What happens when Ethereum moves to PoS

The Ethereum mainnet will merge with the Beacon Chain phase in 2022, completing the PoW to PoS consensus mechanism swap. This swap process is called The Merge.

What is The Merge?

At the present time, the Bitcoin (BTC) and Ethereum (ETH) networks are relatively similar in that transactions are validated against a system of powerful computers to reach consensus on the blockchain. On the PoW network, transactions are validated by miners. They engage and use resources to ensure the network continues to function safely and correctly. This leads to energy consumption for mining operations.

So, when Ethereum makes the switch to PoS, it can save up to 99% of energy. The PoS mechanism does not rely on computer power to compete for block creation. In return, the participants will have to lock a certain amount of assets in the smart contract. The network then assigns a staked address to participate in block validation. The selected address will be rewarded with transaction fees from the validator block.

The Merge is the merge and handover phase between the Ethereum mainnet and the Beacon Chain stage. This is an upgrade that will make Ethereum more efficient and reduce fees significantly. Currently, Ethereum is causing inhibitions for traders because of its slow transaction speed and high costs. A simple swap on Uniswap can charge a transaction fee of over $70 during peak usage times causing network congestion.

However, make no mistake that the launch of The Merge will help the Ethereum network to solve the problem of high gas prices today. It simply sets the stage for a series of upgrades to implement future cost-cutting. These upgrades are known as Ethereum 2.0.

When will Ethereum switch to Pos?

Ethereum now has a PoS chain called Beacon Chain and users can stake as much ETH as they want. At the time of BeInCrypto writing this, Beacon Chain has approximately 367,977 active validators, with the amount of ETH staked at around 11.7 million ETH. This Beacon Chain is currently running parallel to the main Ethereum blockchain but there is nothing we can do but stake ETH.

When The Merge launches it will move the mainnet of Ethereum (the part that supports transactions and smart contracts) into part of the Beacon Chain. After The Merge is completed, the current PoW mechanism will be completely disabled and at this time mining will disappear forever.

Users can then run smart contracts on the Ethereum mainnet using PoS instead of PoW. In theory, at this point anyone should be able to withdraw ETH staked on Ethereum 2.0 at any time. However, this cannot be done immediately, it takes a certain amount of time for the upgrade to stabilize after The Merge is complete.

When will The Merge take place?

The Merge is scheduled to take place in Q2 2022. In fact, this process has been put on hold quite a few times. However, a new step was taken after the project announced the final testnet of the Kiln network in March 2022. Of course, the Q2/2022 milestone is just an estimate and there is no guarantee that it will definitely happen.

When The Merge takes place, the user himself will not need to do anything. The Merge will not change anything about how Ethereum works. However, after The Merge is completed, as BeInCrypto mentioned above, the interests of miners will be affected quite a lot. At this point, they will either convert to PoS and make money from validating transactions, or they will have to look for another PoW network to take advantage of the current mining system.

Another thing is that when The Merge happens, new ETH issuance will drop by about 90%. Issuing ETH could even become deflationary if more people use it.

What comes next after the Merge?

After The Merge, further upgrades will increase the capacity and speed of the network by introducing shard chains. These will scale the network up to 64 blockchains. The Merge will need to happen first as these shard chains will rely on staking.

The Ethereum Foundation also noted that the need to scale through temporary shard chains has been superseded by Layer 2 scaling solutions, such as Optimism and Arbitrum. These solutions temporarily convert ETH and ERC-20 tokens to another chain, completing the computation at a fraction of the cost and at a much lower price. Ultimately, shard chains will likely coexist with Layer 2 technology.

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