and digital assets: Proof-of-Stake (ETH) and Proof-of-Work (ETHW).
If two versions of the chain continue to exist, it may lead to something called replay attacks since the forked version’s future ledger might not be identical to the PoS chain. For instance, if you own a Bored Ape NFT in a universe where two versions of ETH exist, this means that you will have the digital asset in both chains. If you decide to sell the NFT in one chain and forget about the other, this could lead to a replay attack if someone decides to replicate your transaction in the other chain.
What to do as an investor before the merge?
You essentially do not have to do anything if you have invested in ETH or any other ERC20 token, regardless of the exchange, DeFi initiatives, or wallets where your tokens are stored. However, it would be a good idea to move your NFTs to a cold wallet.
An ERC20 token is a standard used for creating and issuing smart contracts on the Ethereum blockchain.
What to do after the Merge?
There is nothing to worry about unless you intend to work with the forked version of ETH (ETHW), in which case the connection to wallet assets must be severed between both chains to avoid the potential of a replay attack.
To avoid replay attacks, we advise not dealing with the forked chain, especially if you hold NFTs.
Surge, Verge, Purge, Splurge
The Ethereum network will go through five phases, starting with the Merge and continuing with Surge, Verge, Purge, and Splurge: the key parts of Ethereum’s scaling, cleanup, and evolution.
Giottus’ approach to Merge
Giottus’ Ethereum wallets will support the switch to the new Proof of Stake (PoS) chain as the consensus layer.
In order to ensure that all wallets operate without a hitch after the switch to PoS consensus, we have been actively preparing for the impending Merge. For your Giottus wallets, keys, ETH, or tokens, nothing actually changes.
Support for our customers
Giottus has a devoted customer service team to guarantee that consumers are attended to. Our team will open a brief maintenance window on the Merge date to make sure the Merge runs smoothly throughout our system, and we will be closely watching post-merge for any potential problems. Once the window has ended and business has resumed, as usual, we will be notifying our customers.
During the window, you can still receive transactions on-chain and build transactions, but they may not be published to the network until the window ends. All transactions coming from our platform are shielded from replay attacks.
The Ethereum Merge is one of the biggest advancements in the cryptocurrency and blockchain realm that is expected to run smoothly. The Ethereum network will become more resilient because of this change and the token price is also expected to grow because of the annual issuance being reduced and the staking rewards being increased.
Hopefully, the Merge will mark an end to the crypto winter and possibly have beneficial ripple effects in the crypto environment!
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We are available to support our customers navigate through this transition period. Please send an email to email@example.com to get in touch with our team for further information on how we can support your safe and secure participation in the Ethereum network.