REALITY CHECK | A Look at Developments on Ethereum – One Year After Transitioning to Full Proof-of-Stake (PoS)

September 15 2023 marked exactly one year since the Ethereum blockchain conducted the Merge, whereby becoming a full Proof-of-Stake (PoS) chain.

Before the transition, Ethereum utilized the same consensus mechanism as Bitcoin, which is called Proof-of-Work (PoW). This mechanism required miners to compete in solving complex mathematical puzzles, and in return for participating in the energy-intensive process, they were rewarded with cryptocurrency tokens.

Energy Consumption

Ethereum’s shift to Proof-of-Stake (PoS) meant that validators, not miners, were required to stake Ethereum as collateral in exchange for network security and rewards. This change aimed to enhance energy efficiency and sustainability.

A report from the Crypto Carbon Ratings Institute indicates that the network’s carbon footprint decreased by 99.99% as a result of this transition.

Staked Ethereum

Since Ethereum’s PoS transition, the amount of Ethereum staked has nearly doubled. The total amount has grown by 93% to reach 26.5 million Ethereum, which is valued at nearly $43 billion According to a dashboard on Dune created by Dragonfly Data Scientist, Hildebert Moulié, this represents approximately one out of every five Ethereum tokens in circulation.

Centralization

In the aftermath of the PoS upgrade, concerns about centralization and censorship were raised especially after it emerged that two entities, Lido and Coinbase, controlled 46.15% of validator nodes adding blocks to the Ethereum blockchain just hours after it transitioned to a full Proof-of-Stake (PoS) blockchain.

One year later, Lido controls about 32% of total staked amount while Coinbase controls 8.3%, with the top ten list dominated by either staking pools or centralized exchanges.


While not an exchange, the heavy utilization of Lido, a liquid staking solution, has been identified as a potential vulnerability in Ethereum’s ecosystem in terms of decentralization.

• Lido Staked Ethereum ($STETH) stands out prominently, boasting a market capitalization of $14 billion, as reported by CoinGecko.
• The second-largest token representing staked Ethereum by market capitalization is Rocket Pool ETH ($RETH), with a market capitalization of $926 million.

Increased Impact of Scaling Solutions

Scaling solutions that seek to address Ethereum’s limitations have also become more impactful, one year since the Merge.

The average transactions per second (TPS) across all Ethereum layer-2 networks has now exceeded 50, marking a substantial improvement from the previous year. This data, sourced from L2 Beat, reflects the increasing scalability and efficiency of layer-2 solutions on the Ethereum network.


When you aggregate the total number of transactions over the past 30 days for popular layer-2 networks like zkSync Era, Optimism, and Arbitrum Nova, the count surpasses 61 million transactions. This figure is twice the number of transactions processed on the Ethereum network during the same time frame.

Reduction in Token Supply


Another notable effect of the Merge on Ethereum is a reduction in the token’s overall supply. The shift in how new Ethereum is issued, along with the burning of transaction fees, has caused a 0.25% decrease in the total amount of Ethereum in circulation, according to sound.money.

This decrease in supply can impact Ethereum’s overall scarcity and may have implications for its economic dynamics.

Price of Ethereum

Last but not least, regarding Ethereum’s price, it may seem that not much has changed since September 2022. Around the time of the transition, ETH was trading at approximately $1,600, which is roughly the same price it’s trading at a year later, $1,586.09 at the time of writing.