Something called “the Merge” is happening this week, and it might be the most important thing to happen to the idea of decentralized currencies since the advent of Bitcoin. If all goes as smoothly as planned, the long-delayed Merge will commence at 1 a.m. Thursday morning and take just 12 minutes to complete. [Update, Sept. 15, 2022, at 10:07 a.m.: It’s happened! The Merge kicked off at 2:43 a.m. and completed after 15 minutes, with the price of Ethereum’s native token staying stable throughout.]
With the “Merge,” the Ethereum blockchain network is supposed to finish moving over to the virtual ledger known as the Beacon Chain. This will fulfill a years-old promise from the No. 2 cryptocurrency’s developers to its users—and forever change the way most major crypto exchanges operate. The claims about the project, formerly known as Ethereum 2.0, are numerous and lofty: The merge will purportedly make crypto way more environmentally friendly (it’s currently very energy-intensive), speed up transactions and make them cheaper (they’re currently very slow and costly), boost a recovery for the sector following this year’s crash, open up Ethereum to even more users, and disprove the critics who say the entire cryptocurrency economy is a scam.
Ethereum debuted as a currency in 2015, and the plans for what would become the Merge have been in the works since 2018. It’s gone through multiple stages (or “forks”), and as crypto has gained popularity more broadly, the Merge has evolved from a niche interest to an urgent tech milestone, garnering mainstream coverage and skepticism. (It even has a Google countdown!) But what does that even mean? Why does this event mean so much to the cryptoverse? Why should the rest of us care? What’s “proof of work”? What’s “proof of stake”? Who’s that Vitalik guy? Here are your answers, in one centralized place.
Oh gee, another crypto thing?
Yeah, sorry. What helps in this case is that the “the Merge” describes something very literal: One blockchain application will merge with another. Beacon Chain is a crypto-mining system, or “layer,” that Ethereum engineers developed in 2020; Ethereum already has its own layer, called Execution. What the Merge will do is officially converge Beacon Chain with Ethereum, replacing Execution as the core layer.
But … why?
Something important to know about Ethereum is that it’s used and trusted by many key crypto and metaverse players. It was co-founded back in 2013 by programmer Vitalik Buterin, a longtime crypto enthusiast who also helped launch the first serious crypto-focused magazine and gained early financial support for Ethereum from Silicon Valley kingmaker Peter Thiel. (However, during this year’s Bitcoin 2022 conference, Thiel railed against Ethereum and claimed it was the “extreme opposite” of his beloved Bitcoin.)
Buterin conceived Ethereum as a blockchain network that would have far more uses outside of just mining cryptocurrency, as with blockchain Bitcoin operates on. Ethereum does have its own currency, the megapopular coin Ether (or ETH), but its tech also hosts video games, prediction markets, and most of the NFTs in circulation. The blocks on Ethereum can hold more than just coins—they can represent levels and items for a certain game, certificates for membership in an online organization, or a drawing of an ape.
Yet Ethereum was similar to the Bitcoin blockchain in one big, controversial way: Tokens were mined on its platform through a “proof of work” mechanism. As I’ve written on previously, under proof of work, crypto miners run their computers to solve complex, algorithmically generated puzzles in order to record new entries on the blockchain; the winner of each puzzle is rewarded with new coins. The really important thing to know is: Every time coins are traded on the platform between users, transactions have to be converted into a block entry and validated by all the miners in the network. To maxis, the benefit of this system is that it’s “decentralized” in its control—as opposed to a central banking system governed by a few bureaucrats—and the collective buy-in supposedly ensures Bitcoin won’t undergo the same economic tribulations that rock fiat currency.
But, as you may have guessed, proof of work uses a ton of computing energy and is the primary reason crypto is so widely recognized as a climate disaster. Bitcoin’s energy use alone was bad enough, and when you also added in all the coins and NFTs and miscellany mined on Ethereum using a Bitcoin-style system, well, you’ve got quite the hefty footprint—like, entire countries’ worth.
Sorry, what does this have to do with a Merge?
I’m getting there! Anyway, from early on the Ethereum team sought to find an alternate mining system that didn’t anger environmentalists or government regulators. A potential solution was “proof of stake,” first used for some smaller digital currencies beginning in 2012. Basically, proof of stake avoids excessive energy use by not requiring that all users be running their processors at all times. Instead, a blockchain network may be maintained by giving more power to randomly selected “validators” within the team, experienced miners who’ve pooled a number of virtual coins into a “staking pool,” the collective worth of which backs the integrity of the network. These validators are alone trusted with confirming network transactions, so that other users don’t have to be online to give their input—and thus, don’t have to always keep their computers going. The validator can earn coins if they fulfill what’s required, but if they skip out on the job or approve a sketchy transaction, they can lose their power as well as some of the money they’ve staked in the network.
