What is important to know before and after the Merge?
Sep 13, 2022
At DECOM, protecting our clients' assets is one of our top priorities. We would like to summarize what you as an ETH user should know before the Merge.
It's only a few days away. One of the most momentous crypto events to date is imminent: the ETH Merge. The long-awaited transition to a new consensus mechanism that could have a massive impact on the Ethereum network. But there are also serious risks you need to know about.
The current Ethereum Mainnet must and will continue to operate without real disruption. If a problem occurs during the Merge, it can temporarily bring down the entire network. If something really goes wrong during the Merge, the worst case scenario is that the blockchain has to be forked. A blockchain network fork is the opposite of a Merge, which would essentially mean that the Merge has failed.
Since the ETH Merge differs from miners providing proof-of-work, many people in the Ethereum mining community are not interested and are working on a hard fork of the current network to continue mining operations. This means that there will be two versions of the blockchain: one proof-of-stake with the ticker symbol "ETH" and the other proof-of-work with the new ticker symbol "ETHW". This will create two versions of your assets and split the entire Ethereum community. This can lead to possible replay attacks.
When Ethereum or any other cryptocurrency undergoes a hard fork, the biggest risk the average user faces is a “Replay Attack”. When a cryptocurrency is forked into different versions, each holder keeps their holdings and receives an equal amount of the forked cryptocurrency. The address and private key are the same in each chain. The transaction format is also the same, meaning that a transaction sent on one chain can be forwarded to a node on another chain and be validated.
So, to understand what a Replay Attack is, we first need to understand how hard forks work. Hard forks create a copy of the ledger. All existing transactions are intact, but the rules are changed, making them incompatible with the previous version, creating a new ledger. If you hold ETH before the split, you own an equal amount on the new ledger. But what if you want ETH to be sent from one chain and not the other? This could be a problem because if you send coins on one chain, the person you sent them, could send the same transaction on the other ledger. This is called a Replay Attack because your transaction has been repeated, and you are essentially left with nothing.
So there are security tradeoffs that come with a Merge. On the one hand, it is certainly more secure from certain types of attacks and certain types of attack vectors. That's a positive thing. Other types of attacks, such as Replay Attacks, are potentially greater vulnerabilities. And due to the fact that this has never been tested at this scale before, there is uncertainty as to how these things will play out. Nonetheless, many developers have added protections to replay attacks to mitigate the risks of replay attacks.
If you are invested in ETH and other ERC20 tokens built on the Ethereum network before the Merge, you don't need to do anything. Whether your ETH is on an exchange, hot wallet, cold wallet or staked on a exchange or any type of wallet. During the Merge, all ETH, regardless of where it is located or whether it is staked or not, will be converted from ETH to ETH2 without you having to do anything.