The Merge
The Merging of Ethereum PoS (Proof of Stake) beacon chain and Ethereum mainnet is approaching quickly. This will be a monumental achievement if all goes correctly and mark a paradigm shift for Ethereum. On September 15th Ethereum will attempt to switch to Proof-of-Stake from the current PoW (Proof-of-Work) model. This will eliminate the huge energy cost of running the Ethereum blockchain as well as slash the inflation rate of Eth. Switching consensus mechanisms while the blockchain is already running is akin to fixing a plane engine at 35,000 feet. A massive and risky undertaking but a necessary one.
What You Need To Know
Firstly, there is no guarantee that this works out. It is entirely possible something breaks and the entire Eth blockchain fragments and breaks. I am not sure what that would look like. If I had to guess, a few hours/days of downtime where the blockchain is frozen and the miners roll the chain backwards. That being said, I have faith it will work out. Eth has multiple testnets and all of them have merged successfully.
Secondly, there is going to be two Ethereum blockchains after this. The people who currently mine Ethereum are not going to just shut off their mining equipment. They will try to suck out any last profits they can. This means they will hard fork the Eth blockchain and continue mining the Eth on the previous PoW blockchain. This means all of your assets will hypothetically be doubled. If you currently have 1 Eth on mainnet, you will have 1 Eth on the PoS chain and 1 Eth on the PoW chain. I would recommend not doing much right away. Let the dust settle and then maybe try to sell off the assets on the PoW chain. I don’t know if there will be anyway to get these assets into a centralized chain or onto the new PoS chain. I assume all exchanges will stop supporting the PoW assets instantly but I do not know for sure. The main point here is, I would suggest waiting a few hours at a minimum before you interact with either the PoS or PoW chain after the merge. To be safe, if you plan on interacting with the previous PoW chain, it might be a good idea to move all your assets on the PoS chain to a new wallet address.
Next, if you own Eth you will be able to stake it to earn a yield. If you want to run your own validator you will need 32 Eth. I am going to look into running my own but I do not know what the technical knowledge needed will be quite yet. There will be third party services like RocketPool that you can stake Eth on and you will not need 32 Eth to do so. I can write another post after the Merge with instructions for staking any Eth you hold.
Enjoy the moment. If you are invested in crypto before the Ethereum merge you are definitely early. This is an exciting moment in the history of cryptocurrency and you are here for it.
Chainlink
I spent some time flaneuring around the woods pondering what this means for Chainlink. Over the past few weeks we have had confirmation from stable coins like Tether, exchanges like Coinbase, and every other protocol announce that they will solely be in support of the new Eth PoS chain (as expected). Chainlink announced they are supporting the PoS chain as well. Take a moment what would happen to the PoS chain if Chainlink decided they won’t support the PoS chain. It would throw a massive wrench into the cogs of the machine. Suddenly every protocol that relies on data such as the Eth price or anything else, wouldn’t work. Yes, they could switch to Uniswaps TWAP oracles but those have failed time and time again.
I would argue that Chainlink supporting the PoS chain is the single most important factor in this Merge outside of the Eth validators themselves. If Coinbase declined to support, we would use Gemini or any other off ramp. If Tether said no we use DAI or USDC or whatever else we can. If Chainlink says no, its a disaster and there are no obvious answers. This alone should tell you how critical Chainlink is to the functioning of this entire space. And then consider Chainlink doesn’t just support Ethereum but supports every other significant chain as well. I feel more confident now than ever in saying, “ If you hold Link your gonna make it.”
Conclusion
Onward and upwards. The economy seems to be OK for the time being, somehow managing higher interest rates. That can change, but for now things seem OK. Crypto appears to have bottomed a few weeks back. Revisiting the lows is possible but outside of a TradFi catastrophe I do not think we set new lows.
On a personal note my computer programming skills are getting better with each day. I started focusing on this less than six months ago but managed to land a job. As long as I manage to keep this job, and management seems happy thus far, I will continue to improve and eventually land a Web3/Crypto developer job. This means more alpha and in-depth knowledge for you.
Keep on keepin’ on - Joe Dirt.