According to the latest news, Ethereum Merge upgrade will be fully completed between September 10 and 20. So, what excatly is the Ethereum “Merge”? How did it come? What is the current state of “Merge”?

In this article, Beosin research team will explain why Ethereum should be upgraded, the upgrading roadmap, the two important upgrading nodes in the process of “Merge”, the current progress of “Merge” and the difficulty bomb, etc. Our subsequent articles will continue to introduce the impact of Ethereum Merge on various stakeholders in the ecosystem and the related discussions.

Why Ethereum needs upgrades

l. Energy consumption

Since its inception, Ethereum has been committed to implementing a proof-of-stake consensus mechanism (PoS), but it would take years of focused research and development to do so while ensuring security and decentralization. Therefore, Ethereum is still using Proof of Work consensus (PoW). PoW requires miners to achieve consensus by using their computing hardware to solve puzzles, which is extremely arithmetic intensive and consumes significant power costs and hardware costs. As the ETH ecosystem gradually expands, more and more transactions need to be processed, leading to more energy consumption.

According to Digiconomist data, Ethereum’s total energy consumption is 112 TWh/yr, comparable to that of the Netherlands, with a Carbon emission equivalent to that of Singapore (53 MT/yr).By comparison, Bitcoin currently consumes about 200 TWh/year of energy and emits about 100 MT/year of carbon, while discarded hardware generates about 32,000 tons of electrical waste per year. Switching off Ethereum’s proof-of-work in favor of proof-of-stake will reduce this energy expenditure by more than 99.95%, implying that the total energy expenditure for securing Ethereum is closer to 0.01 TWh/yr.

Annual energy consumption in TWh/yr for various industries Data from ethereum.org

2. Scalability issues (low TPS + high gas)

ETH, the second largest cryptocurrency by market capitalization, has many projects being developed on it, and the high demand is causing network congestion. According to the Ycharts website, it currently takes 16s to pack a block for Ethereum using the PoW algorithm at peak times. Each block will contain 150~300 transactions, which means only 10~20 transactions can be processed in 1 second.

Ethereum average block time, source: ycharts.com

Such processing speed leads to large network congestion often, and if you want to reach a transaction faster, then you have to pay more fees, which is often called gas fee.

Every transaction on the Ethereum chain requires a gas fee, and miners will prioritize high-priced transactions under the proof-of-work mechanism (PoW), leading to a price increase that follows when the demand for Ethereum increases significantly.

From 2017 until 2020, the gas Fee of Ethereum, although fluctuating, almost remained below $1. However, the value saw a high point in June 18, peaking at $5.58; in the second half of 2020, with the gradual increase of DeFi applications and a large influx of transactions, the fee began to rise and fluctuate tremendously; since 2021, the fee has entered a white-hot phase, with the average fee even reaching $68.74 on May 14, 2011, which means that the average transaction on Ethereum cost an additional $68.74 in fees that day. Sometimes the price of gas fee is even higher than the amount of the transaction itself. This gives the Ethereum users poor experience and creates a serious obstacle to the long-term development of the whole ecosystem.

3. Security issues

For Ethereum, which uses the POW proof-of-work mechanism, the existence of mining pools makes the computing power of Ethereum centralized, and this situation also poses a threat to the overall network security of Ethereum.The cost of an attack under the POW mechanism is reflected in the accumulation of equipment and computing power, and if a person or collective has more than 51% of the computing power in the system, they can launch a “51% attack” on Ethereum. The “51% attack” and the protocol itself cannot effectively suppress this situation.

But in the proof-of-stake system, it requires validators to pledge a large amount of ETHs to the protocol in advance. If the validator tries to attack the network, the protocol will protect the system by automatically burning the pledged ETHs as a penalty mechanism. However, this approach does not provide effective protection against proof-of-work mechanisms, as PoW confiscates at most the mining proceeds from the network security protectors (miners). But to achieve the same penalty effect, the protocol needs to have the ability to destroy all the mining hardware of the cheating miner.

