Ethereum Upgrades: The Merge, Beacon Chain, and Sharding

In this guide, we used our fine-tuned GPT-3 research assistant to answer key questions about Ethereum upgrades, including the Merge, Beacon Chain, and Sharding.

a month ago   •   10 min read

By MLQ

In this guide, we use our fine-tuned GPT-3 crypto research assistant to answer key questions about Ethereum upgrades.

Specifically, we fine-tuned GPT-3 to answer factual questions based on additional knowledge, in this case, the Ethereum documentation.

A few of the key questions we ask include:

  • What is the Merge?
  • When did the merge take place?
  • How does the Merge relate to the Ethereum Mainnet?
  • How does proof-of-work differ from proof-of-stake?
  • What impact did the Merge have on users and holders of ETH or other digital assets on Ethereum?
  • How did the Merge affect Ethereum's energy consumption?
  • What is the Beacon Chain and how does it relate to the Merge?
  • What is sharding and how does it relate to the Merge?
  • How does the Merge set the stage for further scalability upgrades for Ethereum?

The Merge

source: DALLE-3

What is the Merge?

The Merge was the joining of the original execution layer of Ethereum (the Mainnet that has existed since genesis) with its new proof-of-stake consensus layer, the Beacon Chain. This eliminated the need for energy-intensive mining and instead enabled the network to be secured using staked ETH.

The Merge also set the stage for further scalability upgrades not possible under proof-of-work, bringing Ethereum one step closer to achieving the full scale, security and sustainability outlined in its Ethereum vision. It was designed to have minimal impact on smart contract and dapp developers, and was executed on September 15, 2022, completing Ethereum's transition to proof-of-stake consensus, officially deprecating proof-of-work and reducing energy consumption by ~99.95%.

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When did the Merge take place?

The Merge took place on September 15, 2022. It was a major milestone in the Ethereum network's transition to proof-of-stake consensus, officially deprecating proof-of-work and reducing energy consumption by ~99.95%. The Merge was the joining of the original execution layer of Ethereum (the Mainnet that has existed since genesis) with its new proof-of-stake consensus layer, the Beacon Chain. This eliminated the need for energy-intensive mining and instead enabled the network to be secured using staked ETH, allowing for more scalability, security, and sustainability.

Merging with the Ethereum Mainnet

The Merge was the joining of the original execution layer of Ethereum (the Mainnet that has existed since genesis) with its new proof-of-stake consensus layer, the Beacon Chain. This transition to proof-of-stake changed the way ether is issued, as it eliminated the need for energy-intensive mining and instead enabled the network to be secured using staked ETH. The Merge allowed the Ethereum blockchain to come into existence in July 2015 with all its familiar features—transactions, smart contracts, accounts, etc. and also merged the entire transactional history of Ethereum. This was a major step forward in realizing the Ethereum vision, as it provided more scalability, security, and sustainability.

Proof of Work vs. Proof of Stake

Proof-of-work (PoW) is a consensus algorithm that requires miners to solve complex mathematical puzzles in order to add new blocks to the blockchain. This process requires large up-front expenditures in the form of powerful hardware and energy consumption, resulting in economies of scale, and promoting centralization. In contrast, proof-of-stake (PoS) is a consensus algorithm that requires validators to stake a certain amount of cryptocurrency in order to activate validator software. This process does not require large up-front expenditures, and instead rewards validators with more cryptocurrency for their participation. Additionally, PoS requires validators to lock up assets as collateral, allowing the protocol to punish bad actors after an attack. The transition to PoS made Ethereum significantly more secure and decentralized by comparison to PoW.

Discuss the Merge and energy consumption.

Dapp and smart contract developers were largely unaffected by The Merge, as it was designed to have minimal impact on them. Non-validating Ethereum node operators, however, were required to run clients for both the execution layer and the consensus layer. Staking node operators and providers need to be aware of a few changes that came with The Merge, such as the need to upgrade their node setup. Finally, users and holders of ETH or any other digital asset on Ethereum do not need to do anything with their funds or wallet to account for The Merge, as ETH is just ETH and wallets work the same after The Merge as they did before.

The Merge marked the end of proof-of-work for Ethereum and the start of a more sustainable, eco-friendly Ethereum. Ethereum's energy consumption dropped by an estimated 99.95%, making it a green blockchain. This was achieved by joining the original execution layer of Ethereum (the Mainnet) with its new proof-of-stake consensus layer, the Beacon Chain. This eliminated the need for energy-intensive mining and instead enabled the network to be secured using staked ETH. The Merge also set the stage for further scalability upgrades not possible under proof-of-work, bringing Ethereum one step closer to achieving its vision of scale, security and sustainability.

