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In September 2022, Ethereum made the transition from a lust for power, proof of work system to an eco-friendly environment proof of stake system. This switch is known as “fusion”. Here’s what you need to know.

What is fusion?

The merger changes the way Ethereum transactions are validated. Previously, Ethereum functioned as Bitcoin: transactions were operated by a decentralized network of computers, which raced to solve mathematical puzzles and were rewarded with new coins for doing so.

This “proof of work” The consensus mechanism, which forces computers to agree on which transactions will be added to a new block, is very energy-intensive.

With the merger, Ethereum moved to a consensus mechanism called proof of stakewhich uses much less power and should make the network 99% more energy efficientaccording to figures from the Ethereum Foundation.

Under Proof of Stake, transactions are confirmed by addresses that have staked – pledged to a smart contract—lots of ETH. Those who have staked more ETH earn proportionally higher rewards. While proof-of-stake conceptually makes the rich richer, it also doesn’t boil the oceans.

The Ethereum community has been working on the transition to proof-of-stake since the block chain launched in 2015.

The merger is part of a set of upgrades that should also make Ethereum faster and cheaper to use. Right now, Ethereum is beset by slow transaction times and high costs. At peak congestion times, a simple exchange on Uniswap for tokens worth $1 could cost you more than $50 in transaction fees.

The merger itself won’t solve high gas prices, however, it simply sets the stage for a set of upgrades that will ultimately reduce costs. These upgrades were formerly known as Ethereum 2.0but this terminology was scrapped early 2022.

What happened during the merger?

In December 2020, Ethereum launched the “beacon chain,” a proof-of-stake chain that ran alongside the main Ethereum blockchain. The beacon chain has been neutered; while users could stake ETH, the main functions of Ethereum were not enabled.

The merger flipped the backbone version of Ethereum – the part that supports transactions and smart contracts – to be part of the beacon chain. After the merger, the proof-of-work portion of Ethereum will fall and mining will be gone forever.

After the merger, you will eventually be able to run smart contracts on the Ethereum mainnet using proof-of-stake rather than proof-of-work. You will also be able to withdraw any ETH you have staked on Ethereum 2.0. However, you will not be able to do this right after the merge. You’ll have to wait for another post-merger upgrade, which according to the Ethereum Foundation, the organization that oversees the development of the Ethereum blockchain, will happen “very shortly” after the merger.

Specifically, withdrawals will open once the Shanghai Upgrade is executed. Ethereum developer Marius van der Wijden is confident that Shanghai will be implemented in 2023.

When did the merger take place?

Fusion took place September 15, 2022 at 2:45 a.m. EST. The event was triggered by the Ethereum mainnet reaching “terminal full difficulty,” a predetermined point at which ETH mining became effectively impossible, with the network automatically transitioning to the proof consensus mechanism. of attendance.

The merger itself took around 12 minutes to go into effect, with the success of the event being signaled by the network successfully proposing and approving new transaction blocks under the proof-of-stake consensus mechanism. The Ethereum network just missed out a block during transition and, after 12 minutes and 48 seconds, successfully reached finality.

During the meltdown, crypto exchanges suspended trading in ETH and Ethereum-linked tokens as a precautionary measure.

Do you need to do something?

Probably not. The merger will not change the history of Ethereum. You can always go to block explorers like Etherscan to get a full record of the Ethereum blockchain.

Of course, if you are an Ethereum miner, you will be unemployed after the merge you will have to mine somewhere else. Big mining companies have been forced to rethink their business models, while many miners are expected to switch to other proof-of-work blockchains. Some of them, like Classic Ethereum and ETHPoWare hard forks of the Ethereum blockchain.

Another thing: following the merger, the issuance of new Ethereum will decrease by around 90%. Ethereum issuance could even become deflationary if a lot of people use it.

What happens after the merger?

After the merge, subsequent upgrades will increase network capacity and speed by introducing “shard chains”. These will expand the network to 64 blockchains. Merging must occur first, as these shard chains rely on staking.

The Ethereum Foundation noted that the need for scaling via shard chains has been somewhat offset by Layer 2 scaling solutions, like Optimism and Arbitration.

Layer-2 scaling solutions temporarily transition ETH and ERC-20 tokens to another blockchain, which completes the computational work for a fraction of the cost and at a much lower price.

Eventually, shards will likely co-exist with Layer 2 technologies. The Ethereum Foundation says the need for “multiple sets of shard chains” will be measured by the Ethereum community, but could provide “endless scalability.”

Editor’s note: This article was first published on April 13, 2022 and last updated on September 15.

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