4. Current status of public blockchain competition

In the past, public blockchains aimed at replacing ETH, but nowadays, the goals of public blockchains are more extended, they are characterized by compatibility with EVM and belong to the category of Ethereum-associated public chains. Such public blockchains are extremely similar to or imitated by Ethereum in terms of both execution environment and application design. The large amount of user traffic import and unrelenting financial support enable these public blockchains to grow rapidly, but the most essential thing is that due to the inefficient exchange of the current Ethereum ecosystem, network congestion makes the processing fee very high, thus it will be difficult for ordinary users to continuously interact with each other through Ethereum on a daily basis, resulting in the spillover of users and funds. This is a great opportunity for similar public blockchains with similar functions and applications to emerge and grow.

This is a further “reminder” that Ethereum needs to be upgraded as soon as possible to solve the network congestion problem, improve efficiency and reduce its transaction fees, so that it can sit firmly on its “throne”.

Ethereum upgrading roadmap

The ETH upgrade route is divided into 5 main steps in the long run, which are:

l. Merge

The current Ethereum mainnet will “merge” with the Beacon chain PoS system, which will mark the phase-out of the PoW mechanism in Ethereum and the complete transition to PoS, expected to be completed in the third to fourth quarter of 2022.

When the Merge phase is completed, the energy consumption problem will be perfectly solved and the security will be significantly improved.

2. Surge

Dedicated to solve the problem of traffic congestion and high gas in Ethereum, Ethereum will be cut into 64 shards, and combined with Layer2’s rollups technology, the theoretical tps could be capped at 100,000 strokes/second (current Ethereum tps are about 13 strokes/second).

According to the Ethereum Foundation’s prediction, the shard chain should go live sometime in 2023, depending on the progress of the work after the merge, and these shards will enhance Ether’s ability to store and access data, but will not be used to execute code.

3. Verge

Technical updates, planned to transition from merekle trees to verkle trees, which can be considered as a database of Ethereum. This phase will in turn validate scalability and decentralize the network due to the increase in block data, and will optimize the storage on Ethereum and help reduce the node size. Ultimately, this helps ETH become more scalable.

4. Purge

Purge means that not all nodes must store all history blocks permanently. Instead, clients will stop storing histories older than one year. This means that Ethereum will have lower hardware requirements for nodes and lower bandwidth for the network.

5. Splurge

Miscellaneous upgrades to simplify the use of Ethereum and make it more accessible to users.

Ethereum upgrading roadmap, source: vitalik’s twitter

The Merge

In 2013, Vitalik Buterin and Gavin Wood released a whitepaper that conceived of Ethereum, the “A NEXT GENERATION SMART CONTRACT & DECENTRALIZED APPLICATION PLATFORM”. Since the adoption of the proof-of-work consensus algorithm in 2015, Ethereum has been searching for a better algorithm to create a decentralized, scalable, secure and energy-efficient network.

In 2017, Ethereum identified a hybrid PoW/PoS system, Casper the Friendly Finality Gadget. Vitalik Buterin proposed at that time to move from PoW to PoS in 2019.

This time, the Ethereum upgrade will be carried out in three steps: The Beacon Chain, The Merge, and Shard Chains. It is currently on the eve of the merge.

Before introducing the merge, let’s introduce two important nodes in the process of upgrading Ethereum.

Two important nodes in the process of upgrading Ethereum

Beacon Chain

l. PoS

Proof of stake is a consensus algorithm that requires miners to stake a portion of their tokens to validate transactions. Miners are chosen at random to validate a block, but those who hold more shares or hold them longer have an advantage. The miners chosen must all agree to validate the transaction. After they validate a block, it is added to the chain and a fee is charged in the form of cryptocurrency. If they do not validate correctly, their own shares will be affected and they will lose some of their tokens. This provides more security to the process. It has the following advantages over PoW.

1. Fast transaction processing

2. Environmentally friendly, in contrast to PoW

3. Very low energy consumption, no need to consume large amounts of electricity

4. Higher security

2. Staking validator

Validators are virtual and come through staker activation. In the proof-of-work scenario, users become miners by purchasing a mining machine. After Ethereum upgrading to PoS, users activate and manage validators by staking ETHs. Each validator needs at least 32 ETH for itself, in addition to a dedicated computer to execute the client and ensure the node keeps running. When more than 32 ETH are staked, the staker can choose to activate multiple validator identities, with one validator activated for every 32 ETH staked.

