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ETHEREUM MERGE - The Most Anticipated Event In Crypto Explained - YouTube

Channel: Finematics

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the ethereum merge despite being one of

[1]

the most significant blockchain upgrades

[3]

in the history of cryptocurrency is

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still a poorly understood topic so what

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is the theory merge what are its

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economic implications and what are the

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main merge risks and misconceptions

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you'll find answers to these questions

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and more in this video before we begin

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if you want to learn more about

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decentralized finance and the technology

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behind it make sure you subscribe to my

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channel hit the bell icon and enable all

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notifications

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let's start with understanding the

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motivations behind the merge

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the main purpose of the merge is to

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transition ethereum from its current

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proof of work consensus mechanism to the

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proof of stake model in short in the

[39]

proof of work or pow model the network

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is secured by miners who have to

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purchase and run the mining hardware in

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this model the miners consume

[48]

electricity in exchange for block

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issuance and a portion of transaction

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fees in the proof of stake or pos model

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the network is secured by validators who

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have to stake eth in order to validate

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the network in this model the validators

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don't consume much electricity

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the transition to pos aims at making

[67]

ethereum more energy efficient more

[70]

secure and lays the groundwork for

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enabling more scalability with sharding

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later on

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the move to pos was one of the big

[76]

milestones in the original ethereum

[78]

roadmap and research began before the

[81]

ethereum network launched

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instead of transitioning ethereum to pos

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in one huge and potentially dangerous

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change the ethereum researchers and

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developers decided to split it into two

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steps

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the first step launching the beacon

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chain was successfully executed in

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december 2020 this allowed for creating

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a separate parallel pos chain that could

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be tested in production for a period of

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time without having any direct impact on

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the already existing pow network that

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secures hundreds of billions of dollars

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of economic activity another important

[116]

reason for launching the beacon chain

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earlier was to give enough time to

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stakers so the amount of staked heath

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can be sufficiently large to secure the

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network at the time of the merge

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when making this video the beacon chain

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had over 400 thousand validators and

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over 13 million it actively staking the

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merge is the second step in the

[136]

transition to pos which merges the

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consensus layer of the beacon chain with

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the evm state of the ethereum pow chain

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most popular implementations at the

[355]

moment are prism lighthouse and taku the

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existing client implementations will

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transition to being execution layer

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clients and will work with the consensus

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layer clients to form a full ethereum

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node

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with multiple client implementations on

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both layers there are multiple different

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combinations of execution and consensus

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clients for example one validator may

[377]

prefer to run prism with geth another

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may prefer to run lighthouse with

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nethermind with four popular execution

[384]

clients and five consensus clients there

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are 20 pairwise combinations

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at the time of the merge execution

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clients like get will start listening to

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blocks coming from the pos chain

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the trigger for this switch will be

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determined by a new variable called

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terminal total difficulty which

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represents the sum of the proof-of-work

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difficulties of every block accumulated

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on the ethereum pow network when the

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chain accumulates enough proof of work

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to exceed the terminal total difficulty

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nodes switch to following the canonical

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pos chain

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it's interesting to notice that for the

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first time an ethereum upgrade will be

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triggered using total difficulty instead

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of the usual block height this is to

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avoid an attacker mining low difficulty

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malicious forks that would satisfy the

[427]

block height requirements at the time of

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the merge and cause confusion on the

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final pow block

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after the merge all applications running

[435]

on ethereum should run exactly as

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pre-merged with the state and

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transaction history maintained this

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means that for example if we were a

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liquidity provider on uni swap before

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the merge after the merge the state will

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be the same hence we will still be

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providing liquidity on uni swap if we

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had an open loan on the other this loan

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will still be in place and users

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shouldn't notice any changes

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the transition has been going through

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multiple intensive rounds of testing

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that include merging shadow forks and

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merging test nets shadow forks are

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copies of an existing ethereum network

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merging them helps catch potential

[470]

issues related to the current state of

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the network these works are usually

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abandoned after testing and the purpose

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is to expose any potential problems

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unlike most shadow forks merged test

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nets usually persist as pos networks

[483]

this helps developers with testing their

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applications on a chain that resembles

[487]

ethereum post merge

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after robsten and sepolia the last and

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most used long-lived test net to merge

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is girly after this is successfully

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executed we can expect the announcement

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of the mainnet merge now let's discuss

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one of the interesting topics which was

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to a certain extent responsible for

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postponing the merge which is client

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diversity

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ethereum in contrast to a lot of other

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platforms doesn't rely on a single

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client implementation in fact there are

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currently four mainstream

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implementations get nethermine arrigon

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and basu

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having multiple implementations allows

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for quickly switching to a different

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working client in case a bug is found in

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the software you are running

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this makes ethereum more resilient to

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attacks as even a bug or an intentional

[532]

exploit introduced by one of the clients

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would have limited consequences

[537]

after the merge client diversity plays

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an even bigger role

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this is because a bug introduced in the

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pos network can have different

[544]

consequences depending on the staking

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share it affects

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let's start with the worst situation if

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the problem affects 2 3 or more of the

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stake this can result in finalizing a

[555]

bad state route not something we want

[558]

ever to happen

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if the problem affects half or more of

[561]

the clients this can result in the

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creation of a dominant and valid chain

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that won't get finalized but will be

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reverted better than two-thirds or more

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but still pretty bad

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finally if the problem affects at least

[574]

one-third of clients no new transactions

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on the network would get finalized now

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knowing these potential outcomes we can

[580]

understand better why client diversity

[583]

is so important

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let's assume that 70 of the consensus

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clients are running prism as their go-to

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solution

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in case there is a bug found in this

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implementation the network instantly

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suffers the worst scenario with more

