Users are speculating about the implications of Ethereum’s Merge for projects and the larger ecosystem as we near the date. Some believe the Merge will not have any impact on gas prices, while others think transaction speeds may improve.
Most users won’t notice any significant changes, however. Six months after the introduction of the sharding mechanism, average users will notice real changes.
The Merge will decrease energy consumption and increase security
The Merge is an update to Ethereum’s network that will be taking place in September. It will change transaction validation from proof of work (PoW), to proof-of stake (PoS). Although PoS was an integral part of Ethereum’s plans over many years, the technical sophistication required to implement it has taken some time. This means that miners will no longer be responsible for validating blocks but instead the staked owners and holders of ETH.
Similar: How Sharding Based Blockchains Could Handle Greater Transactions Than Visa
It will have many significant and long-term effects. It will result in a significant reduction of the electricity consumed by Ethereum ( up to 99.9%). Although PoW can be a very effective way to validate, it has been proven to consume the same amount of electricity as whole nations, which is extremely harmful to the environment.
Validators need only stake 32 Ether under PoS ( Ethereum). This will result in an increase of security. It decreases the risk of a 51% attack (required for taking over the network), which is less likely with a PoW system. PoS systems have a higher risk of an attack than PoW systems. This is because the staked ETH is more likely to be attacked.
While a PoW attack fails results in electricity costs being lost, the PoS equivalent to a miner destroying an entire PoW server farm is slashing validator’s stake. This reduces the economic incentive. The Merge will eventually level the economic playing field.
Expect lower gas prices and faster speeds, but not better.
The Merge doesn’t require a lot of action from projects at the moment. The question remains, however, as to how the Merge will impact the users of these projects.
Many users have certain assumptions and ideas about the future of the system after the Merge. Many of these assumptions are incorrect.
Very little impact on gas prices
The Ethereum Foundation , which is the organization that developed the Ethereum blockchain, has stated that the Merge will not have any impact on gas prices. Gas fees will continue to be high depending on the supply and demand for computation power.
Ethereum average transaction fee YTD. Source: BitInfoCharts
Speed Improvement
Ethereum core developers have repeatedly refuted the claim that transaction speeds will improve. It depends on the app using the blockchain, not the chain.
High NFT charges
A transaction fee will be required to create a nonfungible token (NFT), on the Ethereum network. NFT minting fees won’t be affected by the switch from Ethereum’s PoW consensus algorithm (current PoW) to its upcoming PoS.
Reward for taking
The rewards for those who have staked crypto will be locked. These rewards will remain locked until the Shanghai upgrade. This is the next major upgrade after the Merge. New ETH will be added to the Beacon Chain, and locked for six to twelve months.
Most users will not notice any significant changes, but there are some things to be aware of.
It is possible that the price of Ethereum will rise
The Merge will see ETH prices rise, partly due to Goerli’s success and a possible system of hedging exposure. The idea that ETH fees would be burnt is a fabrication. Instead, stakers will receive unburned fees as well as execution-level tips. Transaction fees will be 30% paid to validators.
Related: Ethereum Merge is on track as Goerli merges successfully
Commissions will remain the same and withdrawals won’t be immediately possible
There has been much discussion about how Merge will affect commissions, fees, and withdrawals. These things will not happen before the next phase in the network’s transformation. Many of these benefits will be realized when Ethereum moves to the next update phase of sharding. Commissions will likely drop at that point. Users will also be able withdraw merged ETH at this point (a subject that has been the subject of considerable speculation).
Become a validator to avoid bugs and non-synchronization of blockchain
Users who want to be validators must be aware of bugs and the possibility of non-synchronization. It is best to update clients regularly and to be aware of any risks related to changes in consensus. Most aspects will happen automatically.
What does it mean to “be ready” for the Merge?
The Merge is designed to have minimal impact upon smart contract and decentralized app developers. However, there are some things that devs should be aware of. The Merge includes changes to consensus that also include changes to:
- Block structure
- Timing for slot/block
- Opcode changes
- Sources for on-chain randomness
- Safe head concept
- Blocks are now finalized.
If your app or service depends on the block structure being read, you must update it. Apps that use the blockchain to determine the state of the network, such as a centralized exchange or a mobile app, will need to update their nodes. The project’s “readiness” for the Merge means that the Merge will not impact the clients. Each project is unique. The process should go smoothly and decentralized applications and services will not be affected. However, Ethereum has never experienced a similar update.
Next phase
After upgrades that will take place after the Merge, users will begin to notice significant changes, most notably, the Shanghai hard fork which will allow the withdrawal of staked money and increase scalability. In 2023, the sharding system will be implemented. Sharding will likely increase Ethereum’s bandwidth and reduce network costs.
Although the Merge has great potential for the future, it is only one step in a long journey. To reap the benefits, users must understand this and be ready.
Svyatoslav Doropeev, the CEO of TheWatch, is a crypto enthusiast who has more than 15 years experience in product development. He has led the launch and management of products in many areas including OTT/IPTV and gaming (OTT), ecommerce, fintech, and travel (OTT). He was previously the chief product owner of one of the biggest banks in Eastern Europe.
These opinions are solely the author’s and do not necessarily reflect those of Cointelegraph. This article is intended for informational purposes only and should not be construed as investment or legal advice.
