Summary

The Ethereum mainnet is about to move from a proof-of-work to a proof-of-stake consensus mechanism through an upgrade called a "merge." Merge is part of a series of major upgrades in the Ethereum ecosystem, along with Surge, Verge, Purge and Splurge. The purpose of multiple upgrades is to improve Ethereum’s scalability and energy efficiency. The merger, which combines the Ethereum mainnet with the Proof-of-Stake beacon chain, is expected to take place in September 2022.

Introduction

Since its inception in 2015, Ethereum has become a popular The decentralized computing platform has taken its place in the blockchain industry, with thousands of projects created on its blockchain. While Ethereum remains one of the dominant blockchains, the current infrastructure cannot scale to meet growing global demand. To address the lack of scalability, the Ethereum team has proposed a series of upgrades that will promote the development of the Ethereum blockchain. Upgrades are divided into beacon chain, merge, Surge, Verge, Purge and Splurge.

Why does Ethereum need to upgrade?

Blockchains are usually designed with the core principle of decentralization rather than relying on a central authority. The advantage of decentralized blockchain is that it does not require permission, is trustless, can effectively resist single points of failure, and is more secure.

As blockchain becomes increasingly popular, major platforms must ensure that they can meet the global demand for transaction processing speed, that is, scalability need. If it cannot be satisfied, the blockchain capacity will be covered by the large number of pending transactions, causing network congestion. Typically, this will result in higher transaction fees.

However, if the blockchain hopes to maintain its decentralized nature, it will be difficult to achieve security and scalability. This problem can be explained by the concept of the scalability trilemma proposed by Vitalik Buterin. The blockchain trilemma refers to the difficulty in balancing the three important attributes of scalability, security and decentralization.

Vitalik Buterin believes that the Ethereum network uses a proof-of-work consensus mechanism and therefore cannot meet scalability standards before the merger. Proof-of-work blockchains tend to be more difficult to scale for a variety of reasons. First, there is a limited number of transactions that can be verified in a single block. Secondly, blocks must be mined at a constant speed.

For example, Bitcoin is designed to produce a block every 10 minutes on average, based on the mining difficulty automatically adjusted by the protocol. Although Bitcoin is designed to be highly secure, as demand increases, block time factors combined with transaction limits per block will still lead to network congestion. This often results in significant increases in transaction fees and confirmation times.

In order to overcome the limitations of proof of work, the Ethereum team proposed a solution called "Ethereum 2.0" (ETH 2.0) Series upgrade.

Ethereum upgrade: focus on the overall situation

Ethereum 2.0 upgrade includes There are beacon chains (already implemented), merges (to be implemented soon), Surge, Verge, Purge and Splurge, etc. After all upgrades are deployed, the new Ethereum blockchain is expected to achieve improvements in scalability, security, and sustainability while maintaining decentralization.

Beacon chain

The Beacon Chain, previously known as "Phase 0," marks the first of major upgrades to Ethereum. The chain went live on December 1, 2020, introducing proof of stake into the Ethereum ecosystem. Users can interact with the beacon chain in two ways: staking ETH or running a consensus client to ensure network security. The Beacon Chain currently runs in parallel with the Ethereum mainnet.

Merge

Merge It is the next important step for Ethereum to solve the scalability problem. In short, the merger will integrate two existing independent chains in the Ethereum ecosystem: the execution layer and the consensus layer (beacon chain).

The Ethereum mainnet will be merged into a proof-of-stake system coordinated by the Beacon Chain in September 2022. After the merger, the network security of the ecosystem will be fully guaranteed by the proof-of-stake mechanism.

Consensus mechanism

Once the merger is completed, Ethereum’s proof-of-work will be replaced by a proof-of-stake consensus mechanism. No mining is required, blocks will be minted (forged) by nodes called "validators". The network will periodically randomly designate a single node to verify candidate blocks. Validators who complete the task will receive transaction fee tips and staking rewards. Nodes do not need to compete with each other to add new blocks, so Proof of Stake takes up far less resources than Proof of Work, making it more sustainable.

