Will The Merge reduce gas fee and speed up transactions? Let’s find out!
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The Merge is coming. The most complex and large-scale upgrade of Ethereum, which ranks 2nd in market capitalization with the largest ecosystem, will definitely become a milestone in the history of cryptocurrency and the most noteworthy events in the entire crypto circle in 2022.
I. What is the Merge?
There are two main points of the transition of the Ethereum network’s consensus mechanism from PoW to PoS, the Beacon Chain and The Merge.
- Beacon Chain
The Beacon Chain is a ledger of accounts that conducts and coordinates the network of stakers, which supports users becoming verifiers of the network by pledging at least 32 ETH tokens.
It was officially launched on December 1, 2020 and has been running steadily for over 20 months.
Prior to The Merger, the Beacon Chain operates as a consensus layer but is not actually adopted, and the state of the execution layer is still maintained by the POW mining nodes.
- The Merge
The Merge represents the joining of the existing execution layer of Ethereum (the Mainnet we use today) with its new proof-of-stake consensus layer, the Beacon Chain. It eliminates the need for energy-intensive mining and instead secures the network using staked ETH. A truly exciting step in realizing the Ethereum vision — more scalability, security, and sustainability.
Source from: https://ethereum.org/en/upgrades/merge/
To understand the difficulty and complexity of The Merge, the official gives a good metaphor. Imagine the Ethereum as a spaceship, and the Beacon Chain as a new engine, and it’s time to merge this new engine into this spaceship.
However, the spaceship is in a state of high-speed flight, so it’s not possible to make it pause and replace the engine, but to replace it during its high-speed operation, that’s why The Merge faces great difficulties and has been delayed repeatedly.
Note: You can check the Merge timeline on this website: https://wenmerge.com/
Currently, it has already finished the merge on Kiln, Ropsten and Sepolia. and the expected time of Goerli and Mainnet is August 11 and September 9 respectively, which may still be delayed for some time.
II. What effect will The Merge bring?
First, let’s clear some things up about The Merge.
The Merge will not:
- Reduce gas fees (i.e transaction costs)
- Speed up transactions.
The gas fee is related to the demand and capacity of the whole network. The Merge is only a switch of consensus mechanism, from POW to POS, where there is no expansion, so the gas fee will not reduce.
Regarding the transaction speed, it takes about 13.3 seconds for a new block on POW, and 12 seconds on POS, which is not a significant change.
The Merge will, however:
- Reduce issuance rates of Ethereum tokens
- Change ETH into an interest-bearing asset with an APY of 10%
- Reduce the energy consumed by 99.95%
- Reduce issuance rates of Ethereum tokens
According to the official statistics: https://ethereum.org/en/upgrades/merge/issuance/#how-the-merge-impacts-ETH-supply
Mining rewards ~13,000 ETH/day pre-merge
Staking rewards ~1,600 ETH/day pre-merge
After The Merge, only the ~1,600 ETH per day will remain, dropping total new ETH issuance by ~90%
2. Change ETH into an interest-bearing asset with an APY of 10%
Validator rewards includes issuance, tips and MEV estimate. Issuance is the new block rewards, tip is the transaction tip paid by the user, and MEV is the additional profit harvested by the transaction sort.
According to the data from https://ultrasound.money/,
We can learn that the APY is about 9%, and it’s possible to reach 10% in the future given that the data is dynamic correlated with the number of Ethereum pledged and the level of activity in the Ethereum network transactions.
3. Reduce the energy consumed by 99.95%
POW is essentially a competition for arithmetic power, which has increasingly high demands on machines and power. According to previous data from Cambridge University, the Bitcoin network consumes about 121.36 billion kWh of electricity a year, more than Argentina, the Netherlands, and the United Arab Emirates consume in an entire year.
One of the many criticisms of cryptocurrency from outsiders is also its energy consumption, which is considered to be environmentally unfriendly.
The official claims that The Merge will reduce Ethereum’s energy consumption by about 99.95%.
The price of Ethereum has been relatively volatile in the past month or two, which stems from the speculation of market funds on expectations. Prices in the investment market are unpredictable, and the crypto market is characterized by high volatility and high risk.
This article is just to introduce The Merge from the perspective of popular science, with no intention of providing any investment advice.
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