The merge looks to address current challenges faced by Ethereum by significantly reducing the amount of energy required to maintain the network and paving the way for further upgrades.
Since its mainnet went live back in July 2015, Ethereum has been secured by proof-of-work.
However, this was not the long-term plan — proof-of-work's energy consumption meant that an eventual switch to proof-of-stake was a key part of the project's roadmap.
Proof-of-work is a consensus mechanism that sees a network of miners compete to mine the next block by solving hashing challenges. The first miner that successfully finds the block hash is then able to fill the block with transactions before adding it to the blockchain — broadcasting the updated state to the rest of the network and earning a reward for their work.
This process is known to be incredibly secure, but also extremely energy intensive. According to a recent estimate by the Ethereum team, the network currently has a power consumption of ~112 TWh/year, which is roughly twice that of the country Switzerland.
This energy use has seen Ethereum draw a great deal of flack from critics, many of whom argue that Ethereum is bad for the environment and that it cannot blossom until this limitation has been resolved.
The merge looks to address this challenge by significantly reducing the amount of energy required to maintain the network and paving the way for further upgrades — in other words, it's the long-awaited switch to proof-of-stake.
What Is ‘The Merge’?
The merge will see Ethereum move away from proof-of-work to a more energy-efficient alternative known as proof-of-stake. This will completely eliminate the need for an extensive network of power-hungry miners as block production is instead taken over by validator nodes.
Read: Ethereum Proof-of-Work (PoW) vs Ethereum Proof-of-Stake (PoS)
Practically, this entails "merging" the proof-of-stake Beacon Chain with the pre-existing Ethereum execution layer. The existing proof-of-work system will be replaced.
Image courtesy: Ethereum
Rather than expending computational resources to crunch cryptographic equations as part of the mining process, validators are instead randomly selected to propose the next block. The selected validator receives the block reward, as well as any tips provided by users (priority fees), included with their transactions.
These validators need to stake at least 32 ETH to participate in the block production process. Should they act dishonestly, they can have up to 100% of their stake slashed and be ejected from the network.
By moving to proof-of-stake, Ethereum’s energy usage will be cut by around 99.95%, bringing it in line with other proof-of-stake blockchains. Besides this, not much else will change. Neither Ethereum’s transaction fees nor its throughput will improve directly post-merge.
The merge is currently scheduled to take place on Sept. 15, 2022. We have a live countdown for the event to help you keep tabs.
Can Competing Layer 1s Survive?
Despite popular belief, Ethereum’s upcoming merge event won’t lead to a significant change in the user experience. The network won’t see a major speed increase nor will its capabilities change appreciably. In fact, most end-users won’t even notice that anything has changed at all.
Instead, the merge can be considered a simple efficiency upgrade. By decreasing Ethereum’s energy burden while maintaining (or potentially improving) its security, it helps to make Ethereum more attractive to builders, developers, and institutions while making it less of a target for regulatory crackdowns.
Currently, there are dozens of other layer 1 smart contract platforms, each of which attempts to compete with Ethereum for users, developers and funding resources. Most of these platforms claim to provide either technological or ideological advantages over Ethereum.
In most cases, alternative layer 1s compete with Ethereum in terms of scalability, throughput and/or fee economy. By being faster and/or cheaper than Ethereum, these platforms hope to power the next generation of mass-adopted decentralized applications (DApps) and services.
Following the merge, most other popular layer 1s will still exceed Ethereum in terms of maximum supported transactions per second (tps).
As per research from Kaiko, both Cardano and Solana will still dramatically exceed Ethereum’s maximum throughput. Platforms like Avalanche, BNB Chain and Polygon also compare favorably to Ethereum in terms of throughput — ranging from 300 to 4,500 maximum tps. That said, few L1s actually max out their bandwidth, due to limited demand for block space. So this technical advantage may be moot in some cases.
It isn’t just throughput that separates Ethereum from other popular L1s. Most of these also compare favorably in terms of fees — that is, the cost of transacting and performing smart contract operations. As it stands, most other popular smart contract platforms have fees at least ten times lower than that of Ethereum, making them far cheaper for both users and developers.
* Figures correct as of Aug. 31, 2022.
Besides this, each of these platforms has its own ecosystem of products and services, many of which are tailored to their unique community demographics. Though Ethereum still has by far the largest and most diverse landscape of DApps, developers still opt to build on other platforms for various reasons — potentially including better access to financing, ease of use, developer resources and technical advantages.
Overall, practically every layer 1 will maintain its primary unique selling points (USPs) over Ethereum post-merge.
These include:
Ethereum Classic stands out as the obvious exception among layer 1 platforms. Despite once being Ethereum’s biggest rival, Ethereum Classic may further struggle against Ethereum in the coming months since it will not be completing a merge of its own.
That said, a chunk of Ethereum’s current miners will likely transition to Ethereum Classic post-merge, potentially breathing some new life into the struggling Ethereum relative.
What Comes Next?
The merge is the first in a series of planned upgrades for the Ethereum network. Later upgrades will see Ethereum begin to differentiate itself clearly from other smart contract platforms.
According to a recent presentation by Ethereum Co-Founder, Vitalik Buterin, Ethereum’s post-merge development roadmap can be separated into four main eras:
- Surge: Addition of sharded chains, dramatically increasing Ethereum’s maximum tps.
- Verge: The introduction of "Verkle Trees," helping to optimize on-chain storage and make running a node more accessible.
- Purge: The removal of historical data to reduce state bloat and network congestion.
- Splurge: A range of miscellaneous improvements and extras that will help improve security, privacy, accessibility and general capabilities.
Ethereum will be “55% complete once we finish the Merge,” said Vitalik Buterin during his presentation at EthCC 5.
As Ethereum progresses through its extensive roadmap, some of the advantages offered by Ethereum’s competitors may prove to be temporary — particularly for L1s that don’t have an ambitious development roadmap of their own.
This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators. This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. The views and opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those of CoinMarketCap. CoinMarketCap is not responsible for the success or authenticity of any project, we aim to act as a neutral informational resource for end-users.
