The long-awaited Ethereum Merge event will occur once the Terminal Total Difficulty (TTD) of 58,750,000,000T is hit, which according to some estimates, will happen on September 15th, at 1:07am EDT.
With the Merge moment now set, the natural questions for most ETH holders are: what happens to the ether that I have bought over the years on the current Ethereum blockchain? Do I need to worry about a hard fork, or will I need to manage a token migration? Does it matter if my ether is on an exchange like Coinbase or in a hardware wallet like Ledger?
The short answer? You do not have to do anything as an ETH owner to prepare your wallet or your tokens for the Merge. The Merge will actually mean no change for your tokens.
Before we go into more details about the (non) effects of the Merge on your ETH, let’s briefly dive into what the Merge is.
What Is The Merge?
The Merge is the culmination of years of coordination by the CoreDevs, client teams, and researchers — it will reshape the world’s largest programmable blockchain. Let’s briefly recap some fundamentals:
- Ethereum is moving from its current Proof of Work consensus mechanism to a PoS model, where transactions will be processed by validators who stake ETH, rather than miners.
- Currently, the Ethereum network has two blockchain layers running in parallel — the existing Ethereum layer running PoW, and the layer running PoS, called the consensus layer. The Merge involves combining these two layers, effectively ending PoW and transitioning the Ethereum mainnet fully to PoS.
- It is a long-term project: Ethereum co-founder and de-facto figurehead, Vitalik Buterin, wrote about moving to PoS as early as mid-2014.
- The goals of the Merge are to:
- Increase sustainability: It will cut Ethereum’s energy usage by 99.95%.
- Enhance scalability: The Merge will set Ethereum up to scale massively, by making the network ready for further upgrades outlined in the Ethereum roadmap.
- Ensure security: The Merge will move Ethereum to a more sustainable cryptoeconomic model, making it “ultra-sound money”, and greatly increasing the difficulty level to mount an attack on the network
If you want to brush up further on what the Merge is and how it will work, our Merge Knowledge Base is a good starting point.
What Happens to my ETH in the lead up to the Merge?
Your ETH will stay the same in the days before the Merge.
The ETH holders who are interested only in holding, trading, or using their ETH on decentralized applications (dapps) do not have to actively do anything to prepare for the Merge. For ETH holders interested in staking, you can stake your ETH on the PoS consensus layer to earn rewards.
Staking is the process by which validators commit ETH to the consensus layer in order to propose and attest new blocks into existence. To become a full validator on Ethereum, ETH holders must stake 32 ETH by depositing the funds into the official deposit contract that has been developed by the Ethereum Foundation.
There are many opportunities for people with ETH to begin staking on the Ethereum network and earn rewards. The Merge is important for the staking community because it will reduce barriers to entry for validators. The PoS mechanism is designed to ensure that every validator — whether they are an individual, or a whale with multiple nodes — gets an equal chance at earning rewards.
To become a full validator, they must stake 32 ETH in the deposit contract, generate deposit keys, and then run their own client. Clients such as Teku offer this opportunity for businesses. If ETH holders do not have 32 ETH, they may join a staking pool such as Rocket Pool DAO and Lido DAO and combine their funds with other people to reach 32 ETH.
What Happens to my ETH Post-Merge?
One of the key principles of the Merge is that CoreDevs are aiming to achieve a flawlessly smooth transition to PoS. This is why one of the defining features of the upgrade is that much of the nuts and bolts of how Ethereum works will remain the same. From a developer’s perspective, for example, this means that pre- and post-Merge Ethereum share common APIs, and many of the building blocks of dapps and smart contracts will remain constant. (That’s not to say it will be an identical operating environment: if you are a developer, we recommend you familiarize yourself with the main changes here.)
A similar logic applies to users of the network. You are not required to do anything to prepare for the Merge.
“The Merge is designed to have minimal impact on how Ethereum operates for end users, smart contracts and dapps.”
– Tim Beiko
The reason behind this is implicit in the term ‘merge’: it’s not as if we’re starting from scratch with a completely new network. Instead, the entire immutable history of activity on Ethereum will be absorbed into the new framework. What we now know as Ethereum will eventually become one of 64 shards that together comprise post-Merge Ethereum (shards will not be introduced this year, but are planned as a future phase of the project). All of your funds will therefore still be there, even after this change occurs.
What is ETHW?
While the CoreDevs have been hard at work to ensure a smooth transition to PoS, some miners have proposed a new hard fork to the Ethereum mainnet. This group of miners, led by a crypto investor and miner Charles Guo, plan to continue running PoW on a duplicate of the Ethereum network, and launch a new token called ETHW.
