What is The Ethereum Merge?

Summary of The Ethereum Merge

Ethereum Merge explained

What you need to know about The Merge:

User outcomes

1. When is The Merge scheduled to take place?

   The Ethereum Merge is scheduled to take place by the end of 2022. The Merge is a two-step process. The first step is a consensus-layer network update, Bellatrix, followed by Paris, the execution layer’s transition from PoW to PoS.

   A soft deadline of September 10-20 (or block number 58,750,000,000,000,000,000,000) has been announced for the Paris upgrade, though this will largely depend on the success of the final testnet merge and a number of other technical factors.

2. What happens to my ETH after The Merge?

   Ether (ETH), the native cryptocurrency of the Ethereum blockchain, will remain the same after The Merge takes place. ETH holders and Ethereum users will not need to take any steps prior to The Merge in order to prepare for the transition from PoW to PoS. There will be no need for ETH holders to convert their assets into any new cryptocurrency.

3. As an ETH holder, what do I need to do to prepare for The Merge?

   Absolutely nothing. The Merge will be implemented in such a way that Ethereum users will not notice any unusual activity during the transition or changes to their assets or wallet balances. 

   Beware of any one telling you that you need to take action in order to prepare for The Merge — it is likely a scam or phishing attempt.

4. Will I need to update my wallet or use a new wallet post-Merge?

   No. Everything surrounding the ETH cryptocurrency will be exactly the same post-Merge as it was before. This means all wallets will continue to work as normal, using the same address, and no new wallets or upgrades will be required.

5. Is Ethereum and Ethereum 2.0 the same thing?

   In a January 2022 blog post, the Ethereum Foundation moved away from the ETH2 naming convention, as they felt it was not technically accurate and was leading to confusion about a new blockchain/cryptocurrency being created. The ETH tokens that exist today are the same as the ETH tokens that will exist after The Merge (there will be no new native token for the Ethereum blockchain).

6. Will The Merge affect my NFTs?

   Any NFTs held on marketplaces, in wallets or pending in transactions should not be impacted during or after the update. The latest Ethereum state at the point of The Merge will join with the Beacon Chain and no action will be required by Ethereum users or ETH holders.

7. Will The Merge affect my crypto locked in DeFi protocols?

   Any Ethereum-based assets deposited into liquidity pools or deployed in any type of DeFi-based protocols should remain unaffected by The Merge.

8. Can I still run an ETH miner?

   While mining ETH will no longer be possible after The Merge, it will still be possible to mine Ethereum Classic (ETC) – a proof-of-work blockchain which separated from the Ethereum chain – that emerged in 2016. You can learn more about the difference between Ethereum and Ethereum Classic in the Kraken Learn Center guide here.

9. Will the Ethereum network go offline during The Merge?

   No downtime on the Ethereum network is expected during The Merge. However, in order to ensure a smooth transition, funding (deposits and withdrawals) of ETH and all Ethereum based tokens (ERC20) may be placed on a temporary hold by some services, including Kraken. Keep an eye on our status page for any potential updates.

10. Will I be able to unstake my ETH?

    No. Unstaking of already-staked ETH tokens has been halted until the forthcoming Shanghai upgrade – which the Ethereum Foundation expects will take place 6-12 months following The Merge.

11. Will The Merge have any impact on Ethereum Classic?

    Ethereum Classic will remain as a PoW blockchain so it’s possible miners may choose to shift their equipment over to this protocol once The Merge phases out mining on Ethereum. However, The Merge will not directly affect the Ethereum Classic blockchain.

Technical factors (Network)

1. What is the Beacon Chain?

   The Beacon Chain is the PoS consensus layer for Ethereum. Initially launched in December 2020, the Beacon Chain has undergone rigorous testing while running alongside the current PoW blockchain. The Merge will see the consensus mechanism of the Ethereum blockchain replaced by the Beacon Chain, which will predominantly organize and maintain a record of all stakers on the network.

2. What is staking?

   Staking refers to the process of a user becoming a validator on a PoS blockchain by locking up an amount of native tokens in a staking smart contract. By doing so, they stand a chance of being selected by the protocol to propose new blocks of transactions and other data in exchange for interest payments.

3. How is staking different from mining?

   Mining refers to the process PoW blockchains use to add new transactions to the blockchain. Miners compete against each other to validate batches of transactions by submitting the solution to a computationally rigorous mathematical puzzle, which is difficult to solve but easy for the rest of the network to check.

   Staking seeks to deliver the same result: proving the validity of transactions. By first committing cryptocurrency as collateral, network validators are incentivized to behave honestly and penalized for not behaving honestly.

4. What exactly is happening during The Merge?

   Prior to The Merge, the Ethereum mainnet – where all transactions and smart contract data are stored – relied on a PoW system and mining. For the past 18 months or so, the Beacon Chain, which uses PoS and staking to validate transactions, has been running in parallel to the current mining-based blockchain. 

   The Merge is the process of swapping out the PoW system that keeps the Ethereum blockchain functioning for the new PoS mechanism of the Beacon Chain.

