Technical and Product Updates

Ethereum merge is live! – How is it affecting the blockchain layer 2 solutions?

September 16, 2022

What is it?

The massive overhaul of Ethereum known as the Merge has finally happened, moving the digital machinery at the core of the second-largest cryptocurrency by market value to a vastly more energy-efficient system after years of development and delay. Opening a New Era for the enormous environmental benefits.The upgrade casts aside the miners who had previously driven the blockchain by swapping out what is known as proof-of-work, for another, called proof-of-stake. The upgrade is the first in the Ethereum roadmap that will make the network’s infrastructure future-proof and set it up for increased security, sustainability, and scalability.

Merger to miners

The Merge retires Ethereum’s proof-of-work system, where miners competed to write transactions to its ledger – and earn rewards for doing so – by solving cryptographic puzzles.Most mining today happens on “farms,” though they may be more aptly described as factories, like a warehouse made with rows of computers stacked on top of one another like shelves of books – each computer hot to the touch as it strains to pump out cryptocurrency.This system, which was pioneered by Bitcoin, is what caused Ethereum to guzzle so much energy and is responsible for fueling the blockchain sector’s reputation as an environmental menace.

How is the Merge affecting the blockchain layer 2 solutions?

The Ethereum blockchain has struggled with a variety of problems for which most of its community is still working to solve.The Ethereum blockchain has an inherent scalability issue together with skyrocketing gas fees. Nevertheless, the merger does not solve these problems entirely. With this major update, Ethereum Mainnet is still limited to around 30 transactions per second, while layer 2 solutions such as BLOOCK could process up to 4000 data/second. The roll-up solution also targets the high fees of blockchain Mainnet by interacting with the network only when the transaction is being validated.Another perennial issue has been the increasing centralization observed on the current proof-of-work chain, with large mining pools having an outsize influence on consensus. On one level, it is fair to expect the Merge to enable greater decentralization — greater participation in Ethereum’s full proof-of-stake (PoS) consensus mechanism and higher rates of staking, coupled with a higher ETH price, will significantly bolster the economic security of the blockchain by raising the capital bar needed to pose a material security threat to the system.

What is next?

While there is little doubt the Merge will be a hugely positive development for Ethereum, supported by most of its community as well as a society given its significant environmental impact, it is most certainly not a silver bullet for the inherent issues that have allowed faster and cheaper blockchains to make huge inroads.In maintaining the health of the ecosystem, decentralization remains the foremost priority for the Ethereum community, and any venture that contributes to differentiated market share will be a net plus for the ecosystem.The more these ventures are decentralized by their nature, the better positioned Ethereum will be to maintain its core values of censorship resistance and credible neutrality. While centralization risks are almost inevitable in our current technological paradigm, it is important to remember that Ethereum is still the world’s most decentralized blockchain and will serve as the critical infrastructure to Web3 and the future of the internet as a public good.

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