Everything You Need To Know About the Ethereum Merge: Misconceptions Debunked
Ethereum

Everything You Need To Know About the Ethereum Merge: Misconceptions Debunked

1 month ago

The Merge has set a date, following the successful Goerli testnet Merge — but there are still common misconceptions about what will happen to Ethereum post-Merge. Read on to find out.

Everything You Need To Know About the Ethereum Merge: Misconceptions Debunked

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The Ethereum mainnet will undergo a drastic change over the coming weeks. It will merge with the Beacon Chain and fully transition into a proof-of-stake (PoS) consensus mechanism, rather than the proof-of-work (PoW) one that the current mainnet uses.
Furthermore, The Merge will pave the way for crucial future network upgrades, including sharding for better scalability and reducing energy consumption.

Read: The ETH Merge Trade

As the activation of The Merge draws near following the successful implementation of PoS on the final Goerli testnet — currently slated for Sept. 15, 2022 — people have many questions regarding this crucial change to Ethereum.

More importantly, there are a few misconceptions that need to be cleared up. There is a lot to understand, yet it can be tricky to find a comprehensive answer. As such, we will explore pressing questions and debunk misconceptions about The Merge in this article, to offer clarity about this major Ethereum event.

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When Is The Merge Exactly?

At the time of writing, The Merge is scheduled to go into effect on Sept. 15, 2022. However, there is always a chance things need to be delayed slightly — the Merge itself has been delayed for years.
The Merge will go through several testnet testing phases to ensure everything works as expected. On June 8, developers completed the Merge on the Ropsten testnet — the most well-known testnet. Following that, on July 6, the testnet Merge on Sepolia went live without any major glitches.
The Goerli testnet — the third and final one — successfully saw The Merge go live on August 11. No major technical issues were reported during the Goerli Merge, much to the delight of Ethereum enthusiasts, and ETH rallied 11% as a result.

Will Ethereum Go Offline During The Merge?

Like previous network upgrades, The Merge will not result in network downtime for Ethereum. Once the network hits the required terminal total difficulty (cumulative total mining power used to validate a new block), the consensus rules will automatically switch from PoW to PoS.

Therefore, the bottom line is: Ethereum will not have any downtime during this process.

Do I Need To Do Anything as an Ethereum User?

If you are an Ethereum network user or someone who has invested in ETH, you do not need to undertake any action after The Merge.

The Merge is a protocol upgrade, but not one that impacts the users or holders directly. Keep your funds where it is today, keep using your wallet as before and maintain LP positions if you have any. None of those aspects will change or be affected once The Merge occurs.

Although the transition from PoW to PoS is a hard fork — it changes the core protocol — the entire history of Ethereum will remain intact and immutable. Funds held in your wallet before The Merge will still be there once the network upgrade completes.

There is no need to do anything but kick back, relax and watch the events unfold.

Unsurprisingly, there will be hackers and scammers trying to trick users into taking action they should not bother with. There will likely be a strong increase in phishing emails, scams and fake emails asking users to send their ETH balance or ERC20 tokens to "new and compatible ETH2 addresses." Your best course of action is to ignore all of these, as there will not be a new ETH2 token nor an ETH2 wallet standard.

What If I am a Node Operator, Staker or Developer?

The rules are slightly different for users who stake ETH by running their own node or operating node infrastructure in any way. However, these steps are straightforward, and it is worthwhile to check out the Merge Readiness Checklist to ensure all proper steps have been taken.

Steps for ETH staker running your own node:

  • Run a consensus layer client and an execution layer client to avoid no longer obtaining execution data before The Merge finishes.
  • Authenticate both clients with a shared JWT to enable secure two-way communication.
  • Set a fee recipient address to receive earned transaction fee tips.

Failure to complete the first two steps will result in nodes reporting as "offline" after The Merge, until both layers are fully synchronized and authenticated.

Steps for non-validating node operators:

  • Set up both an execution layer client and consensus layer client, which will work in tandem through the new Engine API.
  • Set up authentication between both clients through a JWT secret.