Proof of stake wasn’t originally intended as an environmental savior—rather, it was intended to help make the blockchain more accessible as well as to drive down energy costs and transaction fees. “You can verify a blockchain with a consumer laptop” through proof of stake instead of burning the hefty computing power needed for proof of work, an Ethereum Foundation researcher told Fortune. Considering how much hardware proof of work requires for operations, it’s also far more physically and spatially efficient to use proof of stake instead.
So why didn’t Ethereum use proof of stake from the beginning?
Here’s where we get some tension. A lot of early crypto adopters swear by proof of work for its security and decentralized nature—the block puzzles are really difficult to crack, and the all-member validation system is meant to prevent any bad actors from hijacking the system on their own. In turn, many criticize proof of stake for allegedly falling short on this front: Such a system can be easy to unilaterally control if one person earns more than half the network’s share of tokens, which gives them maximum decision-making power, and the lower number of people required for verifications reduces the number of safeguarding users and concentrates more power into a given validator’s keyboard fingers. For this reason, several Bitcoiners dismiss proof of stake, and they have no plans to do any Merges of their own. Plus, bigger currencies like Dogecoin stuck to proof of work, so for Ethereum to continue to thrive in the space, it had to play by the big doges’ rules.
And then it changed its mind.
Ethereum’s coders have wanted to figure out proof of stake for a while. Four years ago, the network’s developers laid out a roadmap for implementing a new version of their blockchain: Ethereum 2.0. In four phases from 2019 through 2021, the network would divest from proof of work and incorporate something new: constructing its own proof of work mining system, attaching it as a parallel structure to its own network, melding it into Ethereum altogether, and then making fixes and adjustments from there as needed.
The timeline kept getting delayed, causing observers to doubt this would ever come to fruition. It was only by December 2020 that Ethereum completed the first step, Phase 0, by building the Beacon Chain. The impending Merge, Phase 1, kept getting teased and delayed, teased and delayed. At a certain point, it became a meme among the crypto-aware. Finally, last month, Ethereum developers offered Sept. 6 through Sept. 15 as the final deadline for the Merge’s emergence.
Why did it take so long?
Ethereum is planning on a rather forceful way to push its users off the proof of work layer onto the Beacon Chain. It’s been coding a “difficulty bomb,” a program that will make it harder for users to mine ETH coins on Execution unless they connect their devices to Beacon Chain. But taking such a drastic step has implications for the broader crypto economy: If the timing is off and Ethereum detonates the bomb before the Merge is absolutely ready to go, its entire network could collapse, and a lot of people would lose money along with their favorite ape pictures. So the developers really want to get this one right, understandably: According to the Binance exchange (which uses Ethereum to distribute certain tokens), Ethereum will suspend all transactions one hour before the Merge, in order to minimize risk of disruption.
So, what’s been happening so far this month? And what’s next?
On Sept. 6, Ethereum installed its “Bellatrix” upgrade, which prepares Beacon Chain’s technology to combine with the broader network. The next step is for developers to unlock the entire Ethereum network by solving all its mined blocks; processors are currently running to reach that goal, and are expected to hit it sometime this week. Once that’s done, Ethereum will merge Execution with Beacon Chain, and it will set off the bomb in Execution, tentatively forcing all its users to Beacon Chain. Easy!
Yeah, it’s quite the rich lore.
Is there anyone who just, like, hates this idea?
Plenty! Bitcoin devotees like the alleged tax evader Michael Saylor say proof of work mining is fine on its own and doesn’t need an alternative. (They’re also probably listening to analysts who think the Merge could fuel further plunges in Bitcoin’s price by leading investors and regulators to be far more bearish on proof of work.) But even some non-Bitcoiners are skeptical: Lars Seier Christensen, who runs a proof of stake blockchain called Concordium, told the Financial Times that the issues with Ethereum have less to do with the mining than with its networking as a whole, claiming the Merge won’t actually solve the blockchain’s slow and expensive transactions, at least not for a while. Some crypto-focused websites are already predicting something may go wrong with the Merge and are offering guides to help coin holders preserve their investments; after all, no one actually knows what Ethereum will really look like right after the Merge completes. And you should watch out for possible scams, from users offering fake ETH 2.0 tokens or asking coin holders to approve fraudulent transactions.
Weren’t Bitcoin and ETH doing badly this year? Is that going to affect the Merge?
Well, investors are literally banking on the Merge to bring some stability and user confidence back to the crypto world. The hope is that with an easier and greener mining system that will be continuously tweaked and improved over time, people will want to buy ETH coins and mine NFTs and play ledger-based games again, driving up the value of ETH and other tokens. Already, the currency has seen a little bit of a rebound this month as the Merge has kicked off (although ETH’s value is seeing some volatility as the moment approaches, no doubt thanks to the inflation-related turbulence rocking both traditional markets and other crypto coins).
So if the Merge works, will it actually “silence” all the crypto haters?
Well, as some of those voices would point out, cryptocurrency is characterized by scams, business models centered on greater-fool economics, few truly pressing real-world use cases, and, yes, energy-intensive technology. The Merge will solve one of these issues. Plenty more to go!