What are some misconceptions about the Merge?

Misconception Reality
The Merge failed to reduce gas fees The Merge was a change of consensus mechanism, not an expansion of network capacity, and was never intended to lower gas fees.
Transactions were accelerated substantially by The Merge Though some slight changes exist, transaction speed is mostly the same on layer 1 now as it was before The Merge.
The Merge enabled staking withdrawals Staking withdrawals are not yet enabled with The Merge. The following Shanghai upgrade will enable staking withdrawals.
Running a node requires staking 32 ETH Anyone is free to sync their own self-verified copy of Ethereum (i.e. run a node). No ETH is required—not before The Merge, not after The Merge, not ever.

The Merge and future upgrades

The Merge upgrade represents the formal adoption of the Beacon Chain as the new consensus layer to the original Mainnet execution layer. This upgrade sets the stage for future scalability upgrades, including sharding.

The Shanghai upgrade is planned to follow The Merge, which will enable the ability for stakers to withdraw. The Merge and the Shanghai upgrade are interrelated in that they both are necessary for the successful transition to proof-of-stake. The Merge upgrade did not include certain anticipated features such as the ability to withdraw staked ETH, which the Shanghai upgrade will enable.

The Beacon Chain is responsible for validating nodes that have staked ETH in return for the right to participate in consensus, and it is the foundation for the other upgrades.

The Beacon Chain

source: DALLE-2

What is The Beacon Chain?

The Beacon Chain was the name given to a ledger of accounts that conducted and coordinated the network of Ethereum stakers before those stakers started validating real Ethereum transactions. It was created to ensure the proof-of-stake consensus logic was sound and sustainable before enabling it on Ethereum Mainnet.

The Beacon Chain introduced proof-of-stake to the Ethereum ecosystem and was merged with the original Ethereum proof-of-work chain in September 2022. It introduced the consensus engine (or "consensus layer") that took the place of proof-of-work mining on Ethereum and brought many significant improvements with it, such as the consensus logic and block gossip protocol which now secures Ethereum. The Beacon Chain was a foundational component for the secure, environmentally friendly and scalable Ethereum we have now.

What did The Beacon Chain do?

The Beacon Chain was the name given to a ledger of accounts that conducted and coordinated the network of Ethereum stakers before those stakers started validating real Ethereum transactions.

It introduced the consensus engine (or "consensus layer") that took the place of proof-of-work mining on Ethereum and brought many significant improvements with it. The Beacon Chain was responsible for accepting transactions from the original Ethereum chain, bundling them into blocks and then organizing them into a blockchain using a proof-of-stake based consensus mechanism.

It also introduced the block gossip protocol which now secures Ethereum. The Beacon Chain was a foundational component for the secure, environmentally friendly and scalable Ethereum we have now.

What is the impact of the Beacon Chain?

The Beacon Chain had a significant impact on the Ethereum ecosystem. It introduced proof-of-stake consensus logic, which replaced the proof-of-work mining that had been used previously. This allowed for a more secure, environmentally friendly, and scalable Ethereum network. The Beacon Chain also enabled the transition from two separate blockchains to one unified proof-of-stake Ethereum chain. This transition, known as The Merge, was a major milestone in the development of Ethereum. Finally, the Beacon Chain provided the foundation for future upgrades to the Ethereum network, such as sharding and eWASM.

How does the Beacon Chain impact future upgrades?

The Beacon Chain has enabled Ethereum to transition to a proof-of-stake consensus mechanism, which is necessary for future scalability upgrades such as sharding. The Merge upgrade formalized the Beacon Chain as the new consensus layer to the original Mainnet execution layer, and validators are now assigned to secure Ethereum Mainnet. The Shanghai upgrade, which is planned to follow The Merge, will enable the ability for stakers to withdraw their ETH, which is a necessary step for the successful transition to proof-of-stake. The Beacon Chain has also introduced the consensus logic and block gossip protocol which now secures Ethereum, and this will be essential for future upgrades.

Learn more about the Beacon Chain

The Beacon Chain was a foundational component for the secure, environmentally friendly and scalable Ethereum we have now. It introduced proof-of-stake to the Ethereum ecosystem and was merged with the original Ethereum proof-of-work chain in September 2022. The Beacon Chain introduced the consensus logic and block gossip protocol which now secures Ethereum. To learn more about the Beacon Chain, one can read the Ethereum documentation, which provides an overview of the Beacon Chain and its features. Additionally, there are several articles and blog posts that provide more in-depth information about the Beacon Chain and its role in the Ethereum ecosystem. Finally, there are several videos and podcasts that provide an overview of the Beacon Chain and its features.

