One year after Ethereum’s momentous shift to a proof-of-stake (PoS) consensus mechanism, the network has undergone a profound transformation.
On September 15, 2022, Ethereum executed “The Merge,” an event where the Ethereum mainnet merged with the Beacon Chain, a separate PoS blockchain.
The most striking change post-Merge was the reduction in energy consumption.
Data from The Cambridge Centre for Alternative Finance reveals that Ethereum’s energy use plummeted by over 99.9%, dropping from approximately 21 terawatt hours under proof-of-work (PoW) to a fraction of that.
Beyond energy efficiency, The Merge introduced an economically deflationary aspect to Ethereum.
The amount of Ether (ETH) issued to secure the network has been surpassed by the ETH removed from circulation.
Ultrasound.money data indicates that over 300,000 ETH (valued at $488 million) has been burned since The Merge, reducing the total ETH supply at a rate of 0.25% annually.
Despite expectations of a price surge due to this deflationary trend, Ethereum faced challenges in the form of macroeconomic factors, including banking crises and rising inflation.
While ETH’s growth lagged behind Bitcoin’s in the first quarter of the year, Bitcoin appeared to benefit from traditional financial instability.
The essence of the PoS upgrade was the shift from miners to stakers for network security.
The subsequent Shapella upgrade in April 2023 drove a significant portion of ETH towards staking. Liquid staking providers like Lido and Rocket Pool became key players in this ecosystem.
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Currently, these providers hold over $19.5 billion worth of ETH, with Lido accounting for 72% of all staked ETH.
However, the rise of liquid staking raised concerns about the level of control granted to providers like Lido Finance.
Some providers sought to impose a 22% limit rule to ensure network decentralization, but Lido voted against this measure, raising worries about centralization of validation on Ethereum.
Beyond staking, Ethereum grappled with regulatory pressures, especially in the United States.
Regulatory bodies in the U.S. appeared to be targeting blockchain companies, posing potential threats to Ethereum and the global blockchain community.
Additionally, client diversity remained a central issue for Ethereum.
The majority of active Ethereum nodes were run through centralized web providers like Amazon Web Services, leaving the network exposed to centralized points of failure.
Vitalik Buterin suggested statelessness as a solution to promote decentralization by reducing data requirements for node operators.
However, he acknowledged that these challenges might take another 10 to 20 years to fully address.
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