Steps for Ethereum developers:

  • Nothing specific, although The Merge will change block structure, block timing, opcode changes, disrupt sources of on-chain randomness and change the concept of safe head and finalized blocks. Developers can find more details in this blog post.

Now that we have the technical requirements out of the way, it is time to clear up some lingering misconceptions for common users and ETH holders regarding The Merge.

Do I Have To Stake 32 ETH To Run an Ethereum Node?

It appears there has been a fair bit of miscommunication regarding operating an Ethereum node after The Merge.

Pre or post-Merge, anyone is able to run a basic non-validating Ethereum network node without making any commitments to engage in ETH staking. There has never been a ETH requirement to run a node, nor will there be once The Merge passes.

Users can opt for two types of nodes:

  • Mining Node/Validator Node: The only node type capable of proposing network blocks, but it requires a resource commitment. That resource is either mining power under PoW rules, or staked ETH in PoS. These nodes earn protocol rewards for their ongoing support of the Ethereum network.
  • Traditional Node: No resource commitment, but it will operate on a computer/server connected to the internet and network 24/7. These nodes cannot propose blocks but will listen for new network blocks and verify their validity. These nodes are incredibly valuable to Ethereum and will enhance its censorship resistance and decentralized aspects.

The 32 ETH staking requirement applies only to users who aim to run a validator node under The Merge's switch to PoS. However, those who prefer to run a non-validating node have no financial commitments to worry about. Furthermore, those with less than 32 ETH can still stake by committing to staking providers or pools.

Will The Merge Lower Transaction Fees?

Contrary to what most people may think, The Merge will not alter Ethereum's gas fees. It does not expand the network capacity, nor does it provide more efficient transaction structures.

It is a change of consensus mechanism and will pave the way for future transaction fee improvements, but lower gas fees will not come courtesy of The Merge.
To understand why, you’d first have to understand how Ethereum gas fees work: they are the result of network demand versus network capacity. As the network reaches maximum capacity and demand remains high, gas fees will go up. However, lower fees may occur when demand stays the same or decreases and network capacity does not max out. The Merge does not influence this correlation, although future upgrades may offer improvements.

The switch to PoS will lay the foundation for sharding, and higher throughput. Those upgrades will not roll out anytime soon, though, as there is no official timeline for their Mainnet activation.

However, many players are building in the layer-two (L2) rollups space, with many developments that promise cheaper and faster network transactions within the Ethereum ecosystem. Read our deep dive into the promising L2 rollups such as Arbitrum, Optimism, ZkSync, StarkWare and Polygon.

Will The Merge Make Transactions Faster?

The Merge will introduce some minor changes to transactions on the Ethereum network in two ways — time to be included in the block and time to finalization. There will be a roughly 10% improvement on the time to publish a new block, but it will not be noticeable for end users.

On Ethereum PoW, blocks are produced approximately every 13.3 seconds, meanwhile on the Beacon Chain, slots occur precisely every 12 seconds — therefore blocks are produced 10% more frequently on PoS than PoW.

PoS will enable a new transaction finality concept and bundle blocks into epochs every 6.4 minutes. However, that will not speed up transactions, as the finality process will be roughly on par with how many PoW requirements blocks are needed for DApps today.

Read: What Are DApps?

Can I Withdraw Staked ETH Once the Merge Happens?

That is another misconception that may leave some users dismayed. While users have been able to engage in ETH staking on the Beacon Chain before The Merge, they will not be able to withdraw their stake once the Merge happens.

Instead, that process will be enabled in a future network upgrade, dubbed "Shanghai." The Shanghai upgrade is the first major upgrade after The Merge, although it may take 12 months or longer to be activated on the Mainnet.

Moreover, that applies to staked ETH, staking rewards and newly issued ETH balances immediately after The Merge completes. All funds will remain on the Beacon Chain and are unable to be withdrawn until the Shanghai upgrade is live.