Sharding

source: DALLE-2

What is sharding?

Sharding is a multi-phase upgrade to improve Ethereum’s scalability and capacity. It is a process of splitting a database horizontally to spread the load, and in an Ethereum context, sharding works synergistically with layer 2 rollups by splitting up the burden of handling the large amount of data needed by rollups over the entire network. This reduces network congestion and increases transactions per second, while also providing secure distribution of data storage requirements, enabling rollups to be even cheaper and making nodes easier to operate. The plans for sharding have been evolving as more efficient paths to scaling have been developed, such as the new approach of "Danksharding" which does not utilize the concept of shard "chains" but instead uses shard "blobs" to split up the data, along with "data availability sampling" to confirm all data has been made available.

When is sharding shipping?

Sharding is expected to ship sometime in 2023. It is part of a multi-phase upgrade to improve Ethereum's scalability and capacity. Sharding will provide secure distribution of data storage requirements, enabling rollups to be even cheaper, and making nodes easier to operate. The Beacon Chain, which shipped on December 1, 2020, and formalized proof-of-stake as Ethereum's consensus mechanism with The Merge upgrade on September 15, 2022, is a necessary prerequisite for sharding. When the first shard chains are shipped, they will just provide extra data to the network and won’t handle transactions or smart contracts. However, when combined with rollups, they will offer incredible improvements to transactions per second.

What are the key features of sharding?

Sharding is a multi-phase upgrade to improve Ethereum’s scalability and capacity. It works by splitting up the burden of handling the large amount of data needed by rollups over the entire network, reducing network congestion and increasing transactions per second. It also enables layer 2 solutions to offer low transaction fees while leveraging the security of Ethereum. The latest development plans for sharding, known as "Danksharding", do not utilize the concept of shard "chains" but instead use shard "blobs" to split up the data, along with "data availability sampling" to confirm all data has been made available. This approach to sharding is more efficient and solves the same original problem.

Version 1 & Version 2 of Sharding

Version Features
Version 1 Data Availability
Version 2 Code Execution, Cross-Shard Communication

Version 1 of sharding is focused on data availability, meaning that it is designed to spread the data storage requirements across the network, making it easier to operate nodes and reducing network congestion. This version also enables layer 2 solutions to offer low transaction fees while leveraging the security of Ethereum.

Version 2 of sharding is focused on code execution, meaning that it would allow shards to store and execute code and handle transactions. This would be done by allowing each shard to contain its unique set of smart contracts and account balances, and by allowing for cross-shard communication to enable transactions between shards. This version is still being debated in the community, as it is unclear if it is necessary to add this extra functionality to shards, considering the transactions per second boost that version 1 shards provide.

What is the relationship between sharding and future upgrades?

Sharding is an upgrade to Ethereum that is designed to improve scalability and capacity. It works synergistically with layer 2 rollups by splitting up the burden of handling the large amount of data needed by rollups over the entire network. This will reduce network congestion and increase transactions per second.

Originally, the plan was to work on sharding before The Merge to address scalability, but with the boom of layer 2 scaling solutions, the priority shifted to swapping proof-of-work to proof-of-stake first.

Sharding is now being used to find the most optimal way to distribute the burden of storing compressed calldata from rollup contracts, allowing for exponential growth in network capacity. This would not be possible without first transitioning to proof-of-stake. S

harding is also important for reasons other than scalability, such as providing secure distribution of data storage requirements, enabling rollups to be even cheaper, and making nodes easier to operate. All of these upgrades are interrelated and work together to improve the Ethereum network.

Summary: The Merge, Beacon Chain, and Sharding

The Merge was a significant event in the Ethereum network's transition to proof-of-stake consensus. It involved the joining of the Ethereum Mainnet with the Beacon Chain, its new proof-of-stake consensus layer.

  • The Beacon Chain is a new layer in the Ethereum network that handles proof-of-stake consensus and is essential for sharding.
  • Sharding is a scaling solution for blockchain networks that allows them to process more transactions per second by dividing the network into smaller segments called shards.

The Merge eliminated the need for energy-intensive mining and enabled the network to be secured using staked ETH. It also set the stage for further scalability upgrades and brings Ethereum closer to achieving its full vision.

Ethereum's energy consumption dropped significantly as a result of the transition to proof-of-stake, making it a more eco-friendly blockchain.

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