The Merge has become known as one of the most important events in blockchain history. On September 15th 2022, Ethereum will mark the end of Proof-of-Work (PoW) mining and move to Proof-of-Stake (PoS).
Some key factors to note for this day:
- The Merge will reduce Ethereum’s energy consumption by ~99.95% and become ESG compliant (environmental, social, and governance compliance).
- The Merge will significantly increase the security and decentralization of the network.
- The Merge also sets the stage for future scaling opportunities such as sharding.
However, with that in mind, there are still some misconceptions about The Merge. Debunking these common misconceptions will help you stay informed.
Misconception #1: You Can Withdraw Staked ETH Once The Merge Occurs
False — staking withdrawals will not be enabled with The Merge. You will be able to withdraw following the Shanghai upgrade.
You cannot withdraw your staked ETH once the merge occurs. This can only happen during the next major upgrade — the Shanghai upgrade, which is taking place during the first half of 2023. Any staked ETH, staking rewards to date, and newly issued ETH immediately after The Merge, will still be locked on the Beacon Chain without the ability to withdraw.
This means that newly issued ETH, though accumulating on the Beacon Chain, will remain locked and illiquid until around Q1/Q2 of 2023.
Misconception #2: Validators Will Not Receive Any Liquid ETH Rewards Until The Shanghai Upgrade When Withdrawals Are Enabled
False — Transaction Fee Rewards and MEV (maximum extractable value) Rewards transferred automatically and immediately to your ETH1 withdrawal address that you specified when setting up your validator.
After The Merge, validators will benefit from the transaction fee and MEV rewards. However, protocol rewards will not be withdrawable until the Shanghai upgrade (around Q1/Q2 of 2023). Another thing to note is that the transaction fee and MEV rewards will be liquid immediately after The Merge. Once a validator finds a block or proposes a block into the blockchain and it is accepted, then transaction fee and MEV rewards will be paid to the validator of that block.
Misconception #3: When Withdrawals Are Enabled, Stakers Will All Exit At Once
False — validator exits are rate limited and only 6 validators may exit per epoch. This prevents a mass exodus of funds.
After the Shanghai upgrade enables withdrawals, all validators will be incentivized to withdraw their staking balance above 32 ETH, as these funds do not increase the amount of rewards and are otherwise locked. Depending on the returns (determined by total ETH staked), they may be incentivized to exit their validator(s) to reclaim their entire balance or potentially stake even more using their rewards to earn more yield.
Full validator exits are rate limited by the protocol, so only six validators may exit per epoch (every 6.4 minutes, so 1350 per day, or only ~43,200 ETH per day out of over 10 million ETH staked). This rate limit adjusts depending on the total ETH staked and prevents a mass exodus of funds. Furthermore, it prevents a potential attacker from using their stake to commit a slashable offense and exiting their entire staking balance in the same epoch before the protocol can enforce the slashing penalty.
The amount of protocol rewards received by validators is dynamic and dependent on the total number of validators staking at a given time. As stakers exit when withdrawals are enabled the rate of rewards per validator will increase, thus attracting new stakers or returning stakers.
Misconception #4: The Merge Will Reduce Gas Fees
False — The Merge is a change of the consensus mechanism. It’s not an expansion of the network capacity, and, therefore, will not result in lower gas fees.
The Merge will not reduce gas fees, as Ethereum is just switching the consensus layer. This has nothing to do with capacity. On the Ethereum chain, capacity and demand determines the gas fees. Gas fees are a product of network demand relative to the capacity of the network. The Merge doesn’t have any impact on the parameters that directly influence network capacity or throughput.
Misconception #5: The Merge Will Result in Downtime of The Chain
False — The Merge upgrade is engineered to transition to a Proof-of-Stake (PoS) consensus mechanism with zero network downtime.
“Technically, there should be no down time in the chain, it should be a smooth transition. Which also makes it such a difficult endeavor. It’s the second biggest crypto asset and probably the most active chain with a lot of DeFi and NFTs, so it’s important that there are no issues”, explains Friedrich Zwanzger, Ethereum Ecosystem Lead at Blockdaemon.
An incredible amount of work is being put into making sure the transition to Proof-of-Stake (PoS) does not disrupt the network or its users. The Merge has been described as an engine that is being changed mid-flight and is designed to be performed without needing to pause anything during the switch.
The Merge will be triggered by terminal total difficulty (TTD), a cumulative measure of the total mining power that has built the chain. When the time comes, and this criterion is met, blocks will go from being built using Proof-of-Work (PoW) in one block to being built by Proof-of-Stake (PoS) in the next. (Source: ethereum.org)
Ethereum has always been known as one of the most reliable and secure chains, with zero downtime.
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