In September 2022, Ethereum changed to Proof of Stake from the Proof of Work system. The crypto industry is closely watching the Ethereum “merge,” a highly anticipated upgrade expected to be completed around Thursday, September 15. In this article, we will explain what is The Merge: Ethereum Change to Proof of Stake and what is Proof of Stake.
The Merge: Ethereum Change to Proof of Stake
According to the technical definition of the Ethereum Foundation, a merger represents the combination of Ethereum's existing execution layer (the mainnet we use today) and its new proof-of-stake consensus layer beacon chain. It removes the need for energy-intensive mining and instead uses staked ETH to secure the network.
The switch will transfer the entire blockchain to new proof-of-stake validating nodes, which need to be staked or locked to join the 32 ether (ETH). For investors, Ethereum will remain the same and the operation of Ethereum-based applications should not change. During the merger, users may not be able to transfer Ethereum-based assets.
Since its inception, Ethereum has been protected by a proof-of-work (PoW) consensus mechanism that requires hardware processing power to solve complex mathematical equations in a competitive process to mine the next block in the Ethereum blockchain. The transition to proof-of-stake (PoS) will eliminate the need for mining nodes to compete for block rewards, instead requiring node operators to stake 32 ether (ETH) as collateral to become network validators for rewards.
What is Proof of Stake?
Since cryptocurrencies are decentralized and not controlled by financial institutions, they need a way to verify transactions. One method used by many cryptocurrencies is Proof of Stake (PoS).
Decentralization is at the heart of blockchain technology and cryptocurrencies. There is no central gatekeeper to manage transactions and data records on the blockchain. Instead, the network relies on a large number of participants to validate incoming transactions and add them to the chain as new blocks.
Proof of stake is a cryptocurrency consensus mechanism used to process transactions and create new blocks in the blockchain. A consensus mechanism is a method of validating distributed database entries and keeping the database secure. In the case of cryptocurrencies, the database is called the blockchain - so the consensus mechanism protects the blockchain.
What happens after the merge?
After the merge, subsequent upgrades will increase the capacity and speed of the network by introducing "shard chains". These will expand the network to 64 blockchains. Merging needs to happen first because these shard chains rely on staking. The Ethereum Foundation noted that the The need for scaling via sharded chains has been offset by layer 2 scaling solutions like Optimism and Arbitrum.
Hopefully, now you know about The Merge: Ethereum Change to Proof of Stake, and what is Proof of Stake. Looking forward to the new era of ETH. This will not be the final update for the next phase of Ethereum. Sharding and other updates will continue to roll out.
