Jack Niewold Profile picture
Mar 23 19 tweets 4 min read
Ethereum’s Merge is coming

Here’s what you need to know, explained simply.

Part 1: Understanding the Merge

• What's happening
• Why it's happening
• How it works
The merge is the Ethereum's transition from proof-of-work (PoW) to proof-of-stake (PoS).

PoS: Blockchain consensus comes from people (stakers) who lock up their Ethereum.

PoW: Consensus for the blockchain comes from people (miners) who secure the network with computing power.

Ethereum has a lot of problems, and has worked towards solving the blockchain trilemma:

• Security
• Decentralization
• Scalability

Blockchains so far have had to compromise on at least one of these characteristics.

While it doesn't make Ethereum perfect, it helps.
How does the Merge help?

• Decentralization/Security: The Merge requires a minimum amount of nodes & makes it easier to run a node

• Sustainability: PoS uses roughly 99% less energy than PoW

• Scalability: Opens the door for sharding, which may someday allow for 100k TPS
To run a node you need to stake 32 ETH, and you have to lock up ETH until the Merge.

After the Merge, rewards will not go to miners, and go to stakers instead.

But this staking system brings about some problems, which brings us to:
Part 2: How to Benefit from the Merge
1. Stack ETH
2. Stake ETH

But since staking:

1. Requires 32 ETH
2. Requires you to lock up ETH

Providers have emerged that charge a fee to solve those problems.
These protocols are pretty simple:

• You deposit ETH
• The protocol stakes the ETH to a validator for you
• You receive a liquid (sellable) wrapper representing a right to that staked ETH
• The staked ETH accrues interest
• You can use the liquid wrapper on DeFi
RocketPool, Lido, StaFi, and more all let you do this with Ethereum, although vary slightly in mechanics/decentralization/composability.

They let you earn interest with a liquid ETH token wrapper.

You can also invest in the governance tokens of the protocols themselves.
How Does ETH Become Deflationary?

The EIP-1559 upgrade began to burn some of the tx fees paid to miners. This created a small deflationary pressure for ETH.

With the Merge, rewards paid out to validators will be reduced by roughly 90%.


ETH burned > ETH issued
What is Sharding?

Shards are not planned to be shipped until 2023, but they make Ethereum faster and less computation-intensive.

Also bullish.
New Supply Dynamics:

Tl;DR: Stakers HODL, Miners dump

Any questions? Please ask in the replies, there are many ETH Maxis that will be happy to help you out.

If I've made any errors, please drop a reply and I'll made corrections.

I have had to simplify some things to make this thread accessible.
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So much alpha

So little BS

This thread was based on @joeygcamp's Crypto Pragmatist (@cryptoprag) article, read the whole thing below.


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More from @JackNiewold

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One that might break stablecoins like Tether and UST.

A 🧵 on Beanstalk 🌱

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Centralized Stables like Tether hold dollars off-chain. The issue? Supply is constrained and the usage can be censored.

Decentralized Stables can't be censored, but require overcollateralization, so they're limited in supply.

Stables can't keep up with demand.
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Alright, I did it so you don't have to.

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First of all, it's important to touch on what this executive order does.

When people think: 'executive order,' they think there will be an immediate change.

With this one, not so much.
No direct action will be taken from this order, at least yet.

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