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One year ago, the original Ethereum Mainnet merged with the proof-of-stake blockchain known as the Beacon Chain.

Since then, the Ethereum network has existed as one proof-of-stake blockchain. This event came to be known as the Merge, and it will go down as one of the most important days in crypto history.

This is especially because Ethereum has been the second-largest cryptocurrency for many years now. The main result of the Merge is a massive reduction in energy consumption (about 99.95% reduction).

Why Did the Ethereum Merge Happen?

The main reason for the Merge was to eliminate the need for energy-intensive mining. Instead, the network is now secured with staked ETH. Advocates and critics of crypto have all praised the decreased energy consumption as it makes crypto more appealing to use. Other reasons that drove the decision to transition to a proof-of-stake consensus mechanism are:

  • Increased decentralization as node operators would have lower hardware requirements
  • Faster transaction completion
  • Making Ethereum a more deflationary asset

It is worth mentioning that the network hasn’t achieved all its goals with the Merge. For example, the speed and cost of the transactions haven’t improved much after the switch. The network also seems even more centralized now as you need 32 Ether to become a validator.

Because of the high cost of entry, most investors choose to join a group of other people to raise funds to become validators. The risk here is that centralized entities could take over the network and introduce issues like censorship.

The two goals the network has achieved are decreased energy consumption and the reduction in Ethereum inflation. Before the Merge, an average of 13,000 Ether were mined every day. With the new system, about 1700 Ethers are issued as rewards daily, which marks a 90% decrease.

Rating: 9.5/10
Supply: 118,780,000 / 200,000,000
Release date: August 1, 2014

Description: Discover Ether, the native coin of Ethereum.

Risk warning: Trading, buying or selling crypto currencies is extremely risky and not for everyone. Do not risk money that you could not afford to loose.


Concerns with Ethereum After the Merge

A few issues have arisen after the Ethereum network switched to PoS. Aside from the risk of governance takeover and censorship, the Merge has made the network more vulnerable to attacks. This is because the network informs node validators which transactions they’ll be validating in advance, thus enabling criminals to plan their attacks.

In theory, this could be an issue if a person gets to validate two consecutive blocks. Similar exploits are impossible in proof-of-work blockchains since the validators don’t have time to plan attacks.

It is important to mention that the network has never been hacked, and this issue is highly unlikely to ever happen. Proof-of-stake offers fairly practical security.

The price of Ether dropped notably after the Merge, and this was because the switch didn’t fix its congestion or high fees. Many investors were taking profits and abandoning the coin given its uncertainty. Experts noted that the Merge wasn’t meant to solve every issue immediately. It was only supposed to lay the groundwork for the future improvement of the Ethereum network.

Another problem that was noted in the days following the Merge is the confusion about the coin. Since the network was constantly being referred to as ETH 2, some holders were convinced to swap their Ether for the new ETH 2 coins. Naturally, this led to loss of funds as the network didn’t introduce any new coins.

How is ETH Issued Post-Merge?

Before the Merge, ETH was issued in two different layers: the execution layer and the consensus layer. Miners only interacted with the execution layer and would be rewarded if they were the first to solve the next block. The process of mining was the core of the proof-of-stake consensus mechanism and was energy-intensive.

The consensus layer was introduced in 2020 when the Beacon chain went live. Ethereum users would deposit ETH into a smart contract on the Mainnet chain and collect an equal amount of ETH on the Beacon chain. Validators on the Beacon chain were rewarded based on their performance, although the reward was significantly lower than that of miners.

Post-Merge, ETH is only issued to validators who stake the cryptocurrency for rewards. The execution layer issuance was eliminated as of September 15, 2022 (the day of the Merge).

Conclusion

Ethereum has been the second most important cryptocurrency for many years. In September 2022, the network was officially transformed into a proof-of-stake blockchain, meaning mining was no longer a way of obtaining new ETH. This transition reduced the energy consumption of the network by more than 99%.

by Our Certified Author
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