The Merge to Proof of Stake (PoS) will be the most profound upgrade to Ethereum yet, second only in importance to the genesis block. It will be an example for the world to see how a major, decentralized system can practically eliminate its carbon footprint. The Merge will lay to rest the Proof of Work (PoW) consensus mechanism and bring to society a more capable trust foundation and a deflationary ultrasound money that continues to grow in utility, ETH. The significance of the migration to Proof of Stake (PoS) cannot be overstated.
Consensys has played a foundational role in the ongoing development of the Ethereum protocol since being founded in 2015. And from day one of “Eth2'' planning, the Consensys Protocols engineering team have been working relentlessly to realize the Merge:
We believe decentralized networks like Ethereum can help society achieve more and we’ve contributed our people, products, and resources to bring Proof of Stake to Ethereum.
And with the Merge on the horizon, we’d like to create clarity and further excitement within the ecosystem by explaining how Ethereum is set to upgrade and how each element is profound in its own right. Below are the four pillars of the Merge.
Pillar 1. More Open, Diverse, and Decentralized
Proof of Stake will democratize network participation and more equitably distribute rewards through new incentive mechanisms, validators, and innovations. It is a major breakthrough element that will lead to further massive decentralization of the Ethereum network and ecosystem. Decentralization is the foundation for everything we do.
Incentives have been designed to encourage more participation by single node validators, while demanding responsibility from larger participants. An example of this is the anti-correlation mechanism that imposes negligible slashing penalties for single node validators, compared to large stakers who operate thousands of nodes using a single client. The anti-correlation mechanism implements the principle “to those with great power, comes great responsibility” and encourages large participants to align with network goals like client diversity.
PoS not only has lower resource requirements for validator nodes, but is constructed to reward all participants, not just those with the most computing power. While there will still be network participants with more nodes and whale stakes, each node will have an equal chance at rewards.
It’s also important to remember that although PoS will help make Ethereum more diverse, open, and decentralized by bringing in new network participants, validators still have a responsibility to help contribute to client diversity by choosing diverse software clients. Consensys provides free and open-source Ethereum client software like Besu and Teku, as we strive for an even distribution of clients outside of our own.
New innovations like staking pools lower barriers to participation and allow multiple parties to pool their ETH to meet the 32 ETH minimum threshold to stake. Consensys is one of 14 organizations in the Rocket Pool DAO supporting fully decentralized staking pools.
Upgrading to PoS will make Ethereum more open and diverse. Client, validator, and Layer 2 diversity will also ensure a healthy and scalable network that democratizes participation.
Pillar 2. Energy Efficient
Evolving the network’s approach to consensus through PoS ensures Ethereum can sustainably support the next generation of Web3 creators and developers without harming the planet. Ethereum is here to stay and improve the world.
PoS will reduce the entire Ethereum network’s energy usage by 99.95%, roughly the equivalent of the energy consumption of the Netherlands. Under Proof of Stake, the carbon impact of a mainnet transaction will be equivalent to streaming one hour of Netflix (234 Watts) or making a pot of coffee (40 Watts).
With more adoption of Layer 2 networks, dapps will migrate to these networks that inherit Ethereum’s security, but can better handle the burden of transaction data and smart contract execution.
The upgrade to PoS also makes Ethereum more modular. This modularity separates compute intensive execution from the consensus layer and is part of what makes running the network use less energy. Ethereum’s post-Merge roadmap will enable guaranteed data availability shards, which will supercharge Layer 2 Rollup development.
Pillar 3. Seamless Transition
Developers working on Ethereum can rest easy knowing that common APIs for pre-and-post Merge architectures and the reuse of existing components like Ethereum execution clients, Besu and Geth, will ensure an uninterrupted developer experience for a seamless transition. This means low to no rework for existing applications, however we recommend testing to be fully confident.
The parallels of PoW and PoS interfaces mean no API changes are required. The Engine API will be compatible from day one with existing infrastructure and developer tooling. Leveraging existing components also ensures no need to rewrite smart contracts or dapps or migrate infrastructure. Some infrastructure may need to be updated in the case of dapps that rely on randomness opcodes. If you’re an Ethereum developer and would like to get ahead start of testing your dapps and infrastructure, we encourage you to use the recently launched Kiln testnet to do so.
Increased client choice and flexibility will allow developers to mix and match to meet their needs like using a lite client on the execution layer and a heavy-weight staking client on the consensus layer.
Migration to PoS also means more predictable block times and fees that will reduce uncertainty when designing high-traffic solutions with block times on a 12 second heartbeat and base fees established with EIP-1559.
Pillar 4. Ultrasound Money
Proof of Stake will bring about an updated crypto-economic model that reduces issuance of ETH, providing stronger security guarantees for the DeFi industry and reducing the economic costs of securing the Ethereum network. Network economics are inherently dynamic, but the interplay between issuance and burn with PoS is worth noting.
As these costs decrease, so too will ETH issuance, since new supply is minted to cover the energy costs incurred by validators. Taken together with fee burns from EIP-1559, we could see more ETH destroyed than new ETH minted, especially during periods of high demand. Post-Merge, we are entering a world of decreasing ETH supply.
There will also be a dramatic (10-20x) increase in the cost attacking the chain. Democratized participation ensures near impossibility of attack. At current levels of 350K validator nodes (12M ETH staked), the cost of attacking the chain is 51% of $25B USD. The deflationary impacts of PoS in conjunction with EIP-1559, as well as the expected increase in staked ETH post-Merge will compound this cost of attack. (Also, if an attacker sets out to acquire that much ETH, it will drive the price very much higher.)
What’s more, attacks will become easier to recover from in part because slashing will destroy the stake being used to attack, requiring further investment to maintain the attack. To counter an existential threat, user activated soft forks can also be coordinated by the community to destroy an attacker’s coins.
The Merge is on the horizon
We hope these four pillars have clarified how Ethereum will be upgraded by the migration to PoS and have revived your confidence and excitement. The TL;DR version of this article is below:
1. More Open, Diverse, and Decentralized: easier access to Ethereum for all types of participants, resulting in greater decentralization.
2. Energy Efficient: orders of magnitude less compute power required, lowering Ethereum’s carbon footprint by 99.95%.
3. Seamless Transition: no interruptions for builders currently working on Ethereum, just keep building, shipping, and all hands on deck for testing.
4. Ultrasound Money: an updated crypto-economic model makes ETH more secure, scarce, with improved transaction finality.
Consensys believes decentralized networks like Ethereum make society more prosperous by interconnecting us more deeply and dissolving central points of power and their inherent shortcomings. We will continue to contribute our people, products, and resources to see the Merge through.
For regular updates and news on the Merge visit the Consensys Merge Knowledge Base, where you’ll also find the Merge archives with key milestones achieved and other essential resources for developers.