More Than One Year On, Is Ethereum's Merge Meeting Expectations?

If you were to look at the crypto headlines today, you’d be seeing a mix of news covering everything from Ripple to Bitcoin, to Binance, to Tether, to several other cryptocurrencies you may never have heard of. Rewind about a year, however, and the headlines were far more focused. Back in late 2022, it was all about Ethereum.

Specifically, they were all about Ethereum’s merge, and the date was September 15th, 2022. This was when the second biggest cryptocurrency network, Ethereum, switched from a proof-of-work plan to a proof-of-stake. It’s been a year and two months since Ethereum made the groundbreaking change, and things have grown a little more quiet. So what exactly happened to Ethereum, and is the merge meeting expectations?

What Was The Merge?

For those unaware, the Ethereum merge referred to a software upgrade that switched the consensus mechanism from proof-of-work to proof-of-stake. Proof-of-work is the process of validating blockchain transactions, where crypto “miners” handle the task of validating a block before it is added to the blockchain ecosystem – those who validate correctly get rewarded with more crypto.

The problem with this was the massive power consumption it would take to solve the block, and the inequality of crypto rewards – miners are typically users who can afford the most expensive equipment. On the other hand, proof-of-stake asks users to stake around 32 ETH to become a “validator”. They are then chosen at random to validate a block and receive rewards as a percentage of the stake. This requires far less energy usage and opens the playing field for anyone to become a validator – provided they have enough to make the initial stake.

How Is It Going?

At the time of writing, the price of Ethereum is sitting at just under $2,000, while its biggest rival, Bitcoin, is sitting just beneath $37,000 – check out cryptosoho.com for current prices. This is in stark contrast to the $1,100 level that Ethereum was hovering around this time last year. This, if anything, is the main indication of Ethereum’s success with the merge.

Since moving to a proof-of-stake consensus, Ethereum has done what it promised and cut blockchain’s environmental impact – according to a recent report, Ethereum’s power consumption has fallen by a massive 99.9%. Not only is this an evident positive in terms of the environmental issues that we are currently facing, but it is also largely beneficial to Ethereum – it is much harder to paint the network as damaging to the environment, which similarly invites new investors and raises the price.

The Challenges Moving Forward

That’s not to say it’s all good news. Questions being asked of POS before the merge was centred around centralisation – if users have to stake 32 ETH to become a validator, surely that ensures those with power in the Ethereum ecosystem are those with the biggest share of tokens? This concern has since become validated.

Because not every user has 32 ETH to lock, they are using intermediary services: crypto-based companies that allow users to pool their ETH together and create a node. The intermediaries then earn a cut of the rewards from being a validator. At the moment, the organisation Lido accounts for 32.3% of staked ETH, and as it nears the 33% mark, more questions are being asked of Ethereum’s decentralisation, and whether or not POS has leant the network closer to centralisation than ever before.

The Bottom Line

This is a challenge that Ethereum undoubtedly needs to address, and other issues like MEV and censorship must also be taken seriously. Importantly, however, what POS set out to achieve has worked. Now it is just about patching up the cracks, and Ethereum is likely to become even more successful in the near future.

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