As blockchain technology becomes more widely adopted, it’s likely that we’ll see the use of NFTs (non-fungible tokens) become more common. NFTs are unique digital assets that are stored on a blockchain and can represent a wide range of things, from digital art and collectibles to virtual real estate and in-game items. We aren’t there yet, but the fact of the matter is, getting there is almost inevitable.

So why not right now?

Sustainability of Independent Creation in Web3

If you’re reading this, there’s a good chance you’re already participating actively in the web3 space. That means you’re also familiar with Discord. It’s difficult to say why most web2 users don’t like Discord without knowing more about their specific experiences and preferences.

However, there are a few glaring reasons why some people might not enjoy using Discord from first-hand experience.

1. Discord can be overwhelming for new users due to its many features and functions, leading to difficulty in understanding how to use the platform.

2. Discord can be noisy and cluttered, making it difficult for users to find relevant information and limiting their ability to interact in large communities.

3. Discord can be intimidating for new users due to its use by experienced or dedicated members, which can limit their participation and interaction with others.

Overall, these factors can make the experience of using Discord less enjoyable for new users, which can limit their ability to interact with others in the community. There must be a better way for communities to thrive!?

Time to go beyond the Discord, where community content isn’t just consumed, it’s experienced. Enter Mintgate V4!

Where We Started

Mintgate, known for token-gating services and unlockable NFT content, is excited to announce the release of V4. This update includes several new features that focus on NFT character driven interactions and private, community centered forum channels. These features enhance the user experience and provide even more ways for NFT community members to connect and engage with each other within the platform.

One of the key features of Mintgate has always been token-gating as a way to provide access to premium content and services. NFT holders have always been able to unlock exclusive videos, music & other media, participate in special events, and access other premium features.

Token-gating provided a way for users to selectively access and engage with content and services within each NFT community, and offer rewards for those who actively participated and contributed. This created a dynamic and engaging user experience, where community members could choose what content and services they wanted to access and earn rewards for their efforts.

Where We’re Headed

https://twitter.com/mintgate_io/status/1602317495972646913?s=20&t=YkHXgf5zM30m7mXVShiR8g

NFT Character Driven Interactions

At the heart of Mintgate V4 is the concept of character driven interactions. Rather than simply using their own identities, users are encouraged to use their unique and expressive NFTs to represent themselves within the platform. Anyone holding multiple NFTs from a collection can choose their favorite to represent them when engaging with the community.

In practice, these characters can be used in various interactions within the platform, such as messaging and commenting on posts. This allows users to express themselves more fully and creatively, and creates a more engaging and immersive experience that brings your NFT to life. A chance to be your NFT!

Private, community centered forum channels

In addition to promoting character driven interactions, Mintgate also places a strong emphasis on creating private, community centered forum channels. These channels are intended to be exclusive, tight-knit communities within the larger social network, where NFT community members can discuss specific topics, share content, and build relationships with each other who share their interests.

These forum channels provide a more intimate and focused space for discussion, compared to the broader and potentially overwhelming nature of the main social network. As an extension, these channels provide an opportunity for users to connect with others on a deeper level and form meaningful connections. In addition to private channels, Mintgate will also support public channels to encourage discoverability between NFT communities.

Conclusion

In conclusion, Mintgate V4 will strive to support the platform’s philosophy of character driven interactions and private, community centered forum channels. With the new features included in this release, NFT communities have even more opportunities to express themselves and connect with others in meaningful ways. We invite you to try out Mintgate V4 and experience the enhanced character driven interactions and private forum channels for yourself.

We will be going over Reach, Retention, and Revenue metrics for each month over the past year to determine which pool has proved more beneficial for the Chainlink project. Additionally, we will use this information to identify how $100,000 in liquidity rewards could best be deployed between these two pools.

Note: This analysis covers the Uniswap V2 LINK/WETH pool, not V3.

Reach

Number of Trades

• There is a similar trend between the number of trades in each pool over the past year. However, Uniswap’s LINK/WETH pool consistently outperforms Sushiswap’s.

