What The Merge Means

Ali Yahya

The Merge – the major Ethereum upgrade that happened early Thursday morning – will go down as one of the most important moments in the history of open source. It’s hard to think of a cooler example of a community of hundreds of developers across many organizations driving years of open-ended research and hard technical development.

Many people don’t realize: Transitioning Ethereum to “proof-of-stake” (PoS) – an alternative to “proof-of-work” (PoW) mining for reaching consensus on blocks of transactions – was an insane feat. The update involved hot-swapping the most important component of Ethereum’s architecture – its consensus mechanism – *while it was running*. All this occurred while maintaining perfect uptime for millions of users, thousands of decentralized applications (dapps), and hundreds of billions of dollars secured.

I believe Ethereum is a far superior blockchain now than it was before. Why? Let’s review some of the advantages.

  • Energy efficiency

Post-Merge, Ethereum is now 100x+ more energy-efficient than it was before. Participating in consensus no longer expends the enormous amount of electricity that PoW does. After The Merge, energy usage of ETH will be comparable to the datacenters of web2.

  • Security

Every blockchain has to pay for its own security (via token rewards to validators). The security budget of a PoW blockchain has to cover miners’ cost of electricity, plus margin. Because “stakers” – the validators in PoS – require a lower rate of return than the 100% miners normally extract in PoW, PoS is much more efficient. In Ethereum now, $1 of the budget goes ~20x as far.

Further, PoW has limited ability to punish attackers to the system. That’s because most of their assets are off-chain in the form of mining rigs. PoS has direct access to each validator’s “stake”, the funds, or skin-in-the-game, that validators deposit to secure the network. That allows PoS incentives to be far more granular, further increasing security.

  • Fairness and decentralization

PoW mining is subject to economies of scale. The biggest miners have an advantage over smaller players who, as a result, often can’t participate. PoS doesn’t have that challenge – anyone with 32 ETH can now participate as a validator on Ethereum.

  • Finality

A transaction on a PoW blockchain is never truly final. Finality is probabilistic, so there’s always some chance that transactions get rolled back. On a PoS blockchain, transactions that go through consensus are final.

Transaction finality on Ethereum will lay the groundwork for future work that will improve Ethereum’s ability to scale (via “layer 2” solutions such as rollups), connect to other blockchains (via cross-chain bridges), and build better abstractions for developers that are easier to use and reason about.

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The Merge is a big deal. It’s an important step forward for crypto and web3. It brings us closer to a world that benefits from an efficient and secure layer for decentralized computation that can support the applications we all want to build.

There is so much that happened behind the scenes leading up to this moment.

Listen to our web3 with a16z podcast with Ethereum core contributor Tim Beiko to learn more! 

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