What Are The Risks Of The Ethereum Merge?
The Ethereum consensus layer completed its merge from the known Ethereum 2.0 to the original blockchain (execution layer) on September 15th 2022.
The main objective of the Merge was actualized as the network transition from a Proof-of-Work (PoW) mechanism to a Proof-of-Stake (PoS) mechanism, thereby decreasing energy consumption on the network by 99.95%.
Technically, the merge was a fusion of the original Proof-of-Work layer of Ethereum with the new Proof-of-Stake(PoS) layer .
Given the affirmations of the Ethereum co-founder, Vitalik Buterin, the Ethereum merge depicts about 55% of the evolutions in the Ethereum network. Other development stages that will occur after the merge include; the surge, the verge, the purge and the splurge.
The utmost priority is to make the network more secure, sustainable, scalable and decentralized.
Since the merge transitioned the Ethereum from PoW to PoS, the necessity for PoW has been exterminated on the network, giving room for Ethereum staking to secure the network .
By staking, ETH holders can earn rewards from their staked ETH by providing computational power to validate transactions and secure the network.
However, this was the major role of the ETH miners but since the merge happened, the Ethereum stakers validate all transactions on the network instead of miners.
Another major influence of the move to a PoS mechanism is the deflationary status of ETH caused by the decreased issuance of ETH as rewards to validators as a form of rewards for their work in preserving the network.
The Ethereum staking mechanism does not have a withdrawal feature yet, therefore billions of staked ETH are trapped in the network until a withdrawal feature is added by the Ethereum developers.
The Ethereum merge seems to have improved the network mechanism but could their any more risks following this great transition?
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How Does The New Proof-of-Stake Mechanism Work?
To run a validator node on the Ethereum PoS network, such a validator must first deposit 32 ETH into a smart contract. The funds are locked up in the system and serve as collateral in case the validator decides to put up some despicable acts.
Once the funds are successfully deposited and locked up, the validator is eligible to start staking.
Aside from running a validator node, there are many other ways to stake ETH like staking through a centralized exchange, delegate staking using a staking service provider or joining a staking pool.
In the new Ethereum network, all new blocks produced by the network are verified by the validator.
The validator carries out the transactions in the block and confirms the legitimacy through its signature.
He will send a vote or attestation for that block across the entire network.
Block timing in PoS is given by the tempo which is fixed into slots (12 seconds) and epochs (32 seconds), unlike mining difficulty which is used in the PoW mechanism.
At random, a validator is selected to propose block for each slot, he also creates a new block and delivers it to other nodes in the network.
Implication Of Ethereum Merge For Ethereum Miners
Since the birth of the Ethereum network, its original execution layer or Mainnet has banked on the PoW mechanism, giving miners the power to validate blockchain transactions. The merge and transition to the Ethereum PoS layer or Beacon Chain use validators and builders to verify and validate transactions.
The level of ability a validator or builder has to select or validate blocks depends on the amount of cryptocurrency they own.
However, in accordance to make the Ethereum network a sustainable, scalable and decentralised network, the Merge combined these two layers and fully adopted the PoS mechanism.
This is not great news to the miners because validators now have better odds of preserving the network and earning rewards from it.
The Merge disincentivized miners from validating transactions and earning rewards because the hash rate dropped to zero.
Before now, the network holds about 95% GPU hashing power which enabled miners to earn rewards from validating transactions.
Since the hash rate has dropped, it means the network is using little power to add and verify transactions on the blockchain. This can only mean one thing for the Ethereum network, the miners on the network have switched to other PoW-based networks that can benefit them.
Will The Merge Change The Ethereum Network?
The Merge will not change the Ethereum network entirely but there are significant changes in how the network operates and processes transactions.
Users who have ETH in their wallets do not have to alter or update anything in their wallets because of the merge.
The wallets are still intact and the ETH in them still have the same value and quantity.
All the data history of the network is still secure despite the Merge.
The Merge does not affect users as much as it does node operators, developers and miners.
The Risks Of The Ethereum Merge
One of the major criticisms of the Merge is the likelihood of centralization. The network rewards validators according to the volume of their staked ETH which gives them a high position and makes them valuable.
This may cause the wealthy to take full control of the stake and have an inappropriate influence on the network.
About 64% of the network’s stake is controlled by some big organizations that can collude and support a particular chain in the event of a controversial fork, thereby censoring transactions or double spending funds.
Another risk in the Merge is that scammers will take advantage of the development to trick users into doing some wallet upgrade. Victims may click on some malicious links or download malicious software that will steal their ETH in the guise of official updates.
Lastly, some miners may decide to continue mining on the old PoW network, especially after they have incurred huge electricity and hardware expenses which they need to cover.
This will cause a division which will have two versions of the Ethereum network running at the same time.
The Ethereum Merge was r breakthrough in the Ethereum network since its inception.
The Merge has changed the PoW mechanism which relegated the transaction validation power to miners alone to a PoS mechanism which encourages ETH staking and rewards validators based on their staked ETH.
However, while the Merge has ensured reduced energy consumption, increased scalability and sustainability, the flaws credited to this new development should not be overlooked.