The Ethereum Merge is by no means the final stage of Ethereum’s journey. It’s a crucial step but still won’t help Ethereum scale right away. In a recent talk, founder Vitalik Buterin sketched the milestones and end goal. In short: 100 thousand transactions per second, without sacrificing decentralization.
Buterin unfolded the Ethereum roadmap at a conference in Paris in July 2022. He claims the long-anticipated Merge will make Ethereum about 55% finished after the Merge is complete. So then what’s left to do? The end goal is to dramatically increase capacity without ultimately turning Ethereum into a massive centralized database. This requires all sorts of crafty ways to compress data and outsource data storage away from the Beacon chain.
The Ethereum Merge and Everything After
In the Ethereum roadmap, the Merge is arguably the major milestone as it replaces Ethereum’s ‘engine’: its consensus mechanism. On the surface, users will not spot the differences between before and after. We can think of the Merge as keeping the exterior of a car intact while replacing the combustion engine with an electric engine. No small feat!
All the steps that come after the Merge are less fundamental but no less important: they have to do with scalability. They ensure that Ethereum can process orders of magnitude more transactions. Those improvements have to do with revving up the engine.
The Ethereum Roadmap Phase 1 – The Merge
The Ethereum Merge has been in the works for about seven years. The upgrade is all about the switch from proof-of-work to proof-of-stake. The Beacon chain, which has been tested for almost two years, will be merged with the old Ethereum blockchain. Mining will no longer be a business model in the Ethereum ecosystem and so Ethereum post-Merge will consume 99%+ less energy than before.
Also, from an investor’s perspective, Ethereum will change. Instead of miners securing the network, it will rely on ETH owners locking up some of their ETH as collateral to earn staking yields. Staking Ether becomes like an “internet bond” with the lowest risk of all Layer 1s. We’re dealing with a fundamentally different ‘economy’ here. After the Merge, Ethereum will no longer be a ‘mine-and-dump economy’ but a ‘stake-and-hold economy’. Whereas miners have to sell sooner or later to pay their bills, stakers benefit from staking as many ETH as possible: after all, compounded interest makes one wealthy.
The reason that Ethereum proponents are calling Ether “ultra-sound money” is that Ether will probably become deflationary after the Merge. Until the Merge, the block reward for miners is about 13,000 Ether per day. After the Merge, the new amount of ETH drops to just 1,500 per day. This 90% reduction corresponds to roughly three Bitcoin halvings. Hence, this deflationary move is also called the triple halving. Subtract from that the roughly 8,000 ETH burned per day, and your back-of-the-napkin calculus will tell you that the amount of existing ETH will decrease by roughly 1-2% per year.
The Ethereum Roadmap Phase 2 – The Surge
No, the Surge is not about the expected rise in the price of Ethereum… It’s all about scaling. As Vitalik Buterin said in a July 2022 interview:
“You can lose a billion dollars from a hack but you can also lose a billion from everybody needing to pay way higher…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
