The Merge Q&A: A triumph for Ethereum — or a disaster waiting to happen?

Within a matter of weeks, the Ethereum blockchain is going to undergo the Merge, in one of the biggest and riskiest upgrades in the industry's history: a switch from a Proof-of-Work consensus algorithm to Proof-of-Stake.

XGo's head of product Josh Cowell explains what the much-anticipated Ethereum Merge is all about  — and some of the big questions that currently remain unanswered.

1. Hello! Before we delve into all things Ethereum, tell us about XGo.

Hello! We're a bunch of crypto enthusiasts and founded XGo to restore crypto's original goals and principles beyond making money (or losing it!) fast. We have a sophisticated web trading suite and staking offering live — but this isn't our only focus, and there's much more in the pipeline.

2. Can you tell us more about the history and motivations of the Merge? 

Ethereum went live in July 2015 — and fast forward to now, ETH is the world's second-largest cryptocurrency. 

Just like Bitcoin, the network currently uses a Proof-of-Work consensus model to secure the blockchain. This means that crypto miners are running machines to crunch numbers in an attempt to validate transactions and earn ETH rewards. It requires a lot of energy to run — and flies in the face of decentralization because of how it's controlled by a few larger, more sophisticated mining operations.

There have been many improvements within the lifetime of the Ethereum chain, but the upcoming Merge is most probably the most anticipated blockchain upgrades to date. It'll mark the network's move to Proof-of-Stake — and while this move was being considered even before Ethereum went live, it's taken over eight years to get here.

This new chain will be secured by staking validators. These are pools of individuals who stake their Ethereum to earn rewards in ETH. Their stake and their presence helps secure and decentralize the network. 

3. What are some of the Merge's benefits?

Well, after the Merge, we should see increased security through decentralizing the network and relying on a broader pool of validators. The barrier to entry is dramatically lowered when compared with mining.

What's more, energy consumption to maintain the blockchain should plunge by over 99% — and average block times could fall by up to 12%. PoS will also lay the foundations for innovations such as sharding that'll boost scalability and speed even further. 

4. But surely there are downsides? 

There is an argument that the Merge could actually reduce security and cause further centralization because there are a few large players involved in staking.

And some fear that it could be easier for governments around the world to control Ethereum at the protocol level because they can impose rules and regulations on these big entities staking ETH — possibly censoring transactions as a result. We've already seen momentum here after Tornado Cash was sanctioned.

Many miners are also staunchly against Proof-of-Stake because they'll no longer be able to use their hardware to get ETH rewards — and this is a big blow given how expensive this equipment can be. When the Merge happens, we could see a Proof-of-Work hard fork (ETH-W) emerge, but this isn't going to be easy as the majority of miners will have to agree on a way forward otherwise they face dilution of value across multiple forks.

5. What if people want to start staking… how can XGo help? 

In order to run your own validator node, you need to have 32 ETH. That's a lot of crypto.

Our product Superfluid allows people to get involved with staking rewards with a much lower barrier to entry — and what's better is there are no lock-ups, great rewards and the freedom to use assets for trading and staking at the same time.

6. Tell us about your attitude toward safety.

We're closely monitoring what's going on with the Merge — keeping an eye on miner sentiment. We'll also support ETH-W futures should a majority favorite fork emerge. And if this happens, you'll be able to trade both versions of Ether on XGo.

Safety is something we're extremely mindful of, too. We're going to implement two-way replay protection by default to ensure trading on one forked chain isn't valid on the other. The original chain shouldn't eliminate the old chain either — and trading on both should be differentiated,  requiring an upgrade for all wallets to support the new network.

7. So have you picked a side — Proof-of-Work or Proof-of-Stake? 

XGo champions the vision of the Ethereum Foundation and It’s important to note the ETH community’s response to the previous DAO hack, creating Ethereum Classic (ETC.) The prudent action by the community and developers salvaged the network, so it’s fair to say this isn’t their first rodeo and thus it’s unwise to completely dismiss ETH-W.

We plan to support with tools for all parties: Seamless PoW to PoS ETH token conversion with two-way replay attack protection and staking rewards access for the mass retail audience, and ETH PoW fork futures trading should a lead fork (ETH-W) emerge, alongside ETH PoS markets.

8. What are the big questions about the Merge that remain unanswered?

It is going to be interesting to see how the decentralization of Ethereum moves with the Merge. Will the hardware hurdle lowering allow many smaller participants to secure the network and increase decentralization? Or will monopolies from fewer and larger players win out?