Ethereum Network Update FAQ

On Thursday, the Ethereum network received a long-awaited update called “The Merge”. The Merge is perhaps the most significant milestone of the Ethereum network to date, modifying the way in which consensus is reached on the state of the network. Fumbi has prepared for you a list of the most frequently asked questions and answers regarding this important update.

What Is the Merge?

The Merge is the most significant innovation in the history of the Ethereum network. With this innovation, the Ethereum network began to operate on a new consensus model called Proof-of-Stake, which replaced the previously used Proof-of-Work mechanism.

Why the Name “the Merge”?

“The Merge” is derived from the process itself, which is the essence of this entire update. On the day of the update of the Ethereum network, the so-called Beacon chain (Proof-of-Stake blockchain, which has not yet verified transactions) merged with the main Ethereum network.

What Major Changes Does This Update Bring?

The new consensus model eliminates the need for energy-intensive mining and instead secures the network using staked ETH coins. The Ethereum network will no longer rely on miners and their mining equipment but on validators to verify transactions and produce new blocks. Eliminating miners in the network should, among other things, reduce the energy cost of the network by up to 99.9%, making Ethereum an environmentally friendly blockchain. Additionally, this update paves the way for future updates aimed at improving Ethereum’s scalability.

Is There Anything I Need to Do With My Ethers (ETH)?

No. As a user or holder of ETH or any other digital asset on Ethereum, you do not need to do anything with your funds or wallet after the Merge. The entire history of Ethereum since its inception remains intact and unchanged after the transition to Proof-of-Stake. All funds in your pre-merger wallet will still be available after the Merge. Therefore, no action is required on your part.

Beware of scammers who will try to convince you and may offer you new ETH coins in exchange for your funds.

Will the Network Fees Be Reduced After the Upgrade?

No. The Merge update does not directly address Ethereum’s scalability issue. The merger is a change to the consensus mechanism, not an expansion of network capacity, and therefore will not result in lower fees. An increase in network scalability and, thus, a possible reduction in network fees can only be expected after the introduction of so-called sharding, which is tentatively scheduled for 2023.

Will the Speed of Transactions on the Network Increase?

No. The new model will bring a fixed production of blocks in an interval of 12 seconds, while until now, with the Proof-of-Work algorithm, the production of one block took an average of 13-14 seconds. While this should translate into a very small increase in speed, the change will not be noticeable to the average user.

How Will the Update Affect the Issuance of ETH Coins?

Ether emission is the process of creating new ETH coins that did not previously exist on the network. These new ETH are collected by entities that manage to verify transactions and create a new block on the network. Mining rewards on the Ethereum network have been 2 ETH per block with an average block time of 13 seconds, meaning roughly 13,000 new ETH were circulating daily.

After the Merge update, the daily emission of new ETH into circulation is reduced to 1,600 ETH per day, which means that the total daily emission is reduced by up to 90%. After the implementation of EIP-1559, which is in charge of burning fees, with an increased daily transaction volume compared to the average, more than 1,600 ETH may be burned per day. This means that Ethereum has the potential to become a deflationary currency. Therefore, there is a possibility that the price of ETH will be positively affected by this update in the long run.

Is It Possible to Expect a Fork After the Update?

Some miners who do not support the transition to the new consensus model announced plans to “fork” or split the network before the update. Therefore, a separate network was created with the name EthereumPoW and its own token, ETHW.