• The difference between the most and fewest trades for each pool over the past year is interesting to note. We see greater shifts in the Uniswap pool, with a difference of 3,505 trades from lowest month to highest, while Sushiswap maintains a total number of trades within a tighter range, with a difference of 1,875 trades from its lowest to highest month.

Number of New Traders

• Each pool has a comparable number of new traders each month over the past year.

• The trend is also similar between them with the exception of January and February, where Uniswap sees more usage from new traders entering the year before declining more sharply in May.

• Aside from January and February, September is another notable month for Uniswap over Sushiswap. July is the only month Sushiswap sees a notable increase of new traders over Uniswap.

Number of Active Traders

• Number of active traders shares a similar pattern but there is a similar effect seen in number of trades where Uniswap’s activity drops more greatly than Sushiswap’s when market conditions decline.

• The decline mentioned above is most obvious in April, which is also the month with the fewest trades for each pool

Takeaway

• Uniswap is more popular than Sushiswap and sees more trades during time periods of more trading activity.

• However, it also loses more trading activity as market conditions decline while Sushiswap maintains more of a balance in its trading activity.

• Uniswap’s notoriety could be the reason it sees greater activity over Sushiswap during bullish or active market conditions.

• Both DEXes seem to maintain a percentage of active users even in bearish or declining market conditions.

Retention

Stickiness Ratio (DAU/MAU)

• With the exception of March, Uniswap’s LINK/WETH pool has seen a higher percentage of daily active users from its monthly active user base.

MoM Trader Cohort Retention

• Both Uniswap and Sushiswap’s LINK/WETH pools see high retention rates from the cohorts in the first two months of the year. Sushiswap outperforms Uniswap’s retention over this period.

• As expected based on previous charts, they each see a sharp decline from the March cohort going into April.

• Uniswap shows more consistent retention for the remainder of the year with a sharp decline in the most recent cohort.

• On the other hand, Sushiswap shows greater dips in retention over the course of the year with a major increase from the most recent cohort.

Net Liquidity vs Market Volatility

The LINK/WETH pools for Uniswap and Sushiswap see few add liquidity and remove liquidity events. As a result, I’ve decided to analyze each pool’s net liquidity, which is a function of liquidity added subtracted by liquidity removed. (e.g. liquidity_added - liquidity_removed)

• In both cases, we see more liquidity being removed than added each month. The only exception is February for Sushiswap.

• Contrarily, February was the month that Uniswap saw the most liquidity being removed.

• The price of LINK token declines over the course of the year in line with the downturn in the larger crypto market.

• Both liquidity activity and the price of LINK decrease consistently with the drop in the crypto market over the past year.

Takeaway:

• Despite the larger crypto market declining into a bear market after notable bearish events (Three Arrows, Terra Luna), both the Sushiswap and Uniswap LINK/WETH pools see a relatively consistent number of daily active users from their monthly active user base.

• With the exception of a couple months for Sushiswap, both DEXes show consistent month-over-month trader cohort retention with Sushiswap seeing a surge in the most recent cohort.

Revenue

Total Volume

• Both pools have the same trend over the course of 2022. There’s a significant amount of volume from the tail-end of the 2021 bull market that sharply drops off as we enter the 2022 bear market.

• Uniswap’s LINK/WETH pool consistently has more volume than Sushiswap’s with the exception of April and July.

Median Liquidity Added Over Time

• The median liquidity added over each month displays how active LPs were in supplying liquidity over that period. Both pools show major spikes in liquidity added over the year.

• The spikes in added liquidity for Uniswap’s LINK/WETH pool is far more sporadic than Sushiswap.

• Sushiswap’s added liquidity sees similar dropoffs as Uniswap but it’s more consistent towards the end of the year.

• Both pools overall have a comparable amount of liquidity added over the course of the year with Uniswap’s LINK/WETH pool receiving $37,401 in liquidity and Sushiswap receiving $36,636 in liquidity.

Percentage of Volume from Top 1% of Traders

• A significant portion of volume comes from the top 1% of traders within each pool.

