The Ethereum Beacon Chain shipped on last December 1st is seperate from the Proof-of-Work secured Mainnet (execution layer) we use today. Since then, the Beacon Chain (consensus layer) has been running in parallel using Proof-of-Stake consensus mechanism.

"The Merge" is when the two systems finally come into one proof-of-stake based chain. The current Ethereum Mainnet will be "merged" into the Beacon Chain.

Imagine Ethereum is a space ship that isn’t quite ready for an interstellar voyage. With the Beacon Chain the community has built a new engine and a hardened hull. When it’s time, the current ship will dock with this new system, merging into one ship, ready to put in some serious lightyears and take on the universe.

The merge and the post-merge cleanup

Immediately after the merge, some features such as withdrawing staked ETH, will not yet be supported. These are planned for a separate upgrade to follow shortly after the merge.

Stay up-to-date with the EF Research and Development Blog.

The merge and shard chains

Originally, the plan was to work on shard chains before the merge – to address scalability. However, with the boom of layer 2 scaling solutions, the priority has shifted to swapping proof-of-work to proof-of-stake via the merge.

This will be an ongoing assessment from the community as to the need for potentially multiple rounds of shard chains to allow for endless scalability.

Interested in Merge pre-history? Read this latest write-up by Tim Beiko.

Learn more about technical details about the possible merge process,
check out Mikhail Kalinin's explanation.

Learn more about What Happens After the Merge, by Vitalik Buterin at the 2021 ETHGlobal.

What is PoS?

Proof of Stake (PoS) is a category of consensus algorithms for public blockchains that depend on a validator’s economic stake in the network. In proof of work (PoW) based public blockchains (e.g. Bitcoin and the current implementation of Ethereum), the algorithm rewards participants who solve cryptographic puzzles in order to validate transactions and create new blocks (i.e. mining).

In PoS-based public blockchains (e.g. Ethereum’s upcoming Casper implementation), a set of validators take turns proposing and voting on the next block, and the weight of each validator’s vote depends on the size of its deposit (i.e. stake). Significant advantages of PoS include security, reduced risk of centralization, and energy efficiency.

In general, a proof of stake algorithm looks as follows. The blockchain keeps track of a set of validators, and anyone who holds the blockchain’s base cryptocurrency (in Ethereum’s case, ether) can become a validator by sending a special type of transaction that locks up their ether into a deposit.

The process of creating and agreeing to new blocks is then done through a consensus algorithm that all current validators can participate in.

There are many kinds of consensus algorithms, and many ways to assign rewards to validators who participate in the consensus algorithm, so there are many “flavors” of proof of stake.

From an algorithmic perspective, there are two major types: chain-based proof of stake and BFT-style proof of stake.

In chain-based proof of stake, the algorithm pseudo-randomly selects a validator during each time slot (eg. every period of 10 seconds might be a time slot), and assigns that validator the right to create a single block, and this block must point to some previous block (normally the block at the end of the previously longest chain), and so over time most blocks converge into a single constantly growing chain.

In BFT-style proof of stake, validators are randomly assigned the right to propose blocks, but agreeing on which block is canonical is done through a multi-round process where every validator sends a “vote” for some specific block during each round, and at the end of the process all (honest and online) validators permanently agree on whether or not any given block is part of the chain. Note that blocks may still be chained together; the key difference is that consensus on a block can come within one block, and does not depend on the length or size of the chain after it.

Credits to Ethereum Wiki.