The Ethereum Merge

One of the greatest feats in crypto history just happened in September of 2022, Ethereum merged. 

The Ethereum Foundation team merged an entire blockchain. Not just any blockchain, Ethereum. A blockchain with billions of dollars in value and millions of humans as users. The second most valuable entity in crypto. Ethereum.

Source: blog.ethereum.org

But what does that mean for you? And will it help for someone to ELI5? (explain like I'm 5) to you?

Explain the Ethereum merge to me like I’m 5 years old

Proof of Work to Proof of Stake

Previously, Ethereum ran on a proof-of-work system. For a 5 year old, it means there were super powerful computers (and a lot of energy) solving super difficult math problems all over the world to make Ethereum run and to keep it secure.

Any person with one of these powerful computers could contribute to operating Ethereum. This is very different from how so much of our current system operates, with one company running all the computers themselves, but we digress.

Now, after the merge, instead of powerful computers solving problems to keep the network running, anyone can lend (stake) ETH to validators that help keep the network running.

Blockchain Validators and Stakers

By the way, validators are elected judges who process blocks (e.g. a group of transactions) on the network. A set of validators are picked based on the amount of staked ETH others have allocated to them.

This helps to diversify which validators get selected to propose the next block to the network.

When a validator successfully completes a block, they are rewarded, and that reward gets passed down to the validator and later to the stakers. 

Stakers are users who staked ETH with those validators.

Ethereum has now changed from Proof of Work to Proof of Stake and this change will cause Ethereum’s carbon consumption to fall by 99.95%.

Since it now uses dramatically less carbon to be more secure, it is significantly more ESG (Environment, Social, and Governance) compliant and could therefore receive investments from large ESG funds.

The merge will also mean less ETH will be given away as a reward to their validators - 90%+ less to be exact...ish.

Ethereum Rewards

In other words, this year averaged 13,000 ETH of rewards each day to Proof of Work miners. With Proof of Stake, those rewards will be reduced to 1,600 ETH a day. Less rewards for stakers means less Ethereum being given away which means less Ethereum potentially being sold every day. 

As of the time of this writing, there are over 300,000+ validators earning rewards via their block judgements; a significant reduction compared to the number of miners in years past.

All to say that the system has changed entirely. Less Ethereum is flooding the markets and participants are securing the network in more advanced and less carbon intensive ways.

So you’re probably wondering how the merge actually happened?

Many used the "changing the engine while in flight" analogy. They never planned to shut Ethereum down during the merge. Taking down the network for maintenance simply was not acceptable. 

Ethereum going down would mean the interconnected world computer would be going down and that certainly was not in the Ethereum ethos.

Instead, they merged to the Proof of Stake version they've been testing on the side - called a side chain - with the Proof of Work version of Ethereum.

Also side note, many ETH owners are currently lending (staking) their ETH to the Proof of Stake system. Around 10% of the total amount of ETH is currently staked.

To keep them from all un-staking and selling at once, these stakers will not be able to take out their ETH until 6-12 months after the merge. Also when that begins, they will be able to move their staked ETH in waves so they aren’t all sold on the same day.

On Thursday September 15th at 06:42:42 2022 UTC, the merge happened without a hitch. 

Ethereum Foundation Live Stream of the Merge

You can rewatch the Ethereum Foundation live-stream of the event on their YouTube page here or click here to see the moment it happened.

After years of planning, research, testing, and coordinating with all of the folks working on Ethereum in some capacity, Ethereum merged from Proof of Work to Proof of Stake. Every Ethereum use case, from NFTs to DeFi, were able to use Ethereum as if nothing was being worked on. They did not have to move any of their Ethereum to different exchanges or different wallets or really have to do anything, the whole process kept Ethereum running as if nothing happened at all. 

An impressive feat if you ask the team at Sintra. We are honored to have been able to witness the merge and to have been one of Ethereum’s users through the transition.

Now, we await the surge, verge, purge and a splurge.