Ethereum Merge: What it Means for Different Layers of Web3

The Ethereum Merge was activated on September 15, shifting its consensus to Proof-of-Stake (PoS) and triggering a roadmap for more scale, energy efficiency, and low fees. How will the Ethereum Merge influence the crypto industry? Will Layer 1 and Layer 2 networks flourish or be challenged? How does that connect to Web3 infrastructure players like Pocket?

A Historical Event in Crypto: The Ethereum Merge

As you’ve heard, the long-awaited Ethereum Merge is complete. With its upgrade, Ethereum is taking another step towards a new phase of scalability, adoption, and environmental friendliness.

The Ethereum Merge happened thanks to two final phases: the Bellatrix update on September 6 and the Paris upgrade (finalizing the consensus change) successfully deployed on September 15 around 7 AM (UTC).

What’s the significance of this change? Ethereum has been the driving force behind Decentralized Finance (DeFi), the rise of dApps, Smart Contracts, NFTs, and more. However, it also faces challenges.

Bottlenecks in the network, periods of congestion, high gas fees, the number of transactions that Ethereum is able to simultaneously conduct, and the speed of transactions have been hurdles along the way towards more mainstream adoption.

The roadmap for the Ethereum Merge, changing its consensus from Proof-of-Work (PoW) to Proof-of-Stake (PoS), aims to address these challenges in the network and open more opportunities for developers and investors.

How Will the Merge Impact Layer 2 Networks?

What is the ultimate motivation of the Ethereum Merge? The goal of maintaining the Ethereum network as the principal agent for the development of DeFi, dApps, Web3, and the future of the Metaverse.

For Ethereum to be an alternative to legacy systems, a differentiated solution from other Layer 1 networks, and the driving force behind Layer 2 developments, it needs to address its scalability setbacks, especially concerning the ease, scale, and cost of transacting.

For crypto to move further towards supplanting Web2 in key aspects of social and economic life, the networks enabling that transition need to show superior performance, security, and robustness.

For Ethereum to achieve further mainstream and institutional adoption, successfully deploying the Merge is not sufficient – it also needs to execute its long-term roadmap and be supported by complementary solutions. Enter Layer 2.

The growing use of Layer 2 networks has helped to alleviate some of the aforementioned challenges facing Ethereum and other networks.

Many Layer 2’s also offer differentiated use-cases beyond scale (i.e. lower fees and higher transactions per second can unlock different kinds of applications and use cases that wouldn’t make sense otherwise) that have registered great levels of adoption and will continue to serve those users.

For now (and especially before any benefits of sharding come into play), the Merge is not expected to lower any Layer 2 demand or slow the growth achieved by multiple Layer 2’s. Even after the Merge, Layer 2’s are continuing to play an important role in meeting growing demand and usage of blockchains across the globe, and in fact even benefiting themselves from some of the Merge-related improvements to Ethereum’s network. As one research analyst put it, “user and developer experience with L2s will improve in tandem with how Ethereum improves over time.”

What About Layer 1 Networks? Is the Merge Going to Affect Them?

In an era where dApps and Web3 aim to improve on (or overtake) incumbent solutions, the optimized performance of Ethereum will bring positive effects to Layer 1 and Layer 2 networks and propel the sector forward.

As with Layer 2 protocols, Layer 1 networks building out the DeFi suite and other types of applications have reached levels of adoption, development, investment, and community that won’t disappear. Layer 1 networks will continue to exist, serve a growing audience, and offer differentiated use cases than Ethereum in a healthy and growing environment.

If crypto is to reach mainstream adoption, it will likely need a solid roster of alternatives, covering different end user needs while competing between themselves to improve.

Of course, it’s not uncommon in the tech space for a few players to eventually take most of the proceeds, and we could see that dynamic play out over time in the Web3 industry. Nevertheless, the prospects for a multi-chain future, beyond just a handful of Layer 1s, remain strong. We can expect to see a class of Layer 1 winners in the long-term – Ethereum, with the Merge and the future optimizations on its roadmap, is positioning itself to remain one of these top choices.

How Will Web3 Infrastructure Boost Networks, from Ethereum to Other Layer 1’s and 2’s?

In a scenario of overall growth in crypto and Web3, the need for application developers to build under several networks will increase, as will the number of differentiated tools and use cases in a multichain future.

With the scalability increase of Ethereum and its effect on Layer 1 and 2 protocols, critical infrastructure will have to improve its interoperability, security, and performance to serve the needs of a larger audience.

Web3 infrastructure that can efficiently and seamlessly connect applications with different layers of networks will be essential for both developers and end users, and enable a smooth transition from a Web2 standard to a decentralized experience.

Pocket Network is set to continue establishing itself as a central player in this transformation, as the leading decentralized infrastructure provider connecting blockchain data to applications across different layers and segments.

If you’re already building post-Merge, make sure to check out the Pocket Portal and start connecting your app to data from Ethereum and dozens of our other supported blockchains!