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Ask CryptoVantage: What Will the Ethereum Merge Mean for Me?

Ethereum 2.0, the upgrade every ETH user has been waiting on for nearly 2 years now, seems to finally be approaching (even though it’s not even officially called ETH 2.0 anymore).

Over the next few years Ethereum will be getting an upgrade in nearly every way including faster transaction speeds, lower fees, massively reduced energy consumption and a new proof of stake consensus mechanism that lets users earn passive income through staking.

The merge is the first step in that journey and the primary focus is on the transition to proof of stake, which will reduce energy consumption and let users easily earn staking rewards for helping validate the network.

Now that the ETH merge seems to (finally) be approaching, and with it comes a lot of questions for current Ethereum users. In this edition of Ask CV we’ll cover what the merge is, what it means for various types of users, and more.

Who are the richest holders of Ethereum?

What is the ETH Merge?

In December 2020, Ethereum launched its beacon chain, the first step towards the change from a proof of work blockchain to a proof of stake blockchain. With the launch of the beacon chain, Ethereum users who had at least 32 ETH could become a validator for Ethereum 2.0, locking up their ETH for future rewards when ETH2 launches. Those without at least 32 ETH had to join a staking pool, or stake to an exchange’s ETH2 pool.

Regardless of which of these avenues users chose to use, there was a caveat for all: you may never see your staked ETH or the accumulated rewards. This is because when you stake your ETH to ETH2, it becomes locked, along with your rewards, until the current ETH blockchain can merge with the beacon chain. If and only then can those who staked ETH get access to their staked ETH and their rewards. So, the ETH merge has ramifications for all sorts of Ethereum users.

How the ETH Merge Affects You

There are a number of different ways that people interact with ETH and the merge will have different consequences for each of them. Here’s a look at how it will affect the different parties:

You Are in a Staking Pool

If you are an Ethereum user who joined a staking pool in order to stake ETH to the new beacon chain, then you’ll start to receive real rewards. The majority of, if not all, ETH 2.0 staking pools are currently rewarding their users in another token, or some sort of IOU, and not ETH itself.

This is because until ETH 2.0 launches and is successfully merged, none of the staking rewards are being distributed by the Ethereum network. Once the merge is complete, staking rewards will be distributed in a prorated manner to all of the users within a stake pool.

Staking rewards are also estimated to increase significantly once the merge is complete because miners will no longer play a part in validating the network and all rewards will instead go to stakers.

You Are a Validator

Much like those who joined staking pools, validators who locked up 32 ETH in order to run a node will now start to receive their rewards. They will also have access to their ETH again (although it will be several months before staking ETH is officially unlocked).

If the validator is running a pool, then they’ll need to start distributing rewards to users who joined their pool.

You’re Staking Through an Exchange

If you’re staking ETH through an exchange like Binance or KuCoin to a 2.0 staking program (not a regular savings program), then a couple things will happen.

First, you’ll be able to swap the IOU token you’ve been receiving for real ETH. Second, you’ll regain access to the ETH you staked to 2.0 (although this will occur several months after the merge), as the tokens will no longer be locked as 2.0 is running.

You shouldn’t have to do anything to upgrade your ETH as the exchanges will take care of the transition.

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About the Author

Evan Jones

Evan Jones was introduced to cryptocurrency by fellow CryptoVantage contributor Keegan Francis in 2017 and was immediately intrigued by the use cases of many Ethereum-based cryptos. He bought his first hardware wallet shortly thereafter. He has a keen and vested interest in cryptos involving decentralized backend exchanges, payment processing, and power-sharing.

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