Summary

The Ethereum merge is part of Ethereum’s transition from a proof-of-work blockchain to a proof-of-stake blockchain. Overall, proof-of-stake has many advantages in terms of scalability and sustainability.

As Ethereum migrates to its new sharding structure, the original mainnet state will also be migrated. This means that ETH holders do not need to do anything with their tokens, and should be wary of scammers who claim that they need to “move” their tokens.

Introduction

For many ETH holders, Ethereum's long-awaited shift to a proof-of-stake consensus mechanism raises an important question: What do I need to do with my ETH? This is a good question to ask because if you don't fully understand the situation, the security of your funds may be at risk. First, we will explain to you the reasons why Ethereum is moving to proof-of-stake (PoS).

What does Ethereum’s move to Proof of Stake mean?

Since its creation, Ethereum (ETH) has used the same system as Bitcoin (BTC) to reach consensus on new blocks of transactions, namely the Proof-of-Work (PoW) consensus mechanism. This consensus mechanism allows miners to reach agreement without a centralized authority, even in the face of malicious traders working against them.

The proof-of-work mechanism was first implemented by Satoshi Nakamoto in the Bitcoin network, providing an efficient and reliable method for reaching consensus in a decentralized network. To date, the Bitcoin network has not been successfully attacked.

However, the PoW consensus mechanism has gradually lost the favor of some developers and users. The main reasons are as follows:

  1. Energy inefficiency. PoW prevents bad actors from performing large-scale attacks by increasing its energy cost. While this approach can ensure network security, staking has become a more sustainable alternative.

  2. Smart contracts are inefficient. Using smart contracts can require a lot of network interactions. These interactions must be added to blocks and confirmed to the network. PoW consensus mechanisms often involve longer block times and higher transaction fees, which generally makes interactions with smart contracts slower and more expensive.

  3. Independent mining is difficult. Since the mining field is usually dominated by a few large mining pools, it can be challenging for individuals to become miners in popular PoW systems. This can lead to the centralization of mining power, greatly weakening the competitiveness of individual miners or small mining pools.

  4. Low scalability. As a blockchain network becomes more popular, the number of pending transactions will continue to grow. Since the block size of the PoW network is limited, it can only accommodate a certain amount of transactions. Therefore, during periods of high traffic, users may have to wait for hours or even days before their transactions are added to the block for processing.

With the advent of Ethereum 2.0, the Ethereum network will migrate to the PoS consensus mechanism and eliminate the need for token mining. This move is intended to improve Ethereum's scalability and bring more benefits to users.

Why did Ethereum choose to switch to Proof of Stake?

Proof of Stake has proven to be the most popular among new blockchain networks. It has several clear advantages and leads in terms of accessibility and scalability. Proof of Stake has some disadvantages, but in most people's opinion, its disadvantages are insignificant compared to its advantages.

advantage

shortcoming

Ordinary PoS network users only need to use the network's native tokens to participate in the verification process.

Power is likely to remain concentrated around large token holders.

Lower energy consumption.

This harms profitable mining activities.

Transaction times are shorter and confirmations are faster.

Some critics argue that PoS is less secure than mechanisms that use cryptographic puzzles to reach consensus.

The advanced path of Ethereum PoS

Ethereum’s transition to PoS cannot be achieved overnight. Ethereum started the transition to the new sharding structure several years ago. This process can be divided into several stages. Please note that Ethereum officially no longer uses the stage structure, but it is still often mentioned in other media.

Launch of the Beacon Chain (Phase 0)

In Phase 0, Ethereum will launch a PoS blockchain that manages all of its shards, the Beacon Chain. Specifically, it will be responsible for organizing the validator and staking processes, creating validator committees, managing the consensus process, and running other key operations.

Introduction to Sharding Structure (Phase 1)

Phase 1 will take the single Ethereum blockchain and split it into 64 sharded blockchains. These blockchains will be managed by the beacon chain launched in Phase 0. However, over time, the merger will occur before the sharding structure is implemented, so Ethereum will focus on the merger instead.

Merge (Phase 1.5)

Phase 1.5, also known as the merge, aims to bridge the state of the Ethereum mainnet to the new proof-of-stake system. Smart contracts from the old Ethereum mainnet will be usable on the new Ethereum network, and the beacon chain will become the official organizer of block production.

Phase 2

In Phase 2, fully functional shards will create new transactions and smart contracts. Phase 2 is the final phase of the original plan, while Phase 3 will be used to solve problems after the launch of Ethereum 2.0.

What will happen to my ETH?

In short, Ethereum will keep your funds safe and you don’t have to do anything. The full Ethereum state will be automatically migrated to Ethereum 2.0. If you hold BETH because you have locked ETH in Binance’s Ethereum 2.0 staking product, you will be able to redeem it for ETH soon after the merger is completed. Vitalik mentioned that the unlocking will take place about six months after the merger is completed. BETH is a wrapped token that is exchanged 1:1 with ETH and is used to issue to users who have locked ETH on Binance. In this way, stakers get a liquid ETH-like asset that can be used while their funds are locked. Whenever users wish, they can redeem their BETH back to ETH.

Expectations from users and the Ethereum community

For many, Ethereum’s move to a PoS consensus mechanism has been highly anticipated. Since almost all new blockchains are now using PoS, Ethereum has been under tremendous pressure to catch up. The new PoS consensus mechanism brings many advantages to the Ethereum network, freeing it from its previous limitations. In addition, since PoS is more environmentally friendly, Ethereum will also eliminate its previous stigma of being energy inefficient. Overall, this helps improve the overall image of the blockchain space.

Summarize

The key thing for ETH holders to know about the Ethereum merger is that you don’t need to do anything with your ETH. So be wary of anyone who claims you need to “move” or “bridge” your ETH to the new network. Once you do this, you’ll be able to enjoy the many benefits of Ethereum’s move to proof-of-stake.