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What is Ethereum Merge?

12 September 2022

The cryptocurrency sector is considering the long-promised ‘Ethereum Merge’ as a turning point in how blockchains operate. Experts anticipate a consistent, long-term price hike and a critical positive change in the future of crypto.

This article provides an overview of the much-awaited ‘Ethereum Merge’ and how node operators and developers can prepare for the transformation.

What is the Ethereum Merge?

‘Ethereum Merge’ is the proposed upgrade of the Ethereum blockchain from the current Proof of Work (PoW) consensus layer to the Proof of Stake (PoS) consensus layer..

The current PoW model involves nodes. These are computers on a network competing to solve complex mathematical problems. Once they succeed, they can mine the next block of crypto transactions and generate new coins.

In the PoS model, nodes are selected through an algorithm, preferring nodes with more network currency holding (stake). Thus, the ‘stake’ in the network gets rewards in this system. It is a more energy-efficient and environment-friendly system. 

As per Ethereum Foundation, the proposed date of the Ethereum Merge is 15 September 2022. 

The Reasons Behind the Ethereum Merge

Energy Efficiency

The PoS model will drastically reduce energy consumption compared to the PoW model. The validators re-execute the transactions, check block signatures and send an attestation in favour of the block across the network. This process needs minimal electrical and server resources compared to the current PoW model.

Preventing Adverse Environmental Impact

PoW mining consumes a lot of electrical resources and causes massive carbon emissions. The PoS model can bring down energy consumption dramatically and helps save the environment.

Along with these, achieving better network security, scalability and improving transaction efficiency are some significant reasons. 

What are Consensus and Application Layers?

For transaction authentication, nodes on a blockchain should come to a ‘consensus’ by following the Distributed Ledger Technology (DLT) protocol. Nodes add, examine, and change every newly arriving entry. Blockchain features a layered architecture to facilitate this unique kind of validation.

Among various categories of blockchain technology layers, consensus and application layers are crucial in this context. 

Consensus Layer

The consensus layer is responsible for transaction authentication or validation. A specific number of nodes validate every transaction as per the protocol. The numerous nodes processing the data should reach the same conclusion and agree that the data is legitimate. 

The consensus mechanism maintains the blockchain’s decentralised characteristics. It also addresses the disputes caused by a branch of blocks, as multiple nodes process data and adds it to the blockchain.

Application Layer

End-users can establish blockchain network communication through the programs on the application layer. The application layer’s protocols have subdivisions as the application and execution layers. 

The blockchain serves as a back-end mechanism for applications. Data APIs help establish communication between the applications and the blockchain.

Smart contracts, underlying protocols, and chain code are on the execution layer. As the applications instruct, the execution layer executes the transactions to meet the blockchain platform’s deterministic aspects.

How Can Blockchain Companies Be Prepared?:

Node Operators, dApp and Smart Contract Developers

Stakers running their node set-up or node infrastructure providers authenticate consensus and execution layer clients. 

It is necessary to sync consensus and execution layers to allow them to communicate. Node operators must run both consensus and execution layers. 

As Ethereum plans a shift to a PoS consensus mechanism, many protocols may not support the forked versions of Ethereum. Decentralised app (dApp) developers relying on forked versions, including PoW fork, may face protocol and application-level technical issues. 

Ethereum Developers and dApp teams should ensure the following to help and protect their clients and users:  

Contracts may depend upon external dependencies such as data feeds and API references. It is critical to study these dependencies to ensure effective communication between smart contracts and asset prices in the real world. 

It is vital to conduct proper tests to ensure their Smart Contracts execute smoothly on the Ethereum Proof-of-Stake (PoS) consensus mechanism.

It is crucial to protect their end users during any scenario. As part of the preparation, Ethereum and dApp developers should assess the performance of their smart contracts under extreme market conditions. 

How TraderMade Can Help

Professional developers and node operators need to arrange for the proposed event. The preparation for the Ethereum Merge involves extensive data testing and better data requirements management. Increased or decreased data demand may require Node operators to change their plans to cope with the changing needs. 

We will be glad to help our Node operator clients. Our crypto data experts will resolve your technical queries, suggest meaningful strategies for change in their plans, and update you on the possible impact of the Ethereum Merge. 

TraderMade is the most trusted source of curated and accurate Forex, CFD, and crypto market data API for Node operators and oracles. We cater to exigencies of Node operators and oracles while preparing for the merge and even after that. Please feel free to talk to our data experts by filling up the contact form.