[596]

than two-thirds of the clients being

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affected and ethereum is prone to

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finalizing a bad state now if prism has

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40 of the network and a similar bug is

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found the ethereum network would stop

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finalizing until either the bug is fixed

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or different backup clients are spun up

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so the network share of prism goes under

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one third

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at the time of making this video prism's

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market share is at around 40 of the

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consensus clients this is a huge

[622]

improvement from around 70 percent in

[624]

early 2022 and will boost network

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resilience

[628]

now let's discuss some important

[630]

implications of the merge

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first of all the block time will not be

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the same as on the existing pow chain

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the block time on pow is usually quoted

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as averaging around 13 seconds after the

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merge time is divided into fixed

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duration slots of 12 seconds some slots

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can miss a block so the average block

[648]

time will almost certainly be higher

[650]

than 12 seconds though it should be

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lower than 13 seconds

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secondly the merge will also reduce the

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block time variance and on average we

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can expect faster transaction

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confirmations

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the merge will also make the distinction

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between bitcoin and ethereum even

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clearer bitcoin will remain the battle

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tested proof-of-work network while

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ethereum will be fueled by the fairly

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new proof-of-stake energy-efficient

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mechanism another important implication

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is that it will be harder to attack the

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network because of the higher economic

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security and the power to slash

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attackers and also good news for gamers

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the gpu market will be most likely

[686]

flooded with millions of graphic cards

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as mining will no longer be needed

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the merge will also most likely decrease

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the heat supply over time and spike more

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media interest as a deflationary asset

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also another important implication in

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total there are around 100 people

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working on the merge after the merge

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these people can start working on other

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improvements such as sharding

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there are also a few big misconceptions

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about the merge

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first of all the merge does not improve

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ethereum scalability and it doesn't

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reduce transaction fees at least not

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directly the previously mentioned minor

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reduction in block time can result in a

[722]

small increase in throughput but what is

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the most important is that the merge and

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the transition to pos lay the groundwork

[729]

for further scalability improvements

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that will be delivered in the subsequent

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network upgrades

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secondly the merge doesn't enable

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withdrawals of eth from the validators

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straight away this will be enabled in

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one of the next hard forks after the

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merge

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it's worth mentioning that transaction

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fees collected after the merge have

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their own recipient ether address on the

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evm so it accumulated from the

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transaction fees will be immediately

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available also as we know from the

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previous section ethereum doesn't have

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to stop to enable the transition this is

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yet another common misconception

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another common misconception is that

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there will be another e token on the

[765]

beacon chain or for the ethereum 2.0

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the last misconception worth mentioning

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is that each supply will keep decreasing

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and trends towards zero this is also

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incorrect as the eighth supply will find

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an equilibrium based on the network

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demand specifically the heath burn rate

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from transaction fees and the eth

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issuance this equilibrium can be

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established on different levels and

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change over time but it will never reach

[790]

zero the current estimates predict the

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heat supply to pick around 120 million

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eath at the merge and find a long-term

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equilibrium anywhere between 60 million

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to 100 million each in a few decades

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hopefully this clears up some of these

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common misconceptions

[805]

the merge like any other complicated

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technology upgrade doesn't come without

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any risks here are some potential risks

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that are worth keeping in mind most of

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them are related to the transition to

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pos rather than the merge itself but

[818]

they are still worth mentioning

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after the merge validators proposing the

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next block will be known ahead of time

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as part of the public selection process

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this makes proposals vulnerable to

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networking denial of service attacks

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as an example if the attacker knows they

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are one of the next proposals in line

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they can try to dos the current

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proposers causing them to lose their

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slot and not include any high value

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transactions that now can be picked up

[843]

by the attacker the most popular

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solution to this problem at the moment

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is a single secret leader election that

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uses clever cryptography to prevent the

[852]

attacker from knowing who the next

[853]

proposer is while still providing this

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information to the actual proposer

[858]

there are also centralization risks that

[860]

come with the concentration of stake in

[862]

pools such as lido and coinbase this can

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lead to attacks such as censorship or

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extortion

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in the case of lidar there is also

[871]

governance takeover risk and smart

[873]

contract risk one of the interesting

[875]

solutions suggested by the lido

[877]

community was to allow people who

[878]

deposit their eath to liza and receive

[881]

st eth to veto any potential dangerous

[884]

proposals

[885]

it's great to see the ethereum community

[887]

anticipating a lot of potential risks

[889]

associated with the merge and the

[891]

transition to pos and already finding

[894]

some potential solutions

[895]

these solutions even if not implemented

[897]

straight away can be added to the

[899]

network in one of the following hard

[901]

works making it more resilient in the

[903]

future

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the ethereum merges clearly one of the

[906]

biggest and most anticipated upgrades in

[908]

the history of the cryptocurrency space

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when it comes to the date of the merge

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at the moment most people predict it to

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happen around september 2022 this should

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be possible if there are no major issues

[919]

founded during the girly test net merge

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despite a few potential risks the

[923]

researchers and developers have been

[925]

spending countless hours making sure

[927]

there are no surprises during the

[929]

maintenance merge

[930]

after the merge ethereum will become

[932]

more secure and sustainable it will also

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be perfectly positioned for the next big

[937]

upgrades the search the verge the purge

[940]

and the splurge we will learn more about

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this in the following videos but it's

[944]

worth mentioning that all of these

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subsequent phases can be worked on in

[948]

parallel so what do you think they'll

[950]

emerge and what are other topics that

[952]

you're interested in at the moment

[953]

comment down below and as always if you

[956]

enjoyed this video smash the like button

[958]

subscribe to my channel and check out

[960]

cinematics on patreon to join our

[962]

community of defy enthusiasts

[964]

thanks for watching

[968]

you

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