5. Will ETH transactions be processed faster after The Merge?

   Not noticeably. Although blocks will be created 10% more frequently on the post-Merge, PoS-based Ethereum blockchain than the pre-Merge, PoW- based chain, most Ethereum users are unlikely to notice any meaningful difference. PoW Ethereum had a target set to create a new block every 13.3 seconds. PoS based Ethereum aims to create a new block every 12 seconds.

6. Will The Merge reduce gas fees?

   Ethereum gas fees, the transaction fees that network users pay to those adding and maintaining blocks of data on the Ethereum blockchain, will not decrease as a result of The Merge. This is because The Merge changes the way blocks of transactions are committed to the chain, rather than expanding the capacity of the chain itself.

7. Does The Merge update include sharding?

   The Merge does not include the introduction of sharding, but will lay the technical foundation for sharding techniques to be implemented on the Ethereum blockchain at a later date. Sharding is a scaling solution involving splitting a blockchain into multiple smaller shard chains in order to reduce network congestion and increase transaction throughput.

8. How will The Merge impact Ethereum’s energy usage?

   The Merge is expected to cut Ethereum’s energy usage by 99.5%. By transitioning from the energy-intensive competition of PoW mining to the incentives and penalties approach of PoS, the Ethereum network is expected to achieve a notable carbon footprint reduction.

Market factors

1. Is there a chance forked tokens might be created during The Merge?

   There is a chance that a different version of the chain might be created, in addition to the PoS chain resulting from The Merge. This all depends on whether existing Ethereum miners come together to execute a hard fork before The Merge. This may involve the creation of a new blockchain from the existing Ethereum blockchain that continues to use a mining-based PoW consensus mechanism.

2. Will a new Ethereum token be created post-Merge?

   After The Merge takes place, Ethereum’s ether token will still retain the ETH ticker symbol on Kraken. ETH holders and stakers will still be able to find their tokens under the ETH symbol. 

   If the previously mentioned miner hard fork is successfully implemented, it’s likely a new Ethereum-like coin will be created. This would exist separately from Ethereum’s native cryptocurrency, ETH, and have its own ticker symbol. 

3. How will The Merge affect Ethereum’s price?

   It’s impossible to predict how The Merge will impact the price of ETH. This will depend on factors such as investor sentiment leading up to and after The Merge, how well The Merge upgrade rolls out and whether or not miners successfully implement a hard fork.

4. Will The Merge impact NFTs, DeFi and other Ethereum-based assets/services?

   ETH and NFTs held on marketplaces, in wallets or pending in transactions should not be impacted by The Merge. Similarly, Ethereum-based digital assets used in DeFi protocols or other Ethereum-based services should remain unaffected by The Merge.

5. Will ETH's staking APR rise after The Merge?

   It is possible that those staking ETH may earn a higher reward rate as a result of on-chain fees and maximal extractable value after The Merge takes place. However, this is not guaranteed.

6. Will the Ethereum blockchain experience a hard fork ahead of The Merge?

   It is possible that new versions of the Ethereum blockchain may be created before, during or after The Merge via a process known as hard forking. In the event of a hard fork, Kraken will retain the ETH ticker symbol for ether and will evaluate any newly created tokens using our standard review process.

Ethereum development

1. What’s next on the Ethereum roadmap after The Merge?

   Several updates and milestones are on the Ethereum roadmap over coming years. The two most notable events directly related to The Merge are the Shanghai upgrade and sharding.

   The Shanghai upgrade will allow ETH holders who have staked their ETH tokens since the launch of the Beacon Chain to unstake and regain access to their ETH tokens. This upgrade is currently expected sometime 6-12 months after The Merge takes place.

   The Merge also lays the technical foundation for sharding techniques to be implemented. Sharding is expected to allow the Ethereum blockchain to reach greater scalability and overall transaction throughput. The Merge, and the usage of a PoS consensus algorithm, is an essential building block prior to implementing sharding techniques on the Ethereum blockchain.

2. What does ETH 1.0 and ETH 2.0 now mean?

   The name ETH 2.0 (as well as Ethereum 2.0) originally existed as a way to reference the Ethereum blockchain post-Merge (after the Ethereum mainnet's transition to PoS occurs). However, the Ethereum Foundation has since decided to move away from using this name as it has led to confusion about a new blockchain/cryptocurrency being created. 

   ETH1 now refers to the execution layer, which handles transactions and executions, while ETH2 refers to the PoS consensus layer.

   The name for the Ethereum blockchain and its native token, ETH, will remain unchanged after The Merge.

3. What will happen to ETH miners after The Merge?

   After The Merge, Ethereum will transition to PoS from its current PoW model. The PoS consensus mechanism will effectively eliminate mining as a way to secure the network. Miners will be replaced with stakers, who lock up ETH tokens for the right to validate transactions.

4. What do I need to know about the Shanghai upgrade?

   Shanghai represents the next major upgrade after the successful transition to PoS occurs. Staked ETH, staking rewards and newly issued ETH will remain locked on the Beacon Chain until the implementation of the Shanghai upgrade.

   Withdrawals of staked ETH are planned with the Shanghai upgrade. New ETH issued immediately after The Merge will remain locked for at least 6 months, according to Ethereum.

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