Summary
Goal
To put all the knowledge related to The Merge for the Investment Team
- The Merge’s impact to the Ethereum-related investment decision
- Significant change in fundamental and value accrue of L1 and L2 chains
Notes
Current POW:
- Miners use expensive hardware to compete to solve complicated problems to win the block reward
- Costs a lot of energy (100 TwH per year at current usage) + overtime becomes progressively harder to mine a block
- The ongoing cost in dollars and energy needed to operate Ethereum at scale using PoW would be very costly — so POS is the most cost-effective solution
Beacon Chain POS:
- POS takes collateral that can be slashed (vs. POW which takes energy to solve equations)
- Validators stake ETH to verify transactions in exchange for a transaction fee
- Network security no longer derived from miners that burn large amounts of electricity but rather by validators that pledge ETH as collateral for obeying the network's consensus rules
- Validators are selected randomly (probability of selection proportional to amount of ETH staked) — need at least 32 ETH to be a “validator”
- Beacon Chain (standalone blockchain) has been live since Dec 2020
- To help bootstrap the future consensus layer and for testing purposes
- ~10% total circ. supply is staked on Beacon (12.5m ETH)
“The Merge”:
- Highly anticipated event where Ethereum mainnet shifts from POW to POS for its blockchain consensus layer