September 14, 2022

What Is The Mighty Ethereum Merge: How It Will Affect Game-Fi

Filza Manzoor

What is The Ethereum Merge?

The Ethereum blockchain, as we know it, is the foundation of numerous Web3 applications, cryptocurrency, and NFT projects. The Ethereum Merge, also known as Ethereum ETH 2.0, is essentially an upgrade to the Ethereum blockchain that will lessen its environmental impact, boost network security, allow Ethereum developers to add new features, and improve the chain's scalability. This is due to the converging of two independent chains "Beacon chain" & "Ethereum". The latter one will integrate the consensus mechanism of the Beacon chain into it. Let's dive deep into it below.

When will Ethereum Merge?

The existing Ethereum Mainnet and the Beacon Chain proof-of-stake network will soon converge, indicating that Ethereum will entirely switch to proof-of-stake, putting an end to the proof-of-work. The merge is expected to be in operation in Q3/Q4 of 2022, with the tentative deadline of September 15 this year. 

This will result in Ethereum's 99.95% reduction in energy consumption

What is Proof-of-Work & Proof-of-Stake?

Algorithms that are used to validate cryptocurrencies on a blockchain network using proof of work and proof of stake. The key distinction is in the method used to select and qualify users for adding transactions.

The Proof of Work consensus algorithm involves challenging puzzles that must be solved by powerful computers used by miners. Trial and error are used to find solutions to the issues. The right to add new blocks to the blockchain for transactions is granted to the first miner to solve the puzzle or cryptographic equation.

In Proof of Stake, before confirming the transactions, miners promise an investment in digital currency. Miners need to put up a stake with their currencies to validate blocks. Miners also provide the duration of their transaction validation history. A weighted algorithm that is weighted based on the stake and validation experience determines at random who will validate each transaction.

Integrating the Mainnet

Since Ethereum's inception, the Mainnet has used the proof-of-work (PoW) consensus mechanism. The PoW holds each transaction, smart contract, and balance from 2015 till now. 

The Beacon Chain, however, was established on December 1, 2020, and it has functioned parallel to Mainnet as a separate blockchain. Beacon Chain has not done transactions on the mainnet, but it reaches consensus on its own by agreeing to active validators and their account balances. 

When the Beacon chain is integrated with the Mainnet, and then this composition is merged into Ethereum, the Beacon Chain will work as a consensus engine for all data, account balances, and execution layer processes.

The Merge Impact on Game-Fi

Now that we are fully equipped with the Ethereum merge, it can be simply put as a quick swap of the new engine for the old one of the jet mid-flight. Everything, including the games based on this blockchain, will be swapped and altered eventually in The Merge spell. The three pillars: transparency, immutability, and traceability are fulfilled via wallet, smart contract, and the game server in blockchain game architecture.  

gaming-architecture-flowchart

Games Security

Research shows 34,200 smart contracts in blockchain games are vulnerable to attacks. The causes of vulnerability are platforms and contract programming languages. Which opens up to Calls to the unknown, Gasless send, Exception disorders, Type casts, Re-entrancy, etc. 

The merge promises a better tomorrow with higher security for the game-fi industry. The upcoming updates will increase Ethereum's security by requiring major ETH deposits from validators. In addition, the protocol has the authority to delete their ETH immediately in the event of attempted fraud.

Faster Transactions In Games

Currently, when the players make microtransactions in the games to buy any virtual assets or skins, it takes time due to the PoW consensus. The merge update, however, will not speed up the transactions. It is here to lay down the foundation for all the anticipated upgrades. The next updates planned in the Q4 of 2022 and Q1 of 2023 will bring high core speed to the chain.  

Less Gas Fee 

For those who wonder what is a Gas Fee? On the Ethereum network, the user must pay a set amount of gas for each transaction. So in essence, "Gas" serves as a unit of measurement for determining the costs associated with putting a transaction in the "blocks" that make up the ETH blockchain.

Since 2020, there has been a dramatic increase in Defi and NFT activity in the Game-Fi, which has greatly increased transaction volume and can also clog the network with raised gas fees during peak times. 

The merger won't directly reduce gas prices. The Merge's technical advancements have included nothing intended to minimise fees. However, activating PoS would be the first step in allowing sharding

Sharding is the division of a network into "shard chains" that distribute Ethereum's load, relieving congestion and boosting transaction throughput. It is expected to start in 2023, which will allow the network to scale dramatically and eventually lower the gas fee to an exceptional level.

