Are you ready for the Ethereum merger?

Even Google has launched a countdown function for the Ethereum merger (The Merge), which shows how popular this event is. As of press time, there are less than 19 hours left before the merger is completed.

It’s a commonplace, what is the Ethereum Merge? Simply put, it is the process of merging the Ethereum mainnet and the beacon chain. In this process, the proof-of-work (PoW) mechanism currently used by Ethereum will be replaced by the proof-of-stake (PoS) mechanism.

On December 1, 2020, the Ethereum Beacon Chain was officially launched. This is a brand new PoS chain, but there are no transactions, no tokens, and no applications on the chain. It is an "empty blockchain". After the merger, everything on the Ethereum network (accounts, balances, smart contracts, status, etc.) will not change, only PoW will be replaced by PoS.

It's like a moving train, where the locomotive was changed midway but the carriages were not.

Ethereum developers have been preparing for this moment for several years, doing a lot of preliminary work, developing several test networks (Ropsten, Goerli, Sepolia, etc.), and going through multiple design changes and upgrades to pave the way. With less than 24 hours left until this moment, this article will review this milestone again.

First, how will the market react?

The Ethereum merge is a known event. It is expected that the upgrade will be completed smoothly, but it is not ruled out that errors will occur during the upgrade process. However, this possibility is not very high. After all, 13 shadow forks have been successfully carried out before, and the merger of various test networks has also been successfully completed.

Bullish view: If the Ethereum merger is successfully completed and community confidence is enhanced, ETH will be bullish in the short term. In the long run, the merger is also good for ETH, because the issuance rate of ETH will be greatly reduced after the merger, and the daily new issuance will be reduced by 90%. The annual inflation rate is expected to drop from about 4.3% to about 0.43%. Many people even believe that under high fees, the fee destruction brought by EIP 1559 will even cause ETH to enter deflation, thereby pushing up the price of ETH.

Bearish view: People who bought ETH in advance to obtain potential Ethereum fork tokens may sell them after the fork is completed, which is bad for ETH. In other words, when all the good news is out, it will be empty.

Preparatory measures

You don’t need to do anything, the whole merging process is seamless, and you won’t feel any changes. But if you want to get potential Ethereum fork tokens, remember that only ETH on the Ethereum mainnet has fork tokens, and the following forms of ETH cannot get fork tokens:

1. ETH on the Layer2 network. If you want to get the forked token, you need to withdraw it from Layer2 before the merger, including zkSync, Optimism, Arbitrum, StarkNet, etc.

2. ETH on a CEX that does not support forked tokens. If you place your ETH on an exchange and that exchange does not support forked tokens, you may not be able to get the forked tokens after the merger. Pay attention to announcements from the exchange you are using.

3. Pledged ETH such as stETH. If you hold stETH, then you will not be able to get the forked token airdrop. Therefore, this may also affect the price of stETH before and after the merger, and the arbitrage space may expand.

4. ETH deposits in DeFi applications.

Some relevant information:

CEX

• OKX: If Ethereum forks, fork coins will be airdropped in proportion

• Binance: If Ethereum forks and generates a new chain, it will support fork token distribution

• FTX: Will evaluate whether to distribute forked tokens after Ethereum merger

• Coinbase: Will Evaluate Ethereum Fork Tokens in Merge Policy Update

• South Korea's five largest crypto exchanges will support ETHW fork coins after the Ethereum merger: Upbit, Bithumb, Coinone, Korbit and Gopax

Layer2

• zkSync: zkSync V1 will be suspended a few hours before the merge

• Optimism: The network will not be interrupted during the merger. Once The Merge is launched, Optimism's operations will be completely transferred to the PoS chain, and assets on Optimism will only be withdrawn to the PoS chain.

• StarkNet: does not support forks, only supports PoS chains

DeFi Applications

• Opyn: Supports Ethereum merger, no plans to support other forks

• Uniswap: does not support any Ethereum forks and will operate normally during the merger

• Yearn Finance: Ethereum PoW fork is not supported, and the old version of Yearn’s fund library permission function has risks

• AAVE: does not support forks, only supports PoS chains

NFT

• X2Y2: Will permanently suspend smart contracts on Ethereum fork chain ETHW

• LooksRare: Will not support Ethereum PoW fork chain

Mining Pools

• Bitfly: Ethermine will shut down the ETH mining pool on September 15 and will not provide a dedicated mining pool for PoW fork coins

• F2pool will shut down ETH mining pool when PoW mining ends

wallet

• Argent: No plans to support any Ethereum forks

• DeBank: All products do not support Ethereum fork chains

• imToken: does not support forked chains or forked coins

Infrastructure

• Chainlink: The protocol and services do not support forks such as Ethereum PoW

Expectations after the merger

PoW networks such as Bitcoin and Ethereum have long been criticized for being environmentally unfriendly due to the large amount of energy required for mining, which has become one of the biggest barriers to adoption. After switching to PoS, Ethereum no longer has to face this problem, and Ethereum's energy consumption will be reduced by 99.95%. All you need is an Internet-connected computer to participate, and no longer requires a professional mining machine.

In fact, despite the benefit of reduced energy consumption, several of the most pressing issues will not be addressed by the merger:

• Mergers cannot reduce network fees : Mergers change the network consensus mechanism and cannot expand network capacity, so they will not significantly improve network fees. The problem of Layer 1 expansion needs to be solved by future sharding implementation.

• The transaction speed of Ethereum Layer 1 will not increase significantly : the transaction speed remains almost unchanged, and the block speed remains at 12 seconds (about 13 seconds under PoW), so ideally the transaction speed will increase slightly.

• Staked ETH still cannot be unlocked : After the merger, the ETH that users previously staked to participate in becoming a validator cannot be unlocked immediately. The withdrawal function will only be enabled after the Shanghai upgrade is completed, which is expected to be 6-12 months later. However, it is predicted that after the merger, the APR of users' staked ETH will be expected to increase by 50%.

Although the merger cannot solve several of Ethereum’s most pressing problems (fees, speed), the transition to PoS marks a huge achievement for the Ethereum community and the entire DeFi ecosystem, a milestone achieved by researchers and developers who have worked hard for several years behind the scenes. This is a key step towards a more environmentally friendly, efficient and scalable Ethereum.

The Merge is not the end of Ethereum technology, but a beginning. In the near future after The Merge, there will be The Surge, The Verge, The Purge, and The Splurge. This is a long road of development, and you need to be patient.