• This volume seems to behave inversely between each pool, however, with Sushiswap’s LINK/WETH pool seeing a huge increase during the end of the year while Uniswap’s pool sees a decrease over the same time.

• The top 1% of traders in the Uniswap pool is more consistent and close or more than half of the trading volume for most of the year until late summer.

• In Sushiswap’s pool, the top 1% of traders are consistently less than half of the volume, often closer to a quarter of the volume, until late summer.

• It seems possible that the top 1% of traders in each of these pools participate in both, which could result in activity declining in one as it rises in the other.

• The difference in behavior between these pools doesn’t seem to reveal much about the greater crypto market.

Takeaway:

• Total volume shows a decline in line with the bear market the rest of the crypto market experiences over 2022.

• LPs adding liquidity doesn’t seem to share a connection with the overall bear market as median liquidity added over the year seems sporadic and each pool has little correlation with each other.

• The volume from the top 1% of traders from each pool seems to have an inverse correlation with each other. In which, we see the volume of one pool from this group of traders increase at the same time the other decreases. There doesn’t seem to be much correlation with the overall bearish market activity.

Liquidity Mining Reward

The purpose for launching a liquidity mining reward program is to incentivize LPs to provide more liquidity so the pool has sufficient funds to satisfy a large volume of trading at the best price. This allows a token to be highly liquid within a given pair which in turn makes it more valuable since it can easily be bought and sold across a market.

Despite the 2022 bear market, there is a cohort of active traders across these pools still participating in the market. The current liquidity in these pools has been sufficient for the volume of trades on each. However, a plan can still be made in preparation for the next bull market where we can expect to see much greater volume.

Overall, Uniswap’s LINK/WETH pool tends to have greater numbers across these metrics than Sushiswap’s. Uniswap’s pool also tends to having more exposure to trading activity during a bull market. As a result, it would be more beneficial for Chainlink to initiate a liquidity mining program for LPs by deploying the majority of the $100,000 in liquidity on Uniswap than Sushiswap.

January’s total volume shows data most relevant for a bull market with Uniswap’s pool having just under 60% more total volume. This being the case, a minimum of 60% of the funds for the liquidity mining reward should be allocated to the Uniswap pool with the remainder going to the Sushiswap pool.

Reach

• Optimism saw a significant spike in new and active addresses in June with relatively steady growth in the following months.

• In stark contrast, Harmony saw a major loss in new and active users in the months following June, after already experiencing a huge drop off from April to May.

• Harmony has seen significantly less growth since popular P2E game DeFi Kingdoms migrated to Avalanche around the April to May timeframe.

• The major hack of the cross-chain bridge, Horizon, in June shows its impact in the months to follow.

• Harmony is struggling to onboard new users while Optimism is seeing a gradual increase in user onboarding.

• Note on Optimism: it has been one week in November at time of writing so that month’s data is not complete, however, one week of data in November for new addresses is already 36% of total new addresses in the previous month of October. And one week in November for active addresses is already 49% of total active addresses in October.

Retention

• The DAU vs WAU vs MAU charts between these two projects naturally reflect active addresses viewed monthly from Reach data, with Harmony’s WAU and DAU consistently in decline month over month.

• Alternatively, Optimism DAU vs WAU vs MAU chart consistently grows month over month.

• Optimism’s DAU/MAU stickiness ratio shows a consistent one percent increase each month suggesting that more monthly users are becoming daily users.

• Harmony has a less consistent DAU/MAU ratio wherein we see an increase from June to August and drop off from August to October.

• Unlike Optimism, which is seeing a consistent and gradual growth that is also shared in its retention, Harmony saw a major loss in monthly active users over the months of June to August while daily active users dropped by little in comparison.

• This means the increase in DAU/MAU ratio for Harmony from June to August is a result of less monthly active users but relatively similar numbers of daily active users, not a result of more monthly users becoming daily users.

• August to October is more reflective of this as the decline in MAU is closer in proportion to the decline in DAU.

• It’s interesting to note in the Optimism MoM Cohort Retention table that the project was able to retain 49% of the 73,255 new users in May, the month prior to the event that caused their major spike in June.

