One year has passed since Ethereum underwent the monumental shift to Proof of Stake, and it feels like we’ve gone from a gas-guzzling SUV to a sleek electric car, mostly. While the energy consumption dropped dramatically, technical hiccups still pop up like unwanted weeds in an otherwise beautiful garden.
The Great Merge – A Revolutionary Move
On September 15, 2022, Ethereum pulled off the biggest magic trick in crypto history: it merged with the Beacon Chain, leaving behind the energy-thirsty Proof of Work (PoW) system. And voilà! Ethereum’s energy consumption plummeted by over 99.9%. That’s like going from using 21 terawatt hours to the energy equivalent of a single pair of LED Christmas lights. According to The Cambridge Centre for Alternative Finance, Ethereum is now sipping power instead of gulping it down like it’s at an all-you-can-eat buffet.
Deflationary Delight: Gains and Some Pain
Aside from the glorious energy reduction, the Merge swayed Ethereum into becoming economically deflationary. This essentially means that while new Ether (ETH) comes into existence, it’s being outpaced by the amount of ETH that’s permanently removed from circulation. That’s like having a money tree, but it’s pruned constantly.
- Approximately 300,000 ETH (worth about $488 million) has been burned since the Merge.
- Currently, ETH supply is dropping at a rate of 0.25% per year.
Now, if you thought this would send ETH soaring to the moon, it didn’t quite pan out. The price growth was nothing compared to Bitcoin’s leaps and bounds, largely due to the chaos in traditional finance.
The Rise of Staking: Liquid and Lucrative
With the shift from miners to stakers, the Shapella upgrade in April 2023 saw ETH staking gaining popularity faster than a viral cat video. Liquid staking emerged as the champion in this arena, with over $19.5 billion staked. Lido has taken the throne, controlling 72% of all staked ETH, making it feel like a big fish in a small pond—or perhaps a shark swimming through a sea of minnows.
While many celebrate this transition, there are concerns about centralization. With Lido holding a hefty bag of control, fears arise that it could monopolize validators, undermining the decentralization ethos Ethereum was built on. After all, we don’t want to see Ethereum turning into Ethereum Inc., do we?
Regulatory Woes: A Cloud Overhead
Adding to the drama, regulatory pressures loom like a dark cloud over the dynamic world of crypto. Industry leaders fear that the ongoing scrutiny in the U.S. could dampen innovation and growth, potentially squeezing Ethereum and its fellow blockchain companies.
Node Centralization: A Problem for Tomorrow
Vitalik Buterin, Ethereum’s co-founder, recently put the spotlight on the alarming centralization of Ethereum nodes, which predominantly run on centralized web services like Amazon Web Services. It’s like building a castle but leaving the gates wide open.
- There are currently 5,901 active Ethereum nodes.
- Most are reliant on centralized providers, raising risks of a single point of failure.
Buterin’s answer? Statelessness! It’s a fancy word for minimizing data requirements, enabling anyone with minimal gear to run a node. In his words, “With stateless clients, you can run a node on basically zero.” But, alas, this solution might need a decade to blossom.
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