The validator runs through the validator client and also needs to maintain cooperation with the Beacon chain. Each Beacon node has the ability to track and read the Beacon chain. Each validator client can also be used as a beacon node and communicate with other beacon nodes. An validator client can contain multiple validators’ functions at the same time.

In terms of staking, nodes and users can stake in various ways: Solo home staking, Staking as a service, Pooled staking, or Centralized exchanges. The details of the implementation are not detailed in this article.

3. Reward and penalties

In a Beacon chain under the PoS mechanism, a validator is rewarded by:

1. The validator is rewarded if it votes a proof that a majority of other validators agree on.

2. The proposer will be rewarded when the block proposed by the proposer is finally confirmed.

3. Validators who successfully report malicious behavior will receive a reporter’s reward.

The misbehavior of the validators will also be punished by the protocol, which is broadly divided into two types: Penalties and Slashing.

Penalties are from the validators’ inactiveness or generating incorrect proofs, but penalties will only fine the balance of the validator and will not expel the validator from the protocol.

Slashing is a more serious punishment mechanism, only the validator that jeopardizes the overall stability of the Ethereum network will be penalized, which makes the maximum possible loss for the evil node is all the equity it has, and the evil node will also be expelled from the protocol. The cases of being slashing are usually divided into:

1. As a block proponent, propose two conflicting block proposals within its allocated slot.

2. When voting as a validator, two votes are generated, which contain conflicting references to checkpoint block transitions of the same height. That is, two completely conflicting blocks are validated and voted for in one slot, which is called “double voting”.

3. As the validator is not in order to carry out “wrap-around voting”, that is, with overlapping checkpoint block transition references to generate two votes. For example, a vote that references a transition from checkpoint block 1 to checkpoint block 4, and a vote that references a transition from checkpoint block 2 to checkpoint block 3. One might argue that this rule should be replaced by the more obvious rule that all block transition references should be in order, however an honest node might miss a checkpoint block and a vote out of order might be legal. As shown in the following:

Source: BitMEX

If an evil node is penalized with a slashing, the node is immediately penalized and no longer validated, and will continue to be penalized for approximately 36 days and can only be withdrawn in a certain Epoch after 36 days, depending on the severity of the evil, up to a maximum penalty of forfeiting all rights and interests.

4. Life cycle of validators

Each validator requires a balance of 32 ETH to be activated. A user staking 32 ETH to a deposit contract on the Ethereum mainnet will activate a validator. The beacon chain will deactivate (“force out”) all validators with a balance of only 16 ETH; the staker will be able to withdraw any remaining validators’ balance.

The following diagram shows the state transfer for each validator.

Source: ethereum.org

1) Deposit

The validator has deposited ETH into the deposit contract and performed the corresponding Deposit operation.

2) Activation queue

In epoch-processing, check if the validator is eligible for activation.

3) Active status

Active validators will be assigned duties (performing proofs, proposals, etc.) and receive rewards within each epoch.

4) Slashed and exited

Validators who are slashed and exited will wait for a long lockup period of 8192 epochs (about 36 days) before withdrawing.

5) Non-slashed and exited

Validators who are not slashed and exited will have to wait 256 epochs (about 27 hours) before they can change to withdrawable status.

6) Withdrawal

Withdrawable status is the end of this phase and validators can perform withdrawals in subsequent phases.

5. Committee

The proof of stake divides the Ethereum time into Slot and Epoch, which determine the rhythm of consensus in the system, i.e., one slot every 12 seconds, each epoch contains 32 slots,which means an epoch is generated every 6.4 minutes. Only one valid block can be created in each slot, a validator is randomly selected as the block proposer in each slot, and this validator is responsible for creating a new slice block and sending it to other nodes on the network.

