ViaBTC | Ethereum Up by 90% in 30 Days: What Are the Impacts of the Merge?

Ethereum has impressed the crypto market with its stunning performance recently. Affected by the overall market factors, as well as the bullish factors brought by the Merge, the ETH rebounded after hitting rock bottom, going from the $880 low price point last month to $1,700 today, an increase of over 90%.

As the ETH price went up, the proportion of Ethereum’s market cap to the entire crypto market cap has risen from 14.88% to 18.47%. Considering the leading position of Ethereum in the crypto space, the Merge is good news for the whole market.

As we all know, before the Merge is completed, Ethereum, like Bitcoin, will still use the PoW consensus mechanism, which is subject to obvious flaws. For instance, it can only process a small number of transactions at the same time, and the GAS fees are also expensive. During peak hours, the GAS fee required for a single transfer could reach hundreds of dollars. Meanwhile, the electricity cost of maintaining a PoW-based blockchain network is also high. As such, PoW has often been criticized. To facilitate the advancement and mass adoption of blockchain technologies, Ethereum has launched the Merge.

How will Ethereum mining be different before and after the Merge? What’s the latest progress of the Merge? And how will the Merge affect Ethereum miners? With these questions in mind, let’s now dive into Ethereum and the Merge.

I. How does Ethereum mining work?

Before the Merge, the mining process of Ethereum is almost identical to that of Bitcoin because they both use PoW. ETH is generated through mining, during which miners use computers to calculate the answer to a function problem until someone finds the correct answer and wins the right to package the block. In addition, this miner who solved the math problem first will also get the corresponding ETH reward.

However, instead of the Bitcoin algorithm, Ethereum uses Ethash, which is subject to the performance constraint of the memory’s reading speed, rather than the CPU’s computing speed. Affected by this limit, ASIC miners have lost their advantages, which avoids, to a certain extent, the monopoly of mining machines in the case of Bitcoin.

After it successfully shifts to PoS, the network will offer ETH rewards through stake mining, which differs from PoW-based mining. Under the PoW framework, mining requires a significant amount of upfront expenditure. Miners build economies of scale with powerful hardware and electricity consumption, which makes mining increasingly centralized. Moreover, with PoW, mining requires no collateral, which means that it has little power when it comes to punishing attackers.

In contrast, the transition to PoS will make Ethereum more secure and decentralized: the higher the number of users involved in the network, the more decentralized and less vulnerable it would become.

II. What the Merge is mostly about

1. The PoS consensus mechanism

One of the most fundamental changes brought by the Merge is that Ethereum will shift from PoW to PoS. Under the PoS consensus, users must deposit at least 32 ETH into the system if they wish to become validators. Then, the network will randomly select validators from the validator pool, and the selected validator will have the opportunity to generate the next block and receive ETH rewards.

Apart from block rewards, validators could also be punished if they stay offline for a long period or even maliciously hinder the normal generation of blocks. Such reward & punishment mechanisms ensure, to an extent, the safe block generation of Ethereum.

2. Sharding

During this upgrade, sharding is another major change. Sharding changes the blockchain structure of Ethereum so that a single node only needs to store part of the data of the entire network and process part of the transactions. This allows for parallel processing, thereby increasing the number of transactions the network can handle. In other words, sharding will boost Ethereum’s TPS.

III. The latest progress

The Ethereum upgrade now remains at the Merge stage, and Vitalik Buterin said that the Merge has been completed by 90%. According to public information, the most likely time window for the implementation of the Merge is from late September to early October.

On Consensus-layer Call 91 #566, which took place on the evening of July 14, the core Ethereum developers gave a specific date for the first time: the Merge is expected to be implemented on September 19. However, it should be noted that the technicians are always optimistic. The Merge has been delayed multiple times in the past, and it could be delayed once again. Therefore, the specific implementation date of the Merge remains uncertain, and we will have to wait and see.

IV. The impact on miners

It has been seven years since the first Ethereum block was generated in July 2015, and the Merge will have certain impacts on Ethereum miners.

However, as the Merge approaches, Ethereum miners are not as anxious as we imagined. They are still full of confidence in the future of mining. Many Ethereum miners don’t believe the Merge can be implemented as scheduled, and some of them even conservatively estimate that “ETH mining can continue for another year.”

The uncertainty of the specific date of the Merge is also one of the factors that are keeping them confident. In addition, many miners argue that even if the Merge is completed, the PoW mining of Ethereum will not stop immediately. They believe that PoW mining will still be in place for a long time. That is to say, PoS and PoW will coexist.

Feeling that ETH holds better prospects than other PoW coins, some Ethereum miners are willing to fight to the last minute. Plus, they would not become “jobless” even if no ETH can be mined via PoW. For example, ASIC miners could then be used to mine ETC, which shares the same origin as Ethereum’s hash algorithm.

For miners running GPU mining machines, there are many options available. To begin with, they can choose to keep mining other PoW coins, such as ETC, ZEC, and DCR. Secondly, their GPUs can also provide services such as high-performance computation and rendering for Web 3 middleware protocols. For instance, Hut 8 will open its data center and become a node operator/provider serving Web 3 protocols like the Render Network.

In a nutshell, thanks to the market expectations for the Merge and the overall market rebound, ETH has recorded stunning growth in the past month, which attracted plenty of funds. The Merge will not only deal a huge blow to the Ethereum ecosystem but will also drive the mass adoption of blockchain technologies. For retail ETH investors, mining and hoarding more ETH in the present bear market is a good call.