Mainnet Transaction

Currently, the Beacon Chain only handles a subset of network transactions. After the merger, consensus will be mainly completed on the beacon chain.

"After the merger, the Beacon Chain will be the consensus engine for all network data, including execution layer transactions and account balance." -Ethereum.org

Tokens

Ethereum’s transaction history will be merged into the beacon chain, while Ethereum (ETH) will remain intact. The merged ETH funds can still be used, and ETH token users do not need to take any action to deal with the upgrade.

The token issuance system under the current mode issues roughly 13,000 ETH every day for mining and staking rewards. After the merger is implemented, mining rewards will no longer be provided, and the new ETH issuance of daily staking rewards will be reduced to approximately 1,600.

What are the follow-ups after the merger?

Official announcements about other Ethereum upgrades have not yet been made, but Surge, Verge, Purge and Splurge will follow. After the merger, sharding is inevitable and is planned to be launched in 2023, with the specific time to be determined.

Fragmentation

Ethereum will use sharding to increase throughput, thereby improving scalability and hopefully reducing transaction costs and time. Sharding introduces shard chains that are similar to regular blockchains, but each shard chain only contains a portion of the blockchain data. Thanks to the specific subset of data provided by the sharded chain, nodes can verify transactions more efficiently.

A sharded scaling solution takes a lot of time and effort to implement. However, if it goes well, it will be a landmark breakthrough in blockchain scalability, allowing Ethereum to enhance data storage and access.

The sharding process is divided into multiple stages. Sharding chain version 1 provides more data to the network, and version 2 stores and Execute code. Cross-communication will be enabled between the two versions.

As for other upgrades, the plan has not yet been finalized. In a tweet, Vitalik Buterin made it clear that the above upgrades can run in parallel with the merger and should not be regarded as a subsequent stage of the merger. Dear readers, please continue to subscribe to Binance Blog and Binance Academy. We will continue to bring you the latest updates on the merger and subsequent upgrades of Ethereum.

Why are there so many options for scaling solutions?

Ethereum is fully prepared for the future and will bear the heavy transaction load for the subsequent large-scale application popularization. . The more solution options there are, the more likely it is that congestion across the network will be alleviated. Additionally, multiple options prevent single points of failure if a single scaling solution falls short. Equipping multiple scaling solutions not only lays the foundation for improving transaction speed and throughput, but also helps users avoid high transaction fees.

The impact of the merger on ETH

As the most prestigious second-generation blockchain One of the projects, Ethereum, had an initial supply of 72 million ether coins (ETH) when it came out. Under the original proof-of-work model, a large portion of the token supply was used to incentivize miners and ensure network security.

After switching to proof of stake, mining rewards will no longer be issued. As a result, the net decrease in ETH issued each year is around 90%. As long as the laws of supply and demand come into play, lower supply will cause the price of ETH to rise. However, financial markets are dynamic, volatile and will be affected by many other factors.

The impact of the merger on BETH

BETH is pledged in Binance A tokenized version of Ethereum (ETH). After the merger is implemented, miners will no longer be able to earn proof-of-work rewards, and validators will receive staking rewards, as well as transaction fees that would have been provided to miners before the merger. In addition, validators will receive a portion of the Maximum Extractable Value (MEV) reward after the merger. After BETH adopts this concept, the annual interest rate should increase. As a result, the annual percentage rate (APR) is expected to rise significantly.

The impact of the merger on Binance users and products

For ETH token holders and Binance users, the vast majority of Binance products will not be affected. It’s just that ETH will be removed from Binance’s mining service, and ETH borrowing, deposit and withdrawal services will be suspended.

To learn about the merger, ETH holders please read the blog article "What will happen to Ethereum after the integration?" 》.

Summary

The merger is the second in a series of major upgrades to the Ethereum network, primarily to implement new scaling solutions and improve scalability. After completing all the above upgrades, Ethereum will be able to bear more transaction load without compromising security and decentralization.

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