One of the biggest advances in technology for the Ethereum blockchain since its creation is about to occur: the switch from proof-of-work (PoW) to proof-of-stake (PoS), often known as Ethereum Merge or Eth2.

The eternal date for the merger of the existing PoW chain and the PoS chain was set by the Ethereum developers as September 19. Early in August, the blockchain will launch the Bellatrix update and two weeks later, the Merge, following the successful integration of the Goerli testnet. The second week of August is when The Merge is anticipated to go live on the Goerli testnet.

Scalability was the main topic of discussion when the shift was first being discussed. Thus Ethereum developers recommended a three-phase transformation procedure. Beginning on December 1, 2020, with the launch of Beacon Chain, Phase 0 of the three-phase process begins; the changeover has been planned for almost two years.

The transition to PoS was started by The Beacon Chain, which allowed users to stake their Ether (ETH) and become validators. The Beacon Chain coexists with Ethereum’s mainnet. But eventually, the Merge will be connected to both the Beacon chain and the mainnet. Hence Phase 0 had no impact on that blockchain.

Phase 1 deployment was initially scheduled for mid-2021 but was postponed to early 2022 due mainly to incomplete work and code audits, according to developers.  Eth2 will begin storing the whole transaction history of Ethereum in Phase 1 and putting smart contracts into use on the PoS network. As Eth2 removes mining from the web, steakers and validators will formally begin their task.

The World Wide Web Consortium developed WebAssembly to increase Ethereum’s efficiency dramatically. The proposed deterministic subset of WebAssembly for the Ethereum brilliant contract execution layer is called Ethereum WebAssembly. Ethereum WebAssembly, or eWASM, will replace the present Ethereum Virtual Machine in Phase 2, the last transition stage (EVM). The EVM would be replaced by the eWASM, which would be used in Phase 2.

Co-founder of the decentralized finance (DeFi) lending platform Hubble Protocol, Marius Ciubotariu, told Cointelegraph that he is not overly concerned about the delays because any new technology with this much impact on the ecosystem would take time:

“PoS is not yet live, but I do not consider this a worry. I know the Merge has taken longer than some might have anticipated. But the best course of action is to take your time, given the advancements in technology and the potential for serious problems. I’m sure that more procedures will surface once this Merge goes live. We’ll keep up the innovation inside the Ethereum community, which is something I’ve enjoyed and still do.

The effects of Merge on Ethereum’s environment

The Beacon Chain and the existing PoW mainnet will join during the forthcoming Merge, moving all Ethereum’s historical data to the new chain. For an ecosystem the size of Ethereum, a complete shift in consensus would have profound political and technical ramifications.

The Merge will be complex, according to Barney Chambers, co-founder and co-lead developer of cross-chain DeFi platform Umbria Network:

“Validators who already hold the majority of the tokens will become the holders of the majority of the Ethereum accumulation. According to the Ethereum Foundation, the merger won’t affect the price of Ethereum. Still, it will drastically change how new tokens are distributed, which will impact the cost of Ethereum and the broader cryptocurrency ecosystem.

The Ethereum protocol has a code called the “difficulty bomb” since 2015. It is set to run when a predetermined number of blocks have been mined and uploaded to the blockchain. The difficulty bomb will cause the amount of proof-of-work mining difficulty to rise, making it impossible to conduct mining at commercially profitable scales. It dramatically increases the difficulty of mining on the current proof-of-work blockchain.

The bomb’s straightforward objective is to promote a total miner merger, which will boost the uptake of the proof-of-stake chain. As a result, the difficulty bombs would make mining a block impossible, forcing Ethereum’s proof-of-work chain to stop generating blocks. Its creators refer to this circumstance as the “Ice Age.”

