Ethereum 2.0: The Merge with Beacon Chain and Transition to Proof of Stake

How did we get here?

Ethereum is the second biggest cryptocurrency after Bitcoin. Ethereum takes the underlying technology of the Bitcoin network and adds further programmability for additional use-cases. Ethereum has proven that blockchain can provide so much more than just a store of value. It can be used to organise people, ideas, companies, money, services, you name it, all with the help of smart contracts.

The Ethereum network does not operate on its own. The work of hundreds of thousands of validators is required to ensure that the blockchain remains secure and transparent. A validator is an individual who can verify transactional blocks on the Ethereum blockchain, as well as create new blocks. An independent validator must run their computer 24 hours a day, seven days a week, to do their job correctly. As you can probably guess, powering a computer around the clock like this tends to hike up one's electricity bill. This can dissuade validators from continuing their work on the blockchain.

As more and more transactions are executed on the network, it causes congestion and increases the gas fee prices. In layman’s terms, a gas fee is a sum all users must pay to perform any function on the network. This fee is what the validators receive for their efforts.

What is the Beacon Chain?

The Beacon Chain is the coordination mechanism of the new network, responsible for creating new blocks, making sure those new blocks are valid and rewarding validators with ETH for keeping the network secure. The Beacon chain is essential in introducing proof of stake and has been live since the 1st of December 2020.

‍What is Proof of Work and Proof of Stake?

“Proof of work” and “proof of stake” are cryptocurrency's most popular consensus mechanisms (methodologies used to achieve agreement) to validate and add transactions to the blockchain. In a nutshell, proof of work is where validators compete to solve complex mathematical equations using specialised computers — a very energy-intensive process. In contrast, a proof-of-stake system relies on validators to hold a large amount of the native cryptocurrency within the network, and those users validate transactions and earn rewards. Effectively shifting to proof of stake will remove the large amount of computing power required and lower future gas fees.

How will this affect Altify customers?

There is no confirmed date yet for the Merge; developers have penciled in a date for the 19th of September 2022. Customers who hold ETH will not need to do anything, and your existing ETH will work just as it always has and be unaffected, allowing it to still function on the Ethereum Network following the Merge.