Recent interest in crypto has not been driven by any particular coin, with the exception last year of periods of excitement around Shiba Inu and Dogecoin.
Instead, it’s NFTs that have generated the greatest public interest, while DeFi can also pique curiosity. But, when people initially research these topics they’re not Googling for any specific blockchain.
That means whichever NFT-and-DeFi-related crypto has network effects on its side has a big advantage, and that means Ethereum.
That said, Ethereum’s dominance is not guaranteed, and it has been giving away some share of the market to its competitors. Solana has taken a slice of the NFT action, and protocols such as Cardano, Avalanche and Fantom offer further alternatives.
If that trend were to continue, dominance could become more evenly distributed among the various chains, but Ethereum is now moving closer to a hugely significant event known as the Merge, which will shift how it operates and could start putting pay to criticisms raised around performance and efficiency.
What Is the Merge?
Essentially, the Merge is the process by which Ethereum will change from a proof-of-work (PoW) protocol to a proof-of-stake (PoS) protocol. What it actually means is that the Beacon Chain (a PoS consensus layer that coordinates the network) is merging with the Ethereum Mainnet (which is PoW), and the whole network will transition to PoS.
The PoS model maintains decentralization and allows for the next upgrade to Ethereum, known as sharding. That implementation or sharding increases transaction throughput, meaning Ethereum can scale, thereby lowering gas fees for the end-user.
In real terms, if you asked most people what the biggest problem with Ethereum is, they would likely reply with, gas fees. The Merge does not in itself solve this problem, but it is a necessary step that then allows for the resolution of scaling and gas fee issues.
The Blockchain Trilemma
There’s something that should be kept in mind here, called the blockchain trilemma. This idea, first defined by Ethereum co-creator Vitalik Buterin, states that a blockchain should be three things: decentralized, secure, and scalable. That balanced combination has proved tricky to achieve.
Ethereum is already decentralized, but the Merge, by shifting to PoS, is touted as enabling even higher levels of network distribution. By being further decentralized, network security is enhanced. And as mentioned, after the Merge comes sharding, through which scaling is facilitated.
If it all works out according to plan, then the end result will be that the blockchain trilemma is solved, and Ethereum achieves the ideal of being decentralized, secure, and scalable, and additionally, we can add that it will be energy efficient.
Environmental Issues
That last point, energy efficiency, could be important. Just this week, a European Parliament committee voted against moving closer to a ban on PoW blockchains (which would include Bitcoin), and the reason PoW was an issue at all is because it’s seen as being environmentally damaging.
This criticism is debatable, and in the end, the vote went in PoW’s favor. Nevertheless, it would be advantageous not to have to worry about further attention around this point, and a switch to PoS ensures there are no future concerns in this regard.
When Will the Merge Happen?
There is currently speculation that the Merge will occur around June or July of this year, with several indicators suggesting this as a likely scenario, although nothing is confirmed.
One clue is that the final merge testnet, called Kiln, is now live, as announced this week by Ethereum developer Tim Beiko.
And then there’s an explanation in a February presentation by an Ethereum researcher named Danny Ryan, explaining that, “the difficulty bomb is set to go off, to begun to be felt, some time in June, some time in July.”
The Ethereum difficulty bomb is a way of encouraging miners to move to PoS by increasing PoW mining difficulty, and it will be implemented when the Merge takes place.
After the Merge
If the process goes smoothly, that puts Ethereum in a strong position. The Merge is one step in a process towards solving the blockchain trilemma, but it’s a critical step and will signal that Ethereum’s status as the dominant web3 blockchain is deserved and sustainable.
With its first-mover advantage, eclectic ecosystem, and ability to attract developers, there would be less reason for crypto projects to opt for any of Ethereum’s rivals. And all this would be done while staying true to the crypto ethos, in which decentralization is paramount.
As outlined, the Merge will not immediately solve the problem of gas fees. In fact, if there was a sudden uptrend in activity on the Ethereum network due to increased interest, then gas use could spike. However, after the merge comes sharding, scalability and, in the end, reduced transaction costs.
As crypto edges closer towards mainstream adoption and web3 becomes a reality, participants will look for a frictionless user experience. In that case, we won’t want to spend time figuring out what’s going on under the hood, and the Merge may be a significant step towards ensuring that we don’t have to.