• They retained far less users from the June cohort, which had 232,336 new users, in the following month of July, at only 19%.

• But due to the larger cohort size, they ultimately retained more users from June to July, 44,143 users, than from May to June, 35,894 users, despite the lower retention rate.

• The MoM Cohort Retention table for Harmony is more straightforward in that it shows a consistent reduction in both cohort size and retention month over month.

Revenue

• Since June, Harmony’s average gas paid and gas per user has increased. This is in line with their decision to increase base gas fees in an effort to combat bots flooding the network despite seeing less activity on the network.

• In contrast, Optimism’s average gas paid and gas per user has decreased since March of 2022.

• Optimism has regularly pushed updates to reduce transaction fees and this is reflected in these charts despite the increase in users over the same time.

• Aggregate gas spending was consistent for Optimism in the same time frame with a dip in July following the loss of funds in June due to a hack while transferring liquidity to Wintermute.

• The majority of the funds were recovered though and gas spent returned to prior levels.

• The general decline in the last three months seems in line with the decreased activity in the rest of the ecosystem.

• Interestingly, despite the reduction in fee cost per user and on average, the aggregate amount of gas spent was consistently higher. This would support that activity in these months were high to keep this spend high even though average spend was reduced.

• The consistent increase across the Optimism charts from January to March reveals increasing usage of the network immediately after its open mainnet launch in December, followed by successful fundraising efforts from notable VCs.

• Harmony’s aggregate gas spent is consistent with the average and per user amounts. The correlation seems closely tied with the choice to increase fees and not necessarily a result of more activity as is the case with Optimism.

If you want to get started as a developer in web3 but don’t know where to start, this guide will help! We’ll provide an overview of some helpful resources that will help any aspiring developer build their skillset from scratch — whether they’re completely new to coding or just looking for some extra guidance on how best to learn Solidity.

TLDR: Check out these resources to begin learning web3 development:

• Learn Solidity by Example

• Eth.Build

• Speed Run Ethereum

• Buidl Guidl

• Ethernaut

• CryptoZombies

The first place to begin is to understand the driving vision behind web3.

Web3 is a vision for the future of the internet. It’s an idea that has taken root in the minds of many, and it’s gradually coming to fruition as projects are being built every day. But what exactly is this web3? What are its goals? Who are its stakeholders?

What is Web3?

Web3 is an open-source movement with the goal of creating a new kind of internet — one where users have control over their data and applications instead of having those things owned by large corporations or governments. It allows people to interact with each other directly through peer-to-peer networks rather than being dependent on third party intermediaries like Facebook and Google which can track your behavior online without your knowledge or consent.

Who are its Stakeholders?

This makes users, developers, and validators the most important stakeholders in the system. Users are people who use blockchain-based applications. Developers are the people who build these applications and their underlying infrastructure (such as wallets and block explorers). Validators are responsible for validating & processing transactions, storing data, and adding new blocks so that they can earn cryptocurrency rewards for doing so.

There are four key pillars that make up the ethos and guide the development of web3.

Decentralization

A decentralized network is a peer-to-peer network that has no central authority. The Internet, for example, is a decentralized network because there is no single entity that controls the entire Internet. Instead, it’s made up of many different nodes that each provide services and information to users on the web.

Decentralization can be achieved by having multiple nodes in a network. This is opposed to having one centralized server which handles all requests for data. In a more traditional sense of internet infrastructure, this might mean having multiple servers (or perhaps several computers) spread throughout the world with access to your website or application files — rather than having all of those files located on just one computer.

Open Source

Open source is a development model for software which allows the source code to be freely used, modified, and redistributed by anyone. Open-source software (OSS) is often developed in a collaborative manner, with many individuals participating in the software creation process. The open-source movement has created a large community of developers who contribute to various projects.

Gitcoin is a project in web3 pushing this initiative even further. Their mission is to build an internet that is open source, collaborative, and economically empowering. By funding open source development in the ecosystem, they aim to create a virtuous cycle that leads to more open source projects and development. And they’ve been succeeding since their inception in 2017. By the end of 2021, they reached over 300k active developers and were nearing $60M in funding to public goods.

