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The Ethereum Merge | ETH 2.0 Explained | Notum

By Notum

Feb 25, 20233 min read



In November 2020, Ethereum holders began transitioning to Ethereum 2.0 (eth2.0), finalized on September 15, 2022. The Ethereum merge date was widely discussed and expected back then. This was done to improve scalability, reduce transaction fees, and increase security for all Ethereum users. 

The Ethereum update became one of the most discussed subjects in the crypto community. The Merge turned out to be a highly significant event in the cryptocurrency world. 

Why Ethereum Was Updated?

The critical question regarding Ethereum 2.0 is why it is so necessary. Ethereum faced several problems with the increasing activity on the network. For example, one of the most well-known issues was its amazingly high gas fees.

Another problem is energy consumption. Yearly the Ethereum network uses about 50 - 90 TWH. The transition from one protocol to another showed astonishing results in decreased energy consumption. After the transfer was completed, the energy consumption fell by more than 99%. Undoubtedly, this significantly reduces the carbon footprint and makes the network green, an essential part of the current change.

One more detail that needed a solution was transaction speed. The more operations were there, the slower the system worked, which is unacceptable while the number of users grows with supersonic speed. Initially, Ethereum offered 25 - 30 transactions per second. However, Ethereum 2.0 should be able to process around 100,000 transactions per second.

What Are the Merge Key Points?

At the moment, Ethereum has two layers from now on: Ethereum 2.0, which is a consensus layer, and Ethereum 1.0, which is an execution layer. The object of our analysis is ETH 2. Here is an Ethereum merge explained.

The first thing that must be understood is that the new blockchain version did not appear suddenly. Initially, it started in 2020 with the launch of the Beacon Chain. This was the 0 phase of the whole network transformation. The Beacon Chain is responsible for a consensus mechanism, managing validators, including organizing validators to vote on blocks and their stakes. This is also a place from which rewards and penalties come. 

Since the Beacon Chain appeared in the picture, Ethereum users received an opportunity they'd never had before. Now they can stake ETH. 

The next stage of the update was called Altair. This update may have been unnoticed by the regular users since it was primarily about the Beacon Chain. It was meant to improve its decentralization and security. 

The last part of the updates was Bellatrix. Before this final stage, each Ethereum node had two layers: a PoW and a consensus. Thus, the Bellatrix update put those parts together into one PoS system. 

What Is the Difference Between PoS and PoW?

PoW, as its name suggests, involves miners competing to solve complicated cryptographic puzzles to validate blockchain transactions. In contrast, PoS involves validators staking their tokens to prove that they are reliable and trustworthy. PoS algorithms also allow users to earn rewards for participating in the network, whereas PoW miners must pay transaction fees. Ultimately, Merge aims to combine both consensus algorithms into one efficient system that will provide greater security and scalability without sacrificing decentralization.

Proof-of-Stake (PoS) guarantees higher speed than Proof-of-Work (POW). The amount of Ethereum transactions per second is one of the pains of merging Ethereum. After the update, the network is expected to process from 20,000 to 100,000 transactions per second.

What Happened to ETH Holders?

The most intense worries came from the ETH holders. However, they could prepare for a more substantial event. The most frequently asked question was: what will happen to my ETH?

Luckily, regular ETH users did not have to do anything special. On the other hand, the merge process required Ethereum stakers to deposit their Ethereum (ETH) tokens into a contract address to receive Ethereum 2.0 staking rewards and participate in the Ethereum 2.0 network consensus process. After completing this step, Ethereum holders can join Ethereum 2.0 and potentially earn rewards for staking their eth tokens. They will also be able to use their funds just like before. Wallets are still working in a well-known way without any changes.

The other category that was not meant to go through any difficulties at the time of the upgrade is DApps and smart contract developers.

Node operators had to adjust their work to new conditions, taking into consideration both layers of nodes until the last stage of the Merge.

The only bad news is here for miners. Since the protocol has changed, mining is impossible. To receive profit, users now have an opportunity to stake eth. 

The Bottom Line

The fact that the Merge was complete does not mean there is no space for improvement. On the contrary, the procedure prepared the Ethereum network for better future adoption by a wider audience. Even in 2021, Vitalik Buterin revealed a part of the future development plan, which had already had several stages.

The Merge attracted the close attention of investors worldwide and was one of the most amazingly anticipated events. Right after the Merge, the amount of ERC-20 tokens, which are built on top of Ethereum, soared. Unfortunately, they did not just take a number of transactions with them, but also gas fees, which did not fall as was expected. On the bright side, the new technical environment will now make it possible to optimize fees.