The ETHW token did gain some traction in the past few weeks, with cryptocurrency exchanges such as Poloniex and BitMEX listing it for trading even before its launch. However, in a few weeks of trading, the ETHW token has lost over half of its value and trading value dropped by nearly 66%. Many Ethereum players such as Uniswap and YugaLabs have since taken to Twitter to express that they wouldn’t recognize any activity related to ETHW in the unlikely case of a hard fork. Infura also maintains that it will not have endpoints to the PoW network and will be following the roadmap for PoS Ethereum.
Recent sanctions against Tornado Cash by the US Office of Foreign Assets Control (OFAC) have also given impetus to these attempts at creating Ethereum PoW chains. However, the majority of the Ethereum community, and ConsenSys, support the move to PoS and will not support these forks.
Merge Scams
The slightest change to the status quo in Web3 can prompt frenetic activity from scammers. Inevitably, the Merge is not exempt, and is already the subject of various initiatives aimed at stealing your funds, with bad actors looking to capitalize on the gaps in understanding that arise when new technology or upgrades are introduced. Let’s go over a few of these to pinpoint the red flags:
Red flag #1: Being asked to ‘convert’ or ‘upgrade’ your ETH into ‘ETH 2.0’ or similar
Since you do not need to do anything with ETH, these propositions are a scam.
Part of this misconception may stem from the original terminology of The Merge, when it was referred to as Ethereum 2.0. This connotes a clean break between ‘old’ Ethereum and new. This is one of the reasons why the branding was updated to the Merge: it more accurately describes the change, and could help stem the spread of this perception.
Another complicating factor is that some platforms distinguish between ETH and an asset called ‘ETH2’ (or 2.0), often in the context of staking. The ETH currently staked on the consensus layer is locked away into validator contracts on the Beacon Chain until the Merge is complete. This fuels the misconception that there is a separate, upgraded version of ETH that will replace the original post-Merge. Any platforms that do display an ETH2 token have created it themselves: there is no ETH2 token native to the Ethereum protocol. See here. In many cases, these tokens are created almost as placeholders to provide investors liquidity whilst their regular ETH is locked away (stETH, operated by Lido, is one such example — you may recognize the name from recent news).
Unfortunately, there are some bad actors in the Web3 ecosystem that are continually seeking new ways to steal your funds, and there are some seeking to capitalize on this misunderstanding. If you actively engage with the ecosystem, it’s highly likely that you’ll come across one such scam soon enough. One such scam surfaced earlier this month where hackers targeted victims by impersonating Infura and offering a malicious ETH2 staking service with high rewards. Infura does not currently offer any staking products.
To be clear, you can safely disregard any ad, email, social media messages or posts that insist you ‘convert’, ‘upgrade’, or otherwise manage our ETH balance in some way in preparation for the Merge.
Do not click the links in these emails, or, worse: do not approve any access they request to your wallet. And certainly do not give them your Secret Recovery Phrase/seed phrase.
Red flag #2: Promises of high APR returns
As in the image above, you may come across scammers suggesting that depositing your ETH into their contract, or similar, will get you higher returns than staking via legitimate platforms. As usual in Web3, if it seems too good to be true, it probably is.
Let’s rewind briefly: staking ETH on the consensus layer is a necessary step to becoming a validator. Once deposited, the staked ETH and the rewards are essentially an incentive for the staker to behave properly as a validator: do it right, receive rewards; do it wrong, and your ETH gets slashed. When individual validators stake through a staking pool like Rocket Pool or Lido, they receive shares of rewards proportional to each contribution.
Therefore, rewards for Ethereum staking are not high, and definitely not in high double digits (such as 28.6% in the image above). Whilst rewards aren’t fixed since they’re inversely proportional to the total amount of ETH staked, they are generally in the region of 4-5% APR (annual percentage returns). If you stake through a pool, you’ll receive lower returns since the platform will take a cut in return for the service they provide.
The wildly inflated APRs on offer in these scams are therefore one of the surefire ways to tell that they’re fake: those returns are not feasible when staking ETH on the consensus layer.
To Summarize:
- The Merge will likely happen in mid-September.
- You don’t have to do anything to prepare your ETH for the Merge.
- The ETH you hold now will be usable on post-Merge, PoS Ethereum.
- There are scammers out there leveraging this uncertainty to steal your funds.
Where Can I Learn More About The Merge?
If you want to clue up on the Merge generally, our Merge Knowledge Base is a good place to start, and there are plenty of resources available at the ethereum.org Merge page.
With thanks to Mally Anderson, Ben Edgington, and James Beck.