Privacy

Privacy is important. It’s a fundamental human right. In the same way that we have laws against stealing people’s stuff, there should be laws against stealing their data. The web3 ecosystem will make it easier for you to protect your privacy than ever before it.

For example, if you use a browser extension like Privacy Badger or NoScript to block tracking scripts on websites that ask for too much information from you, then you’ll probably be interested in the web3 browser that has this built in, Brave Browser.

Censorship Resistance

A fundamental aspect of any decentralized ecosystem is the ability to resist censorship. Censorship resistance is implicit in any sufficiently decentralized system, making it a byproduct of decentralization since every node in the world would need to be taken down to censor it. This is critical to the resilience of the infrastructure.

With the ability to resist centralized control, a decentralized network can allow users to exchange ideas and information without fear of persecution.

Web3 is still early days!

There’s a lot of opportunity to build the future of the web, and you can help. You don’t have to be an expert in blockchain technology or even programming at all. If you’re interested in learning more about Web3 and Ethereum, we’ll help you get started.

I’ve listed some hands-on resources I recommend checking out to start:

• Learn Solidity by Example — A free, self-guided course on learning how to code smart contracts in Solidity.

• Eth.Build: A sandbox environment with drag and drop elements that help you visually understand how Ethereum works. It comes with several video guides for key concepts like hash functions, key pair generation, transaction creation, smart contracts, and more.

This tool is all thanks to Austin Griffith (whom I highly recommend following). He is also the creator of the next two resources:

• Speed Run Ethereum: A series of coding exercises and challenges that teach you how to develop your first smart contracts and publish them on a live testnet (or mainnet) so you can share them with your friends. This is all built on Scaffold-Eth, which is a collection of tools Austin put together in order to create a highly iterative environment for developers to test their smart contracts through a convenient UI while learning Solidity. It’s also a great repo to use for web3 hackathons.

• Buidl Guidl: “A curated group of Ethereum builders creating products, prototypes, and tutorials to enrich the web3 ecosystem.” By completing the first four challenges in Speed Run Ethereum, you become eligible to join Buidl Guidl (not a typo). Being part of a community building with the same tools in the same ecosystem can drastically speed up your rate of learning. It also gives you the chance to meet people in the space that share the same interests as you.

• Ethernaut: Created by the OpenZeppeling team, “The Ethernaut is a Web3/Solidity based wargame inspired by overthewire.org, played in the Ethereum Virtual Machine. Each level is a smart contract that needs to be ‘hacked’. The game is 100% open source and all levels are contributions made by other players.”

• CryptoZombies: For a focus on NFTs, “CryptoZombies is an interactive school that teaches you all things technical about blockchains. Learn to write smart contracts by making your own crypto-collectibles game.”

Conclusion

Web3 is a collection of protocols, standards, and tools that work together to create a decentralized web. The goal of this movement is to enable more user control over their data and interactions with websites. This extends beyond just being able to read content without having it blocked by your ISP or seeing ads; it also means having protection from malicious actors who may try to take advantage of your data.

There are a lot of great resources out there for aspiring web3 developers that aren’t mentioned here. It can be overwhelming to start when you first dive in; The key is to just start somewhere. There is no “correct” blueprint for starting in web3, and your journey will be different from anyone else’s, so you might as well dive into the deep end. I look forward to seeing you on the other side. 🌊

Like that 1st edition, holographic Charizard card you had in grade school, a NFT is unique, often one of a kind. But unlike that Charizard you kept safe in its card sleeve, a NFT is digital (no accessories needed!)

NFTs are a fundamentally new paradigm for digital content. I can copy and paste the image above anywhere I want, but I can’t sell that image because I don’t own it.

NFTs are tokens on the Ethereum blockchain that represent art, music, videos, articles, and any other digital content. When you mint art as a NFT, you can easily verify if that image has been created by an authentic source because all information on the blockchain is available to anyone and cannot be censored.

Being able to verify source of a creative digital piece is a pretty nfty superpower, but we can go further.

