In the Web3 world, the Merge refers to the Ethereum blockchain's transition to a proof-of-stake (PoS) consensus mechanism, eliminating the need for energy-intensive proof-of-work (PoW) mining. The Merge that happened on September 15, 2022, permitted the use of staked ETH to safeguard the network. Additionally, the Beacon Chain is now joined with its original execution layer, the Mainnet, which has been around since the blockchain's inception.
The Merge started with the Bellatrix and Paris upgrades. Bellatrix, a consensus layer network upgrade, gave The Merge its official start on September 6, 2022, at 11:34:47 UTC. The Paris upgrade, the execution layer, was triggered by the Terminal Total Difficulty (TTD), a particular Total Difficulty threshold that caused Paris to begin. However, the precise date was uncertain because it strongly depended on the PoW hash rate. The total difficulty threshold for the last block to be mined in Ethereum is known as TTD, which is the fixed number of hashes that had to be mined before PoS officially replaced it.
This article will discuss rewards and penalties that one should expect post the Ethereum Merge.
Although there are no official classifications to this day, here's what you should expect from Ethereum rewards following the Merge.
These incentives are given to Beacon Chain validators for doing various responsibilities, including taking part in consensus and attesting blocks. Remember, the incentives will continue to be "active" in the Beacon Chain until the Shanghai fork cannot be fulfilled. These awards are additionally divided into:
- Attestation rewards: This is a tiny reward earned every epoch (about every six minutes), and it is currently handed out in the range of $1620 each year or $135 per month.
- Participating in sync committees: Only 512 validators can earn this at the moment, and it is rotated once every day. Validators can currently make up to $0.1 every epoch.
- Block proposals: A validator earns points when they suggest a block; the less often they are to do so, the more active they are. It currently stands 6-7 times every year.
- Whistle-blowing: If your validator observes someone inappropriately using the network, you can whistleblow them to the network and receive a little payment of 0.0625 Eth.
Post-Merge, validators will function like new miners, earning tips from users when they send transactions. Explore more here!
Maximal extractable value (MEV) Rewards
Instead of a reward that is "per se" part of the protocol, this new benefit requires further work. Validators will be able to rearrange transactions to their advantage because they will be the ones submitting blocks. Additionally, a solitary staker may try to sell their blockspace ordering on a public market because it is difficult to rearrange transactions. Keep in mind that flashbots are excellent at minimizing the negative externalities that MEV contributes to Ethereum.
In addition to the aforementioned rewards, you might also get compensated for reducing the supply of ETH. As a result of the London Hard Fork's implementation of EIP1559, the BASE FEE that customers paid with their transactions gets incinerated. As a result, issuance and inflation of ETH will be reduced.
The Ethereum network has a set of rules which every node must follow to participate in consensus. The network rewards nodes that adhere to the rules while penalizing those that do not. These regulations have specific goals, such as encouraging moral behavior and reducing the incentives for bad behavior.
When the validator violates the CASPER commandments or votes against what it supports, it will be subject to slashing. For instance, you have tricked the network if you propose two different blocks for the same slot. Slashing happens when the offender's evidence is added to a Beacon Chain block. The offending validator (or validators) are deleted once the network has validated the evidence.
Three slashing penalties exist, as explained below:
- Initial Penalty: Currently assessed at 0.5 ETH, it will increase to 1 ETH following the merge. Along with the first penalty, the validator is queued for exit and has its withdrawal ability epoch set to about 36 days (or 8192 epochs) in the future.
- Inactivity penalty: The validator gets punished for being "offline" for 8192 epochs (36 days) since that is the time before it is terminated. If there is no inactivity leak, the aggregate penalty charges range from 0.1 to 0.2 ETH.
- Correlation Penalty: If numerous validators were eliminated all at once, a correlation penalty would be applied.
If the network cannot achieve finality in the last four epochs, the penalty for inactive validators will be raised to arrive fast at a decision!
If you remain online, it does not apply to you. Please be aware that nothing similar has occurred in the mainnet as of yet.
Sync Committee penalty
If you are assigned to a sync committee but don't participate, you will lose the equivalent amount you would have won for being right.
Your validator votes for the Casper FFG source and target each epoch (6 mins); however, you will incur a small fine if you cast an incorrect, late, or absent vote.
Not to worry! It's common to miss some votes, and even the most experienced validators err once in a while.
The road ahead
The annual Ethereum Community Conference (EthCC), which was held in Paris on July 21, 2022, featured a speech by Ethereum co-founder Vitalik Buterin outlining the network's future prospects in order to provide a clearer picture of Ethereum's strategic intentions.
The stages that will follow The Merge include The Surge, The Verge, The Purge, The Splurge, as explained in the sections below.
For The Surge phase, Buterin mentioned the addition of sharding technology. According to the Ethereum Foundation, sharding is a scaling technique that will dramatically increase Layer 2 protocol efficiency while cutting costs and making it easier for users to host security nodes on the Ethereum network. However, following the spike, rollups will be much more affordable and nodes will be simpler to manage. When the boom phase is over, according to Buterin, the Ethereum network will process transactions more swiftly.
Ethereum will construct a user-friendly, lightweight client called Verkle trees for Layer 2 implementation and consensus layer solutions on top of The Verge. Verkle trees are a powerful addition that allows for much smaller proof sizes. It is essentially suggested to go from Merkle trees to Verkle trees. They serve as the Ethereum blockchain's equivalent of "state machines" or "databases," storing all the data. Blockchain validation ought to be simpler thanks to the Verge implementation. This will improve Ethereum's storage performance and help reduce node size, making ETH more scalable.
Buterin aims to lower the amount of hard drive space required for validators on Ethereum during The Purge in order to aid in the elimination of outdated information and bad debt, as well as to streamline storage and lessen network congestion.
It is not necessary for every node to keep every history block in storage indefinitely because of the Purge. Clients will no longer save history that is older than a year as a result. This suggests that both network traffic and node hardware needs will be decreased.
Buterin's final upgrade to Ethereum is The Splurge, a quantum-resistant system that works with Zero-knowledge (ZK) technology and the Ethereum Virtual Machine (EVM) without a hitch. The EIP-1559 combustion system will also undergo improvements.
"All said, The Merge is just the first step towards making Ethereum a more desirable blockchain. There are still several stages and a long road ahead to achieve all the objectives planned."