What Is ‘The Merge’? Ethereum’s Move to Proof of Stake

Ethereum is about to transition from a power-hungry proof-of-work system to an environmentally friendly proof-of-stake system. This switch is known as “The Merge,” and it’s coming soon. Here’s what you need to know.

What is The Merge?

Ethereum will be changing the way transactions are validated. As of this writing, Ethereum works a little like Bitcoin—transactions are mined by a decentralized network of computers, which race to solve mathematical puzzles. They’re rewarded with new ETH coins for doing so. 

But this method of computers agreeing on which transactions will be added to a new block, known as proof of work, is very energy-intensive, so Ethereum will soon switch to a consensus mechanism that uses far less power and should make the network about 99% more energy-efficient. 

That new system is called proof of stake. Under proof of stake, transactions are confirmed by addresses that have staked—pledged to a smart contract—lots of ETH. Those who have staked more ETH earn proportionately higher rewards. While proof of stake makes the rich richer, it doesn’t burn the world. 

The Ethereum community has been working on the transition to proof of stake ever since the blockchain launched in 2015.

The Merge is one of a set of upgrades that should also make Ethereum faster and cheaper to use. Right now, Ethereum is beleaguered by slow transaction times and high costs. A simple swap on Uniswap for tokens worth $1 could cost you over $50 in transaction fees at peak congestion times.

The Merge itself won’t resolve high gas prices, however—it just sets the stage for a set of upgrades that will eventually cut costs. These upgrades used to be known as Ethereum 2.0, but that terminology was scrapped in early 2022.

Hasn’t Ethereum already switched to proof of stake?

You may have noticed that Ethereum already has a proof-of-stake chain, in which you can stake as much ETH as you like. That chain, known as the Beacon Chain, launched in December 2020. It’s been successful ever since its launch, and as of this writing has about 330,000 validators, who combined have staked about 10.6 million ETH.

That Beacon Chain is neutered, however. It runs parallel to the main Ethereum blockchain and while developers are busy building the next version of Ethereum, you can’t do anything on it apart from stake ETH. 

The Merge will switch the mainnet version of Ethereum—the part that supports transactions and smart contracts—to be part of the Beacon Chain. Once The Merge is complete, the proof-of-work part of Ethereum will fall away, and mining will be gone forever. 

After The Merge, eventually, you’ll be able to run smart contracts on mainnet Ethereum using proof of stake rather than proof of work. You’ll also be able to withdraw any ETH you’ve staked on Ethereum 2.0. You won’t be able to do this right after The Merge, however. You’ll have to wait for a post-merge “cleanup” upgrade, which the Ethereum Foundation—the organization that oversees the development of the Ethereum blockchain—expects will happen “very soon” after The Merge.

When will The Merge happen?

Tim Beiko of the Ethereum Foundation suggeste on April 12 that the mainnet chain will merge with the Beacon Chain in the “few months after” June 2022. However, the upgrades have been delayed several times before and could be delayed once again.

Do you need to do anything?

Probably not. The Merge won’t change anything about the history of Ethereum. You’ll still be able to head to block explorers like Etherscan to get a complete record of the Ethereum blockchain. 

If everything goes smoothly, you won’t have to lift a finger—it’s all a backend change. If you’re an Ethereum miner, however, you’ll be out of a job, and you’ll have to mine somewhere else.

If you’re planning to stake ETH to the Beacon Chain (or, unless you have the 32 ETH necessary to run an Ethereum validator, delegate Ethereum to someone else), you might be happy to realize that you can withdraw your ETH shortly after The Merge. (However, you can already “withdraw” staked ETH through sites like Lido, which issue tokens that represent your staked ETH).

One other thing: Once The Merge occurs, the issuance of new Ethereum will reduce by about 90%. Ethereum’s issuance could even become deflationary if a lot of people use it.

What comes after The Merge?

After The Merge, subsequent upgrades will increase the capacity and speed of the network by introducing “shard chains.” These will expand the network to 64 blockchains. The Merge needs to happen first because these shard chains rely on staking. 

The Ethereum Foundation noted that the need for scaling through shard chains has been offset by layer-2 scaling solutions, like Optimism and Arbitrum.

Layer-2 scaling solutions temporarily transition ETH and ERC-20 tokens to another blockchain, which completes computational busywork for a fraction of a cost and at a far lower price. 

Eventually, shards will likely coexist with layer-2 technologies. The Ethereum Foundation says that the need for “multiple rounds of shard chains” will be metered by the Ethereum community, but that it could provide “endless scalability.”

The best of Decrypt straight to your inbox.

Get the top stories curated daily, weekly roundups & deep dives straight to your inbox.