Also in each slot, the Beacon chain randomly selects a “committee” of at least 128 validators to vote on each shard block, whose votes are used to determine the validity of the proposed block. The number of committees is not fixed and changes as the block changes. After each epoch, the committee is dissolved and reformed by different random participants, which helps avoid bad participants in the committee from hurting the shard. In addition to validating votes, the committee is also responsible for attempting to crosslink blocks in its own slot to a specific block in a Beacon chain. In this case, crosslinking means connecting a beacon block to all its corresponding shard blocks by generating a reference, and the shard block receives a hash value from the corresponding beacon block that contains the hashes of all the shard blocks it crosslinks with. Beacon blocks are mainly cross-linked to the shard block corresponding to the previous block, but may also be cross-linked to the shard block corresponding to the block before the previous block, due to the fact that some beacon blocks may lose references to some of the shard blocks, and these crosslinking will allow the missed shard blocks to be cross-linked to the current beacon block.

Source: BitMEX

The following figure describes the possible scenarios in the three slots. The first case is that in Slot 1, the proposer proposes a block, which is then proved by two validators; one of the validators in Committee A goes offline. The proof of Slot 1 and the block propagates the network and reaches many validators. The second case is that in Slot 2, the proposer proposes a block, but the validator in committee B does not see it, so it proves that the head of the beacon chain is a block of Slot 1. The third case is that in Slot 3, all the validators in Committee C independently prove the same header.

Source: BitMEX

A validator can only be included in one committee per epoch. There are currently more than 8,192 validators in Ethereum, which means there is more than one committee per slot. All committees are of the same size and have at least 128 validators. When there are less than 4,096 validators, the security probability decreases.

London upgrade：EIP-1559

EIP-1559 proposes a new on-chain fee pricing mechanism: the original transaction fee is changed from “auction” pricing to “market rate” pricing mechanism, specifically, the fee is split into two parts: base fee and tip, of which the base fee is determined by Ethereum according to the block capacity, and the tip is determined by users according to the market of other fees. After the transaction is submitted, the base fee will be burned, while the tip will be rewarded to the miner who packaged the transaction.

Source: BitMEX

1. Ethereum on-chain transaction UX（User Experience）

EIP-1559 specifies the base fee in Ethereum’s transaction fee, thus reducing much of the uncertainty in transaction fees and times. Because transaction creators can set tips based on the urgency of the transaction, it means that the dominance of transaction packaging shifts from miners to users, and network congestion will hopefully be alleviated.

2. ETH economic mechanism

An important aspect of this fee system is that miners can only keep tips, and base fees are always burned (burned by the protocol). EIP-1559’s requirement that all base fees be paid in ETH mitigates the risk of economic abstraction, solidifies the economic value of ETH within the Ethereum platform, and reduces the risk associated with miner extractable value (MEV). As Ethereum flourishes, if the burning volume caused by base fees exceeds the minting amount of ETH, this will transform ETH from an inflationary asset to a deflationary asset with gradually decreasing supply.

3. Ethereum security

EIP-1559 helps prevent spam transaction attacks against the Ethereum network. Before the upgrade, an attacker could theoretically collude with miners to send spam transactions to Ethereum at a fee below the market price, causing network congestion. But EIP-1559 ensures that an attacker can never launch an attack with a fee below the base fee. Also over time, such attacks will become even more expensive, as the network congestion caused by spam transactions will cause Ethereum to keep raising the base fee.

Progress of Merge and difficulty bomb

It is planned that Merge for Ethereum will be carried out on a “minimal disruption” principle, so that the original running application clients can switch to PoS smoothly.The Beacon chain first exists as an intermediate layer on top of PoW, similar to the layer2 of consensus network. After the Merge, the original main network becomes the “execution layer”, in which smart contracts and network rules are retained, while the original Beacon chain becomes the “consensus layer”, and the execution-related components in the PoW layer are combined into the new consensus layer, and the PoW will no longer exist. The current upgrade timeline of Ethereum is as follows.

Source: ethereum.org

On March 15, 2022, the Ethereum merge public testnet Kiln went live, representing that it has successfully transitioned and upgraded to a full PoS mechanism.

On June 8, 2022, Ethereum completed the first rehearsal of Merge — the successful completion of the merge of the testnet Ropsten, which was launched in 2016 and is the longest-running Ethereum testnet to date. According to the developer sources, about 14% of the validators experienced downtime during the merge of Ropsten, but most of them were caused by incorrect node configurations, which were quickly resolved. In addition, the merge on Ropsten was considered near-perfect and a major milestone in the migration of Ethereum to PoS.