Will Validators Receive Liquid ETH Rewards Before Shanghai?

Yes, they will receive free tips and MEV (Miner Extracted Value) in their mainnet accounts, with funds being available immediately.

The Ethereum protocol will issue ETH as a reward to validators who help establish network consensus. Those funds are locked on the Beacon Chain, where validators have unique addresses holding their rewards and staked ETH.

However, the ETH on the mainnet — when users complete transactions, cover gas fees and tip validators — is on the execution layer and not on the Beacon Chain.

Keep in mind validators will only receive these earnings if they designate a valid fee recipient address in their client software.

Will Stakers Bail Once Withdrawals Are Available?

There will be an influx of ETH liquidity once the Shanghai upgrade goes live. All stakers will be able to claim their rewards and withdraw their staked ETH if they no longer wish to support the network.

However, only a certain number of network validators can withdraw their network support. Such security measures are essential and ensure the Ethereum network will remain operational.

The Shanghai upgrade will offer an incentive to withdraw staking balances above 32 ETH by validators, as those funds will not contribute additional yield. Some may even halt their node altogether and reclaim their entire balance, or commit more funds to their staking "pot" to earn more yield.

The Ethereum protocol limits full validator exits to six per epoch or 1,350 per day. That also means validators can remove a maximum of 43,200 ETH from staking per day, with over 10 million ETH engaged in staking today. Those numbers are not set in stone, as they will vary based on the overall amount of ETH staked, but it is sufficient to prevent everyone from bailing simultaneously.

Will the Staking APR Increase After the Merge?

The Ethereum developers purposefully opt for a variable staking APR. It enables users to determine how much they want to be paid to secure the network. Should validators decide to withdraw their node, the APR may gradually increase for those who remain committed to staking.
The current APR, according to Ethereum.org, is approximately 4.1%.

It is not unlikely there will be a gradual APR increase, but one should not expect ludicrous results either. Some people project a 200% increase, but that will likely be closer to 50% or less.

Post-Merge, the APR will likely go up, and transaction fees will start flowing to validators instead of miners. Those fees are in line with network activity during the proposed block by the validator, resulting in varying income.

Keep in mind a 50% increase in APR does not mean users will earn over 50% of their staked balance in rewards. It means the current APR will increase by 50% and rise to roughly 7% or slightly lower, which is still a very appealing rate.

Is ETH2 Still A Thing?

During the early days of planning The Merge, there were rumors of "ETH2" being created. Some people interpreted this as a new network and currency, although neither of those will exist. Moreover, the Ethereum developers have stopped using the term "ETH2" as The Merge draws closer to avoid any unnecessary confusion on that front.
While it is true there is an ETH1 (the mainnet) and some term "ETH2" as the Beacon Chain, they will culminate in the Merge and become one network. That network will remain the Ethereum mainnet and it will have all the features of the Beacon Chain.

There is still a mention of Eth1 and Eth2 among developers, but that applies to the execution layer for transactions — Eth1, and the consensus layer for PoS consensus — Eth2.

Keep in mind these are not separate networks but rather two facets of the Ethereum mainnet that serve a dedicated purpose.

When Will Ethereum Enable Sharding?

The initial plan was to enable sharding ahead of the Merge, which ultimately did not prove possible.

However, Ethereum has seen various L2 scaling solutions pop up to alleviate some of its scaling concerns. That enabled the developers to prioritize the consensus change to PoS, reducing the network's energy consumption significantly.

Sharding is still part of the long-term roadmap, according to co-founder Vitalik Buterin, although they will not implement it soon.

Instead, the developers continue to look for the most optimal way to distribute stored compressed calldata from rollup contracts to enable network capacity to grow exponentially. Put simply, that translates to faster and cheaper transactions for users. The switch to PoS is necessary to continue exploring viable opportunities on that front.

Sharding is not part of the Shanghai upgrade either, meaning it will take at least 12 months before sharding will hit the Ethereum Mainnet. In reality, it will likely take two years or longer, although that timeline is always subject to change.

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