Ethereum 2.0 Merge

Region: Europe
Sep 9, 2022, 8:35:41 AM Published By Wirex Team

The Ethereum Merge is set to be a significant milestone in crypto’s history, and in the long-term, could impact the crypto industry as a whole. But what is the Merge, and how will it affect users?

What is the Ethereum Merge?

The ‘Ethereum Merge’ is the term used to refer to the Ethereum network’s shift from a proof-of-work (POW) to proof-of-stake (POS) consensus model.

It’s been discussed for years and will go live sometime between the 13th and 15th of September.

In case you don’t know what POW and POS are, it’s essentially how miners/validators create the next block of transactions on the network, for which they are rewarded with transaction fees and newly minted ETH. The current POW mechanism involves Ethereum miners competing against each other to solve cryptographic puzzles and create new blocks of transactions. In the new system, those that stake 32 Ethers in the network are randomly selected to create those blocks, with those staking higher amounts being more likely to be selected.

The Bitcoin network currently uses POW too, and both have had issues as they’ve grown and become more popular, causing congestion on the network, high gas fees and slow transaction times, and been criticized for being incredibly energy-intensive.

The main, long-term goal of this change is that POS will solve these challenges by offering:

  • Greater scalability opportunities
  • Faster transactions
  • Better security – harder to attack the network
  • More environmentally-friendly - the Ethereum Foundation argues that POS will slash Ethereum’s energy usage by around 99.95%

How will it affect the Ethereum network?

There will not be any changes to tokens on the Ethereum blockchain such as contract addresses etc., so users holding ETH today will not need to claim new tokens or change their existing tokens in anyway. Once the Merge has happened, users will be able to continue using the network as normal.

Although it’s been created to address the congestion on the network, initially, Ethereum fees are not expected to decrease, nor transaction speeds significantly increase, although further updates in 2023 may address this.

How will it affect Layer 2 Networks?

Layer 2 networks such as Polygon, Matic and Optimism were built on top of the Ethereum network to address issues with the existing blockchain using a POW mechanism. They aimed to offer faster and cheaper transactions. As more adoption of blockchain technology occurs, Layer 2 networks will help to fill the needs as a scaling solution.

Is this a Hard Fork?

The Merge itself is not a hard fork and is a convergence of the chain’s consensus model to POS. There’s been discussion of a continuation of the previous POW consensus model led by the POW Ethereum community forking the Ethereum blockchain. This would result in a new block chain ID similar to the fork of Ethereum/Ethereum Classic.

Will there be any changes for Wirex Customers?

During the period immediately before and immediately after the Merge all Ethereum blockchain activities, as well as operations on Layer 2 chains whose Layer 1 network is Ethereum, will be suspended. This means users will not be able to send, receive, or spend ETH-based tokens. We expect this pause to last for a period for 2-4 hours in total. Normal operations will be restored after the Merge is complete.

List of halted Blockchains during the merge:

  • Ethereum
  • Polygon
  • Arbitrum

Users can check changes at Wirex’s status page.

Given the likely occurrence of a hard fork, due to the POW Ethereum Community’s desire to continue building around a POW consensus model, Wirex will evaluate support for the forked blockchains; however, it is Wirex’s sole discretion to decide whether to support any new forked blockchains.