What gives NFT meaning and value is digital scarcity. For the first time, things on the internet can be rare, one of a kind items. For the first time, you can own something on the internet and without it being stored on Evil Corp’s database.

But what if owning these NFTs came with additional benefits?

Token Gating: Granting access to holders of a specific token or NFT

Token gating is a way of super-charging a NFT, giving ownership of it more meaning. In addition to owning the video or song in a video NFT or music NFT, you can also guarantee only these holders can access that content.

Typically, when you create a NFT only one or a few people can own it and sell it, but anyone can view the art or content it references.

But why would you want to limit access and create scarce, digital content?

The same reason you upload exclusive content to Patreon. The difference with using Patreon and using a NFT is that your content goes from being a consumable to a commodity that you have full control of.

Instead of getting paid a subscription, you get paid in sales of your content like you would on Amazon for selling a good. This may seem subtle, but it changes a lot.

Instead of earning a fixed amount based on the size of your subscriber base, you can focus on the quality of your content to increase the value it’s being sold for.

This does two things:

1. Quality is valued higher than quantity

2. Creating for a smaller, loyal community that appreciates your interests becomes more lucrative than ever before

Expanding on the second point, turning your content into a commodity means it becomes something that can be resold by the owner. I can’t resell my subscription, but I can resell a video NFT I bought last week for more than I bought it.

This has a lot of implications and before I get into them I should mention another super power some NFTs have.

NFT royalties

NFTs can have royalties applied to them so the original creator receives a percentage of all future sale. If you sell a music NFT for $10 tomorrow and someone else sells it for $100 next week, you still earn 10%, 20%, or 30% of that sale.

It might seem a little messed up that someone could earn more reselling your content than you earned on the original sale. But this ultimately works in your favor. If I buy a song you mint as a NFT, I’m incentivized to promote your work if I want to sell it for more meaning that buyers are motivated to spread your brand.

This model also allows people to speculate on creators and influencers for the first time.

Buying a music or video NFT by a small creator or influencer means a) you’re a fan of their content and early adopter, or b) you’re speculating that this person is going to get big and their NFT will be worth much more as a result.

What’s great about this model that’s also different about speculating on stocks is that you can do something to make this happen as a supporter. You can share their content, write about it, or create your own content about their work. You don’t have to passively hold a NFT and hope they get big, you can make an impact and share in their success.

Even early fans who bought your NFT just for the content itself benefit because if the value of your music or videos grow, they end up with a NFT that they may have bought for $10 that could be worth $1,000 in a few months. And thanks to NFT royalties, you still see a percentage of every sale, forever.

Your Content, Your Platform

Today’s major content platforms profit when your video, song, or post goes viral because more eyes means more opportunity for ad revenue. You get whatever cut they decide because they effectively own your content and you need their platform for more discovery and views.

YouTube: You retain all of your ownership rights to and videos you upload, but when you use the site you grant a limited license to YouTube and other users.

The license extends to YouTube’s affiliates. When you leave YouTube it retains the right to keep copies of your content on its servers.

NFTs allow you to take back ownership of your content and profit from all the revenue it generates. Token gating your content with a NFT allows you to host your content on a decentralized network instead of a company’s database and sell directly to your audience instead of through a middleman.

Summary

NFTs are the means for a grassroots movement to become your own platform.

If someone buys your NFT to access your content, they get to view your most exclusive and highest quality work. When they’re done, they can sell it to someone else who wants to view it. If you continue producing great content, demand for your work increases but only a limited supply exists. More demand and low supply equals higher prices for what you produce, with early access buyers benefitting from your continued efforts by selling at a higher price than they originally bought.

And to top it all off, you also benefit from all these people reselling your content thanks to NFT royalties! Whenever someone sells your NFT to someone else for access to your content, you earn a percentage of royalties. On every sale. If you sold your NFT for $5 and that buyer sells it for $500, you still earn 10%, 20%, 30%, or even 50% of that sale.

If you only made 50 token gated NFTs sold at that price at any point in time, that’s $12,500 for one piece of content you might have made 5 years ago. All the while, you’ve been producing even more, higher quality work that’s selling because of your track record as a creator.