On July 27, 2022, Ethereum announced the upgrade of Bellatrix to Goerli’s beacon chain Prater in preparation for the testnet merge.

On August 4, 2022, Bellatrix Beacon chain was activated, which is the final preparation for merge.

On August 12, 2022, Georli test network and Beacon chain completed merging, and Georli testnet officially transitioned to PoS. This is also the last testnet of Ethereum to be merged before the official upgrade.

At present, according to the core developers of Ethereum, the mainnet Bellatrix upgrade Epoch is 144896, expected on September 6, and the mainnet TTD (Terminal Total Difficulty) is 58750000000000000000000, expected on September 15, when Paris upgrade will be launched and complete the hard fork.

The latest Difficulty Bomb is expected to come on September 13.

Source: wenmerge.com

The difficulty bomb is primarily designed to reduce the profitability of mining in order to discourage miners prior to the merge. By increasing the difficulty for miners to verify transactions, the profitability of PoW miners is thus reduced. When the difficulty reaches the limit, physical miners will not be able to validate blocks.

Added to the code in 2015, this is a mechanism algorithm that adjusts the chain difficulty according to the block time. The algorithm is implemented mainly by artificially increasing the mining difficulty to achieve the goal of making miners lose their motivation to mine and thus switch to the upgraded PoS chain. Among them, the dynamic parameter adjustment algorithm in the difficulty bomb is more complex, the algorithm will double the difficulty after every 100,000 blocks, with the increasing block height to drive the mining difficulty exponentially, until the difficulty increases to a certain level, so that miners cannot get blocks to receive rewards.

= Current blocking time（s）

= Last blocking time（s）

= Difficulty of current blocking

= Difficulty of last blocking

n = Block height

The current delay in the Ethereum merge has caused developers to keep resorting to pseudo block numbers in place of the original block numbers to delay the bomb. But with the development of the Ethereum ecosystem, the current volume makes dismantling and delaying the difficulty bomb less and less likely.

But what causes the delay of Ethereum merge time and again is essentially how to convince the whole ecosystem (especially miners) to shift a large amount of resources in their hands to PoS without forking, which is an extremely tricky question.

The Fading ETH 2.0 Concept

Both Vitalik and the community are currently downplaying the concept of ETH 2.0 for several main reasons.

1. One of the main problems with ETH 2.0 is that this creates a broken mental model for new Ethereum users. They will intuitively think that ETH 1.0 comes before and ETH 2.0 comes after; or that ETH 1.0 will cease to exist after ETH 2.0 comes out. But both ideas are incorrect. After the merge, the existing Ethereum will be used as the execution layer, responsible for handling transactions and execution; the Beacon chain will be integrated into the original Ethereum as the consensus layer, responsible for handling PoS consensus.

2. With the evolution of Ethereum development roadmap, ETH 2.0 can no longer accurately represent the current development roadmap of Ethereum. A rigorous and accurate choice of words will help the widest possible audience understand what is on Ethereum.

3. Prevent fraud. Previously, attackers have tried to use the fake “ETH2” token to trick users by telling them to exchange ETH for “ETH2” tokens, or that they must somehow migrate ETH before upgrading to ETH 2.0. The community hopes that by downplaying ETH2.0 to eliminate this scam and create a more secure ecosystem.

4. Clarification of stake. Some staking projects also use the term “ETH2.0” to represent ETH staked on the Beacon chain. Since these users will not actually receive the “ETH2.0” tokens, this may cause confusion.

References:

https://ethereum.org/en/upgrades/

https://our.status.im/two-point-oh-the-beacon-chain/

https://blog.bitmex.com/zh_cn-ethereum-2-0/

https://ethos.dev/beacon-chain/

https://blog.bitmex.com/zh_cn-ethereums-proof-of-stake-system-calculating-penalties-rewards/

https://www.panewslab.com/zh/articledetails/974rx5031u60.html

https://www.binance.com/zh-CN/news/top/7154537

https://blog.bitmex.com/zh_cn-breaking-down-the-fee-market-eip-1559/