The long-anticipated Merge is now complete, but what changed for users?
The Ethereum blockchain completed its shift away from proof-of-work to a proof-of-stake consensus following the merge of the Ethereum Mainnet and the Beacon Chain. The Merge took place on September 15, 2022, as the network shifted to PoS without issue, seeing hardware-based miners replaced by validators that stake ETH.
The most relevant question in the blockchain and crypto space is, what happens next? The Ethereum Foundation has always worked on a long roadmap of development milestones, and The Merge is no different. Just one month on, the foundation announced the Shanghai upgrade, where Staked Ether (sETH) withdrawal and lower gas fees are some expected developments.
In the aftermath of arguably the most significant event for the world’s most known smart contract blockchain, it’s crucial to understand what changed for regular users.
There were several reasons for the Merge: value creation and a safe deactivation of the Difficulty Time Bomb are core reasons. But there are more benefits that users and the wider world can expect:
- A massive advantage is that Ether is now a deflationary currency, with the supply continually decreasing as fees are no longer handed to miners.
- Gas fees are reduced as more upgrades are rolled out, and sharding comes online in 2023.
- There will be a reduction in the energy required for transaction validation. Some sources say that transactions will require ~99.95% less energy after the Merge occurs.
- Long-term sustainability is a crucial reason for the Merge. The changes that Ethereum’s developers make now will have long-term benefits and enable the team to move on to the next stages in their roadmap. The post-merge upgrades will not be possible without the Merge.
- From a dapp perspective, DappRadar expects to see more dapps launching on Ethereum.
ETH becomes deflationary
Deflationary crypto assets are cryptocurrencies, coins, and tokens that decrease in total supply each time a token transfer happens. In a nutshell, no more Ethereum is created, meaning that the currency becomes scarcer and, in turn, more valuable over time.
That didn’t happen immediately, but in mid-October, a Coinbase report revealed that ETH reached a post-Merge milestone as it became deflationary for the first time since the Ethereum blockchain switched to proof-of-stake.
It became deflationary as more ETH was burned verifying transactions than was created in the same period. This reduced the supply by 0.13% in the second week of October, equivalent to about 4,000 tokens. The rate of new ETH creation has fallen by nearly 90% since the Merge.
There had been an expectation of gas fees falling dramatically post-merge despite numerous comments from leading Ethereum developers pre-merge, stating otherwise. Tim Beiko told Fortune magazine the Merge would not substantially reduce gas fees immediately.
These reductions will (apparently) happen next year when Shard Chains are introduced. These will make Ethereum more scalable and should cut down on the congestion issues every Ethereum user has come to know, and pay for.
Still, gas fees are down more than 75% year over year and light years away from the $50 plus fees witnessed during the peak of NFT mania in the summer of 2022. The average gas fee on Ethereum now is about 20 gwei.
More dapps on Ethereum
One expectation from a dapp perspective is that more dapps will launch on Ethereum post-merge rather than launch on Layer 1 or 2 solutions. While it is too soon to see any meaningful impact, we see steady activity. Ethereum accounts for around half a million unique active daily wallets connecting to its dapps.
Interestingly, we see the Polygon Bridge doing great numbers as users bridge assets into Polygon, where they find low fees and dapps offering the same services. That shows that while Ethereum may have turned a corner, it’s still not the platform of choice for regular users.
The data shows a decrease of around 6% in the number of unique active wallets connecting to top Ethereum dapps month over month. As previously mentioned, it’s still too early to expect massive upticks. It will be interesting to watch developments over the coming months.
At a technical and cost-saving level, the Ethereum Foundation already pointed out many benefits for dapp builders in the Ethereum ecosystem post-merge:
- Block structure: PoW blocks will no longer exist. Instead, ‘the former contents of PoW blocks become a component of the blocks created on the Beacon Chain.’
- Slot/block timing: average block times will change. At the moment, they take ~13 seconds. Post-Merge, block times will be exactly 12 seconds.
- Opcode changes: some operation codes in the current Ethereum scripts will become irrelevant, and others will remain.
- Sources of on-chain randomness: this will take place on-chain, thus reducing costs for dapps.
- Concept of safe head and finalized blocks: this affects how quickly, and securely finalized blocks become canonical. With PoS, this will speed up.
With all the abovementioned changes, developers must adjust their code to fit the new paradigm. However, the Ethereum Foundation has played down any risks of large-scale disruptions to dapps, NFTs, and blockchain gaming platforms. According to their website, ‘The Merge will have only minimal impact on a subset of contract deployed on Ethereum, none of which should be breaking.’
Ethereum merge in summary
The Ethereum blockchain is a foundational pillar of the crypto industry, which has become increasingly mainstream each year. ETH is the second most popular cryptocurrency, with people searching Google for Ethereum an average of 2 million times a month.
ETH has risen to more than $100 billion in market capitalization, with the Ethereum blockchain serving as a popular choice for developers building decentralized applications and launching NFT collections.
Moreover, despite the rise of other blockchains and dapps, Ethereum still holds that coveted OG status and remains the platform of choice to launch NFT collections.
The Ethereum Merge fundamentally changes the Ethereum blockchain in pursuit of greater scalability and security while requiring less energy usage. This move may cause ripple effects for the broader crypto industry that can be watched closely.
If you want to learn more about the Ethereum Blockchain, you can read our ultimate guide to Ethereum or dive straight into the Ethereum dapp rankings and see which dapps build value and retain their audiences.
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The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds ETH, BTC, AGIX, HEX, LINK, GRT, CRO, OMI, IMMUTABLE X, GALA, AVASTR, GMEE, CUBE, RADAR, FLOW, FTM, BNB, SPS, WRLD, ATOM, and ADA.