***TLDR — “***The Merge” is the most significant upgrade in Ethereum’s history. Ethereum will transition from proof-of-work to proof-of-stake consensus. This upgrade will drastically reduce Ethereum’s carbon footprint, enable scalability solutions like sharding, and change the ETH issuance rate. Ethereum users do not need to do anything for the merge.

What is The Merge?

It’s not an exaggeration to say this is the biggest upgrade in Ethereum’s history. Frankly, it’s the biggest upgrade in any blockchain’s history when you consider no other public network at the same scale has changed its consensus mechanism live.

Before diving into the deep end, it’s important you know that you do not need to do anything to prepare for the merge. There will be no new token to claim, there is no sign-up process, and you will not have to upgrade anything or use a new site for the dapps you use today. Be cautious of anyone suggesting otherwise because they are probably trying to scam you. See Ethereum’s official site for more details on this.

Now to dive right in, the upcoming merge will transition the network from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism. This has a cascading set of ramifications that will impact Ethereum’s ETH issuance rate, its carbon footprint, and how the chain operates at large.

Moving to proof-of-stake was part of Ethereum’s original roadmap and research started before the network first launched. The transition has been separated into two phases to reduce the risk of failure.

Phase 1: Beacon Chain Deployment

Phase 2: The Merge

The Beacon chain was launched on December 1, 2020 in preparation for the merge and has been running separately since then. The Beacon chain is the network that is currently running proof-of-stake consensus. It’s pre-merge iteration doesn’t handle mainnet transactions, but after the merge it will and the previous proof-of-work chain will be shut off.

While this is a major change for the network, Ethereum users won’t have to do anything to prepare and may not even notice a difference. All the transaction history from the current network will exist on the the proof-of-stake version. This means all your bags will be safe and available after the merge, which has a soft deadline of September 15, 2022 at the time of writing.

Why Merge?

The motivations for the upgrade can be broken down into three key reasons:

• Network efficiency & scalability

• Reduce ETH issuance

• More security & consensus participation

The foremost reason is to make Ethereum more energy efficient and scalable. Switching to proof-of-stake will reduce the energy consumption of the network by 99.95%, which removes any concerns about the ecological impact Ethereum has moving forward. This is because the hardware and electricity used in proof-of-work will not be necessary in proof-of-stake.

The merge also lays important ground work to implement sharding, a key component to make Ethereum significantly more scalable.

The ultra sound money thesis will also be realized as a result of the upgrade because ETH the asset will no longer be inflationary in nature. The merge achieves this by drastically decreasing the amount of new ETH created per block while maintaining the existing burn rate, which is the amount of ETH removed from circulation.

Ethereum pre-merge runs on proof-of-work, which rewards miners for every valid block added to the chain and creates roughly 13,000 new ETH per day. Post-merge, Ethereum will run on proof-of-stake and reward validators for every valid block, creating roughly 1,600 ETH per day.

This itself significantly reduces issuance but in combination with Ethereum’s burn rate inflation goes to zero or less. Since August 2021, every transaction on Ethereum burns a percentage of ETH used to cover gas costs. About 1,600 ETH is burned at an average gas price of at least 16 gwei. Even more is burned at higher costs, which happens when the network has a lot of activity. This results in more ETH being burned than created as it gets more usage, making it deflationary instead of inflationary.

Finally, migrating to a proof-of-stake system will allow more people to participate in Ethereum’s consensus mechanism than proof-of-work, which makes the network more decentralized and secure. This final point has some caveats but at the time of writing it’s more accessible to become a validator than a miner on Ethereum.

You need to have 32 ETH staked in order to become a validator and earn ETH as a reward for successfully validating blocks. However, this is still much cheaper and easier than profitably running your own mining hardware. The competition and high cost in mining means it’s dominated by institutions and sophisticated miner groups.

To be a miner, you need

• optimal hardware to be competitive, often multiple mining rigs

• space to store them

• the electricity to power them

There’s also the cost of buying more or newer, faster rigs if the hashrate goes up to stay competitive and profitable.

