How the Ethereum Merge Could Lead to Improved On-Chain Privacy

Ethereum has been attacked over the years for its prohibitively expensive gas, or transaction, fees. It’s this often well-placed criticism that has inspired a historic network redesign that culminated in the much-anticipated “Merge” event this week. While many are eager to rejoice for a gas-optimized future, the greater implications of the Merge span far beyond basic product viability.

It shouldn't be controversial to say the Merge will not improve network performance itself. Instead, it will lay the groundwork for a series of powerful scaling upgrades down the line called the Surge and the Verge. These upgrades pave the way for groundbreaking innovation in computation-heavy decentralized applications – most notably, those that provide protections for on-chain privacy.

Alex Shipp is the chief strategy officer at Offshift.

Setting the record straight: size matters

Ethereum co-founder Vitalik Buterin has taken heat for his infamous declaration that “the internet of money should not cost 5 cents a transaction” to run. Likewise, his steadfast focus on making scaling a cardinal priority across the ecosystem has sometimes been called into question for missing other necessary improvements.

However, growing networks bring about second-order effects. Improved on-chain privacy may not be the prime motivation for Ethereum's switch to proof-of-stake, but it will likely be its result due to network effects, the reduced cost of computationally-expensive "zero-knowledge" transactions and the sheer number of developers focused on privacy solutions.

It is without a doubt that bringing down Ethereum gas fees is absolutely imperative for the network to attract more mainstream users. But what is yet to be seen is the innovation that expanded network capacity will produce; for it would be naive to envisage post-Merge Ethereum as merely a low-friction environment for cheaper, faster decentralized finance (DeFi) and non-fungible token (NFT) minting.

Looking back: what performance improvements meant for the internet

In the early days of the “dot-com boom,” the internet was mostly seen and presented as an ultra-efficient tool for communication. This was an enormous value proposition for its time, which today can only be seen as an understatement. Likewise, when infrastructural improvements were planned, they were mostly attributed to their most immediate effects: faster emails, shorter load times and the like.

There were also downstream consequences to every improvement to the internet, culminating today in a network that allows for instantaneous information transfer across the globe. In truth, only a small crowd of visionaries were able to see where things were heading and began work developing features like real-time streaming, cloud computing, file sharing, RSS and torrenting.

Read more: Ethereum Merge: What You Need to Know

These are the innovations that make the vibrant internet landscape what we enjoy today. They paved the way for new applications including social media, dating apps, interactive content streaming platforms, monetization models, e-commerce, personal financial tools and, yes, those obnoxious banner ads that make free web services profitable.

Many in the emergent Web3 movement have a bad habit of looking down on the incumbent internet paradigm crypto aspires to replace. It is perhaps worth considering that Web2 – parasitic and imbalanced though it may be – was itself the product of sophistication, ingenuity and much creative spirit. It might not hurt to take a note or two.

Looking forward: what performance improvements will mean for the cryptoverse

With the Merge completed, Ethereum has kicked off a multi-phase scaling journey, one which Vitalik Buterin said may take up to six years in his Jan. 3 appearance on Bankless. Buterin went on to say that if no further modifications were to be made to Ethereum, he “would be very happy.”

Now that Ethereum is successfully running proof-of-stake, developers are now focused on building out a scalability system called sharding. That will be introduced in "the Surge," which will also improve layer 2 scalability by supporting roll-ups.

After that, the Verge will introduce a vector-based commitment system to replace Ethereum’s present Merkle tree model, vastly reducing proof sizes and speeding up verification times – an immense leap forward for layer 1 operations.

Read more: Ethereum Merge Explained: What Investors Should Know About the Shift to Proof-of-Stake

The immediate benefits of improved transaction throughput are obvious and certainly worth celebrating: a more level playing field, affordable DeFi and meaningful adoption potential. But as per the growth trajectory of the internet, innovation often works in epochs and has a compounding affect.

Growing networks, privately

Privacy-centric tools and applications have long been one of cryptocurrency’s most powerful and demanded use cases. And the necessity of these tools is becoming clearer each day. As authoritative surveillance operations and Big Tech business models close in on individuals in lockstep, privacy in today's version of the virtual realm is rapidly becoming a pipe dream.

In response, zero knowledge (zk) proofs have emerged as Ethereum’s magic bullets, as the underlying cryptographic instruments powering not only Ethereum’s leading layer 2 roll-ups, but its most promising and robust on-chain privacy solutions. The only problem: zks are computationally intensive.

Translation: Privacy was ludicrously expensive on pre-Merge Ethereum.

From PLONKs to zero-knowledge identity technologies, cryptographers and Solidity developers alike are hard at work building cutting-edge zk implementations to power the future of privacy-protecting decentralized applications. Until recently, Ethereum’s inability to conduct the necessary computation to protect user privacy on-chain has left users stranded.

But with the completion of the Merge – and subsequently, the Surge and Verge – Ethereum kicks off a new era of innovation, one powered by robust infrastructure, and guided by uncurbed ingenuity and innovation. The future of Ethereum is as bright as it is cheap, fast and private.