Ethereum’s long-awaited transition from proof-of-work (PoW) to proof-of-stake (PoS) is upon us as the merger looms in less than 10 hours. There’s a lot to consider for the broader cryptocurrency space – and here’s what you need to know.
What is Merger?
The Ethereum blockchain will move away from its energy-intensive PoW consensus mechanism as its execution layer merges with the new PoS consensus layer known as Beacon Chain.
The Beacon Chain went live in December 2020, allowing ecosystem participants to deposit or “stake” ETH to become the network’s new validators, replacing PoW miners who previously worked to process transactions , produce blocks and secure the network.
In its simplest form, the merger will cause the Ethereum network to use 99% less energy and provide greater scalability, security, and sustainability.
Ethereum’s mainnet (PoW) and Beacon Chain (PoS) operate simultaneously and will eventually merge – hence the name – ushering in a new era for the smart contract blockchain network. The entire transaction history of Ethereum will be carried over as the new consensus mechanism takes over the network.
Who maintains the network after the merger?
As explained, users able to stake a total of 32 ETH are eligible to become individual validators of the Ethereum Beacon chain. Validators are responsible for producing random blocks and validating transactions and blocks created by other validators on the network.
Users can also participate in pooled or centralized pools by staking smaller amounts of ETH, which promises a share of the rewards for validating and maintaining the network. There are several staking options to consider for those interested in playing a role in the network’s new consensus mechanism.
A recent report from blockchain analytics platform Nansen shows that just over 11% of total ETH in circulation is staked, with 65% liquid and 35% non-liquid. There are a total of 426,000 validators and some 80,000 depositors, while a small group of entities control a significant portion of staked ETH.
Three major cryptocurrency exchanges account for nearly 30% of ETH staked, namely Coinbase, Kraken, and Binance. Lido DAO, the largest merge staking provider, accounts for the most ETH staked with a 31% share, while a fifth group of untagged validators hold 23% of ETH staked.
Could there be forks of the Ethereum blockchain?
As Cointelegraph previously reported, the merger will see ETH, the native currency of the Ethereum ecosystem, remain once the mainnet joins the Beacon Chain. It should be noted that some PoW miners who previously mined blocks and maintained the execution layer have indicated that they will continue to do so.
The PoS-powered Ethereum blockchain will continue to use ETH after the merger, while another hypothetical Ethereum PoW network, dubbed ETHPOW, could break away with the creation of an ETHW token.
This is something that is envisioned by financial service providers who offer exchange-traded products (ETPs) tied to the underlying asset of a given blockchain. If there is investor demand for exposure to a forked PoW chain, some companies may consider doing so.
Any existing ETPs or funds exposed to ETH have nothing to do, as ETH will continue to exist as long as the Beacon chain implements PoS consensus.
Should I do something?
The average Ethereum user and ETH holder need not worry about losing funds or making changes to preferred wallets before the merger. As the entire history of the Ethereum blockchain is taken up in the transition, all funds in the wallets are still accessible and safe.
Most importantly, beware of scams. Cointelegraph has compiled a list of the top three ways malicious actors are trying to tackle the Merge Event. Fraudulent staking pools, upgrade scams and fake airdrops are touted. You do not need to upgrade your wallet or send your ETH to receive new tokens.