More Players at a Time

As discussed above, the merger will focus on security and reduce the energy consumption of the current transactions. But it will set the stage for all other areas that users have been waiting for so long. After the merge, sharding could hypothetically boost Ethereum's transaction throughput to 100,000 transactions per second, outpacing all major credit card providers in speed and throughput. This allows more users to play games at once. Reducing the time consumption for data processing and transactions.

99.9% Reduced GPU Energy Consumption Cost 

There are glad tides on the way with merge for the gamers. Game Processing Units (GPUs), which are used for mining Ethereum, are becoming less expensive as the network gets ready to convert from a proof-of-work (PoW) mechanism to a proof-of-stake (PoS) one, which would make these gaming processing components essentially useless for Ethereum miners.

According to calculations made by Ethereum experts, the GPU models on eBay have decreased by 37% since May 2021, and more are expected to drop very soon after the merge. Much more GPUs will be pushed to the secondary market when Ethereum eventually switches to PoS, which will probably cause prices to rise even higher.

The fact that the price of Ethereum has been relatively low, as mining has become more challenging, adds to the downward pressure.

Reduced Costs and Increased Speed 

The major 2 upgrades after The Merge are the “Sharding update” and the “Shanghai update”. Both of the upgrades are anticipated in Quarter 1 of 2023, possibly in action by January. Sharding following the merge describes the division of the whole blockchain ecosystem into manageable units called Shards.

Sharding will assist the network in facilitating secure distribution of data storage requirements, as well as making transactions quicker and making nodes easier to operate at a reduced cost. Next, we will witness The Shanghai update. It will tackle 3 critical functionalities; EVM object format, Beacon Chain withdrawals, and L2 Fee reduction. 

We are fully aware that news can be trending on the internet and still be wrong. To tackle that for the upcoming Ethereum Merge, we have busted some of the myths that went viral below.

Myths about The Merge

Myth No. 1: “Gas fee will be reduced following the merge”

False. The merge won't lower gas prices because it only modifies the consensus mechanism, not increases network capacity.

Myth No. 2: “After the merge, transactions will be quicker.”

False. On layer 1, transaction speed will mostly not change despite minor adjustments.

Myth No. 3: “Once the merge takes place, you can withdraw staked ETH.”

False. The merge does not yet support stake withdrawals. However, withdrawals from bets will be possible after the next Shanghai update.

Myth No. 4: “The chain will increase the downtime after the Merge.”

False. Merge will provide zero downtime, as the chain will switch to proof-of-stake.

Myth No. 5: “In the dissipation of merge, new tokens will be generated.”

False. Ether will continue to be the native asset of the Ethereum network when The Merge is finished. Therefore, there will not be new tokens created.

What is “Eth 2”?

There won't be two separate Ethereum networks anymore; there will only be Ethereum after 'Eth1' and 'Eth2' have been combined into a single chain.

The eth developer community has changed these terminologies to avoid ambiguity:

  • The "execution layer," currently called "Eth1," is in charge of transactions and execution.
  • The "consensus layer," which manages proof-of-stake consensus, is now called "Eth2."

These terminological changes solely affect naming standards; they have no impact on Ethereum's objectives or development timeline. 

A decentralized network scaling strategy and a switch to proof-of-stake have long been on Ethereum's roadmap. Researchers initially worked on these projects independently, but in 2018 they were brought together under a single roadmap for "Ethereum 2.0." a term coined.

Conclusion:

The existing ethereum mainnet and the Beacon Chain proof-of-stake(PoS) network will soon converge. This will complete Ethereum's shift to proof-of-stake and signal the end of proof-of-work. This curates the way for later scaling improvements like sharding. Ethereum's energy use will be reduced by 99.95% due to the merge. It will also make the chain highly secure, a welcoming tide for all. 

The original Ethereum developers planned for sharding in the first phase, but since gamification holds 51% of the blockchain’s transaction operations, it was viable to make the chain scalable first. For the development and popularity of layer 2 technologies to scale transaction execution, the focus of the sharding plan was shifted to enable the rapid increase in network capacity. The developers realized that this would not have been possible without switching to proof-of-stake.

Upcoming developments after the merge would be focused on sharding, modifying the EVM functionality, and reducing the beacon withdrawal delay. This means there will be a threefold surge of players onboarding on the chains. This is nothing more than a piece of good news considering the almost negligible prices of GPU and reduced gas fees for microtransactions.

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