Ethereum had to switch to a new PoS network because of its increasing ecosystem, which caused multiple instances of network congestion and highly high gas prices. However, the narrative has also changed over the past year to emphasize PoS’s superior environmental friendliness to PoW. While some praise Eth2 for opening the door for a greener protocol, Patricia Trompeter, CEO of carbon-neutral cryptocurrency mining firm Sphere3D, has different ideas. Trompeter stated:

As “Band-Aid remedies,” marketing ploys like the “Change The Code” campaign don’t give any solutions to a complete industry shift toward renewable energies; PoS merely results in wasteful spending and improper allocation of energy resources.

According to Patricia, PoS essentially destroys the decentralized infrastructure of cryptocurrencies, “moving power toward the wealthiest holders with unquestionable control over users.”

After the merger, there will be a reduction in ETH issuance to around 0.6 million per year, with a corresponding increase in ETH burnt to 2.7 million, for a net 2.1 million ETH burnt annually, a reduction in ETH supply of -7 percent, making ETH a deflationary asset. Once the difficulty bomb goes off, ETH miners will be compelled to mine other PoW coins using the same hashing method for their existing equipment or altogether quit the market.

The shift, according to Ethereum co-founder Vitalik Buterin, would help the network scale and reduce energy consumption by 95%. The transaction processing speed is anticipated to match that of centralized payment processors. But none of these functions would be accessible after the Merge on September 19.

Sharding, a significant scalability solution that enables simultaneous transaction processing, won’t be available until Phase 2 is finished, which is anticipated to happen in the second half of 2023.

The Swell Network’s noncustodial and liquid ETH staking protocol’s co-founder and CEO, Daniel Dizon:

“The Merge reflects a fundamental shift to Ethereum’s hardware requirements and underlying economic model, resulting in a considerable drop in energy output. The incentives for participating in ETH staking will grow dramatically due to priority fees and MEV capture. Hence it is anticipated that there will be a high demand for ETH. The Merge’s implications have not yet been wholly factored in. Compared to the current situation of Ethereum, more requests and decreased issuance will result in structural upward pressure on price.

Also, read – TRON DAO Announces New Grants Program to Foster Growth of Overall Ecosystem

Does Ethereum become security after the Merge?

The main topic of debate, aside from the Merge’s technological and financial effects, seems to be whether Ether would still count as security once the network switches to PoS. The debate has garnered a lot of traction online recently, and opinions vary on the answer to the issue.

Before the switch to PoS, there was considerable discussion about how secure Ethereum is. After the United States Securities and Exchange Commission sued Ripple, classifying the company’s sale of XRP tokens as a security, the discussion gained significant traction.

Since then, many XRP backers have cited ETH’s “pre-mine,” and they frequently accuse the SEC of giving Ethereum a free pass. Legislators concur that Bitcoin (BTC) can be viewed as an autonomous asset class. However, there is disagreement regarding Ethereum’s legal standing. The lack of defined restrictions for the cryptocurrency sector is to blame for the uncertainty and dilemma around security status.

According to Adam Levitin, a research professor at Georgetown University Law Center, the Ethereum network’s Proof-of-Stake (PoS) architecture may qualify as a security in the eyes of regulators if:

Howey refers to an investment of “money,” but that has always been taken only to signify an investment of worth, the author continued. This requirement is easily satisfied by placing a stake.

Levitin’s claim was refuted by Jacob Franek, co-founder of Coin Metrics, who asserted that Ethereum is one of the most decentralized platforms with open-source backing. The centralization of decision-making has been a significant worry with the PoS transition. The CEO of Allnodes, a platform for reward monitoring and block transaction validation, Konstantin Boyko-Romanovsky:

“Ethereum’s new PoS consensus process carries the risk of centralization, but it is far from becoming a reality. The robust community that supports the Ethereum network has so far overcome every obstacle, so there is no reason to believe that the centralization problem won’t be handled either.

Decentralized autonomous organizations, non fungible tokens, and DeFi are now supported on the Ethereum network. The actual move to PoS with sharding and high scalability capabilities won’t be possible until beyond 2023, even though the ecosystem will continue to serve such early use cases. Executing the final phase will be crucial to Eth2’s success, but considering the previous delays, many industry analysts still have doubts.