The Ethereum Mainnet’s merge with the Beacon Chain, formerly known as ETH 2.0, is set to complete on September 15, 2022. More specifically, the Paris update will be triggered by a specific Total Difficulty Threshold (called the Terminal Total Difficulty, or “TTD”), completing the rollout following last week’s Bellatrix update. This marks the end of a two-year transition from a “Proof-of-Work” (PoW) to a “Proof-of-Stake” (PoS) model.
If you’ve been involved with cryptocurrency, you’re probably most familiar with the Proof-of-Work model as it is the original consensus mechanism. Proof-of-Work blockchains require large amounts of processing power, typically handled by “miners”. Ethereum miners are hosts in a decentralized network that race to solve cryptographic equations to publish blocks and secure the Ethereum Mainnet. If a miner solves the equation the fastest, it gets a reward in the form of a predetermined amount of newly-minted ETH.
The major advantage of the Proof-of-Work model is that as a cryptocurrency becomes more popular, more miners are spun up to reap the mining rewards and the infrastructure fleet grows to create a more robust and secure blockchain. Requiring extensive computational abilities to verify transactions also prevents tampering from individual malicious actors, as the cost outweighs the benefits.
However, this resource-intensive approach has a greater negative environmental impact as transaction quantity increases. In order to participate in a Proof-of-Work blockchain as a consensus mechanism, expending expensive computing capabilities is required.
To combat the inefficiencies of Proof-of-Work, the Proof-of-Stake model was introduced. This approach aimed to optimize transaction verification and create a blockchain that operates in a more energy-efficient manner. Miners are now replaced with “validators” that stake their own tokens as collateral for the possibility to update Ethereum’s state. Ethereum validators that stake at least 32 ETH are randomly selected to publish blocks. The more staked ETH a validator has, the higher the probability it will be selected and expending expensive computational power is no longer necessary.
The competition to validate transactions lies in the amount of cryptocurrency staked on the validator, rather than the speed of transaction validation, resulting in far less duplicate effort and resources used. The staked ETH barrier-to-entry also incentivizes participants to secure the platform.
To improve scalability, the merge will set the stage for “sharding”. Nodes on the Ethereum network store the entire state of the blockchain. As the network grows exponentially, the consensus performance only does so linearly. Sharding will allocate transactions to specific “shards”, or cohorts of nodes, in order to parallelize transaction processing and increase throughput.
The merge introduces a far more efficient consensus mechanism for Ethereum as it will reduce Ethereum's energy consumption by ~99.95% . Without the need for energy-intensive mining, staked ETH will create a far more scalable, secure, and sustainable blockchain.