The Crypto Explorer

The Crypto Explorer podcast: Exploring the Ethereum Merge

Welcome to the written edition of The Crypto Explorer, a podcast by Sygnum Bank which takes you into the exciting world of crypto and Future Finance. Discover the key takeaways from our conversations with leading figures in crypto and finance.

In this episode, host Aliya Das Gupta and guests Francesco Andreolí, Developer Community Lead at ConsenSys, Matt Nelson, Hyperleader Besu Product Manager at ConsenSys and Admir Opardija, Head of Digital Product Management at Sygnum, discuss the Ethereum Merge.

Listen to the full podcast episode here.

Aliya Das Gupta: Perfect. All right let’s dive straight into it. What is the Merge? Why is everyone talking about it?

Matt Nelson: To zoom back out a little bit, there are some questions that come up with this topic: why do we need the Merge? What is it trying to accomplish? And what are we looking to set ourselves up for?

As of today, in Ethereum we use Proof-of-Work mining to get the nodes and the network to agree so that people can agree on the transactions. All the greatness of crypto and blockchain is powered by the Proof-of-Work mechanism today. Speaking of power, there is a lot of electricity used when we use Proof-of-Work mining due to intensive hardware, GPUs and all the associated carbon footprint that goes with that.

As we want everyone to continue to use this network for years to come, we are switching it over to an eco-friendlier consensus mechanism called Proof-of-Stake. The fun name actually comes from the fact that we are taking an existing Proof-of-Stake test network and we’re merging it with the mainnet to be one Proof-of-Stake network. We can’t predict exactly what is going to happen, it depends on some math and some factors within the network based on how much mining is happening.

We’ve completed two test merges, so we have done the rehearsal and we are ready for the show. We are excited to move away from the computer intensive energy process of mining and open it to a much more decentralised democratic approach with Proof-of-Stake. We are hoping to see a lot of people joining the network, a lot of new entrants and a lot of people participating in running their own staking setups. This is a change that will be great for the ecosystem in the next steps with Ethereum.

Francesco Andreolí: We are moving to Proof-of-Stake, and with it, our consumption will drop 99.95 percent. We are doing this to get towards an extremely scalable Ethereum.

Aliya Das Gupta: Admir, could you tell us what does this change for a user? How you interact with the chain?

Admir Opardija: Ethereum is by far the largest ecosystem being used. There are billions of funds – I think over USD 20 billion equivalent – locked into the ETH2 smart contracts. For people who have invested into ETH, it’s proof behind that everyone has been working on this project.

I also think something that is really important for decentralisation is that we will see many more clients and many more client instances of ETH. You will have different clients for the execution part of the protocol and for the consensus part of the protocol. After the Merge, the governance and stability of the system is not necessarily something noticeable for a client, but the strength of the whole ETH network will really be much better.

Aliya Das Gupta: If I want to build a decentralised application tomorrow, and let’s say, I’m building on Ethereum, what fundamentally changes for the developer or end user?

Matt Nelson: This is the great part. We have built it in a way that there will not be many changes at all, and for many users the changes will not even be noticeable. We are building two clients now, two pieces of technology to interact with the network. Previously, we had the execution layer, and that is what we run today to mine on the Ethereum network. Instead of changing the way that this works, breaking those clients and altering them to a large degree, we have added on a new piece of technology called the consensus client. The reason for this is that we wanted to keep the execution process the same, so that the process doesn’t change for developers who are looking to execute smart contracts on the network. We want to keep the developer experience on the platform the same before and after the Merge.

When we switch to Proof-of-Stake, the incentives to run those clients will change, which will hopefully bring us more and more resilience on both layers.

Francesco Andreolí: With this client diversity, we are securing a much more performant layer 2, because this layer is key for scalability.

Aliya Das Gupta: How is layer 2 impacted by the Merge. How does that look?

Matt Nelson: The Merge won’t impact layer 2 at the start, but it’s setting up a set of upgrades to the network, where we will begin to prioritise layer 2 as a scaling solution and enable tweaks that will directly impact performance. It is setting the stage for increased performance down the line. It won’t increase the transaction fees or the throughput of the network right away. However, it’s making the way for a series of technology upgrades. There are a number of upgrades coming, and the Merge is step one.

Aliya Das Gupta: There are a number of misconceptions around because everyone takes away a different thing when they hear about the Merge. What’s the most annoying misconception that you’ve heard?

Admir Opardija: I think the obvious one is the fees, right? The biggest misconception that I heard is that the Merge will solve all of the scaling problems and that fees will go down. Another big misconception that I have heard is that the Merge will also allow people to withdraw funds. It ends up being an interesting conversation.

Franceso Andreolí: I agree with Admir, but I think another misconception is getting a transaction password more quickly. This is one big part that is not true.

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