This can easily costs thousands of dollars in recurring expenses. Miners also have to be aware of drastic price movement because they make their money in ETH, so it may suddenly be unprofitable to keep their rigs running if the price drops.

Becoming a validator is still a high cost though, 32 ETH at the time of writing is worth about $49,410. But this is a one time cost unlike mining and does not require any specialized equipment. Additionally, services like Rocket Pool, a decentralized staking protocol, allow you to operate a node and earn rewards with only 16 ETH.

You can even earn staking rewards without putting in the majority share to run a node and just make up some of the difference. It’s reasonable to expect more services like this with more competitive rates or greater rewards will become available as Ethereum gets more usage, lowering the amount to participate even more for new stakers.

Summary

That’s a high-level overview of Ethereum’s upcoming merge. The merge is Ethereum’s long-awaited transition from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism.

Miners will be replaced by validators in this new paradigm, which will reduce Ethereum’s energy consumption by 99.95% because electricity and hardware will no longer be required for the chain to function.

The transition will allow Ethereum to become more scalable with later upgrades like sharding. And ETH issuance will be reduced so much that the rate of inflation will be zero or even negative, making it deflationary in nature instead.

Participation in network security will also be more accessible because you will no longer need hardware, storage space, and recurring overhead costs like electricity to participate.

As a result, network security will arguably be more decentralized and secure because participation simply requires you to stake ETH making the barrier to entry much lower. While this is still a high cost, it’s less than maintaining profitable mining rigs and this barrier will likely continue to lower as more decentralized staking services arise.

Finally, Ethereum will behave the same as it did before the merge, so you won’t need to do anything to prepare for it unless you’re running a node or staking. You can continue to ape into the next big NFT project or be the DeFi degen you’ve been for the past year without skipping a beat.

For more in-depth details on The Merge see the official Ethereum site.

Misconceptions & FAQ

When is the Ethereum Merge?

The Ethereum merge date is set for September 15, 2022. This is subject to change if there are any unexpected complications.

Will the Ethereum merge reduce gas fees?

No. Gas fees are a result of network usage. The more demand to use the network, the higher the gas fees. The merge doesn’t directly affect this in any meaningful way.

Will Ethereum transactions be faster after the merge?

No. Some slight changes still exist, but transaction speed will mostly remain the same until scaling solutions like sharding are implemented.

Will there be a token drop after the merge?

No. There will be no token drops or claims for the merge.

PSA: Be aware of scams that will try to convince you otherwise!

Can I withdraw staked ETH after the merge?

No. Staking withdrawals will not be included as part of the merge in order to simplify the transition. Staking withdrawals will be enabled in the Shanghai upgrade, which is slated to come 6–12 months following the merge.

Will stakers all exit when withdrawals are enabled?

No. There are rate limits set for validators who exit to prevent this for security reasons.

Is Ethereum and Ethereum 2.0 the same?

Yes and no.

Yes because for a typical Ethereum user nothing will change and Ethereum will behave the exact same.

No because the consensus mechanism under the hood is completely different and introduces the option for you to stake ETH to participate in network security and earn ETH.

Additionally, the term “Ethereum 2.0” will no longer be used and the network will continue to be known as “Ethereum”, so it will feel like the same Ethereum you’ve been using for the past year if you are not staking.

What happens to ETH when ETH2 comes out?

There will be no “ETH2”. After the merge, your ETH balances will remain the same. There will be no other version of ETH and the phrases “ETH2” & “Ethereum 2.0” will no longer be used to avoid confusion.

If you have been staking and earning ETH on the Beacon chain, your staked ETH and rewards from newly issued ETH will continue to be locked until the Shanghai upgrade. You will, however, earn ETH used to pay for transactions. This is because the tip that used to go to miners will instead go to validators after the merge.

Will the Ethereum network go down for the merge?

No. Ethereum is expected to have zero downtime during this transition.

Will Ethereum go up after the Merge?

Ethereum will go up and down after the merge and not necessarily in that order, just like it always has.