Ethereum Merge to Drive Performance, Energy Efficiency and Deflation: Huobi Research Institute

The current Ethereum Mainnet will complete the transition from proof-of-work (POW) to proof-of-stake (POS) by merging with the Beacon Chain, while preserving contract execution functions and full historical data with the current user state.

A new report by Huobi Research Institute highlights that the Ethereum Merge is a critical step to lay the foundation for future upgrades, which will support sharding to lift Ethereum’s performance and vastly improve its energy efficiency. By greatly reducing the total supply of Ether (ETH) while its net destruction rate rises, the Merge will result in deflation where the number of ETH burnt exceeds the number minted.

Titled “All You Need to Know about the Merge of Ethereum”, the report noted that post-Merge, changes will be seen in network structure, block structure, consensus mechanism and state. The new block will carry the exterior of a Beacon block with contents from Ethereum POW, while the network architecture will adopt a consensus layer and an execution layer to produce and synchronize blocks. The POS consensus mechanism will be adopted in the new system, where a verifiers’ committee carries out the function of proposing and voting to form consensus upon certain blocks. The consensus layer and execution layer will be linked. Statelessness will also be introduced not only to help maintain the degree of decentralization, but also contribute to future sharding for stronger performance.

Under POS, the system does not require verifiers to repeatedly complete hash calculations with energy input. Energy consumption will be reduced by more than 99.95% to maintain the network, improving energy efficiency over 2,000 times. The supply of ETH will grow to around 500,000, but due to the launch of the EIP-1559 ETH fee upgrade, around 2.9 million (and possibly more) will be destroyed when the market is hot. This will lead to ETH deflation, even without the demand from POS staking and protocols in the ecosystem.

Commenting on potential risks from the Merge, the authors of the report, Huobi Research Institute researchers Barry Jiang and Tim Chen, said: “We do not anticipate a hardfork similar to the one for ETC, as Ethereum follows a scientific technical roadmap and an ambitious vision. These will greatly improve its performance and draw sufficient participation for more sustainable development. Even though some technical issues occurred during the Merge, the situation remains under control, and there is no question about asset security.”

To download the full report, click here.

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About Huobi Research Institute

Huobi Blockchain Application Research Institute (referred to as “Huobi Research Institute”) was established in April 2016. It is committed to researching and exploring new developments in the global blockchain industry. Its goal is to accelerate the research and development of blockchain technology, promote its applications, and improve the global blockchain industry ecosystem. Huobi Research Institute covers industry trends, emerging technologies, innovative applications, new business models, and more. Huobi Research Institute partners with governments, enterprises, universities and other institutions to build a research platform that covers the entire blockchain industry. Its professionals provide a solid theoretical basis and analyze new trends to promote the development of the industry.

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