A year after The Merge, Ethereum’s power consumption has decreased by 99%, the network has become economically deflationary, and ETH staking has boosted the liquid betting market. However, concerns about the network’s centralization and possible technical issues remain.
The Ethereum network’s shift from PoW to PoS a year ago dramatically reduced its overall power consumption. According to the Cambridge Center for Alternative Finance (CCAF), consumption on Ethereum dropped by over 99.9%.
The CCAF reports that the Ethereum blockchain now consumes an average of about 0.25 kW⋅h, while running on PoW requires an average of 21 TW⋅h. Analysts believe that such changes have allowed Ethereum to reduce its negative environmental impact.
The Merge made the Ethereum network economically deflationary as the total supply of ETH decreased by 0.25% over the year. About 300,000 ETH (~$488 million) has been burned since the transition to PoS, the aggregator ultrasound.money reports.
Yet, even though the crypto community expected a substantial surge in the asset’s price after The Merge, ETH quotes, according to CoinGecko data, have barely changed. Moreover, the asset has lost 0.5% of its value over the year.
One of the most important updates after The Merge was the implementation of the Shapella (Shanghai-Capella) hard fork, thanks to which network validators gained access to staked ETH. That provoked a temporary increase in the asset’s price and contributed to the growth of popularity of LSTfi projects.
Total value locked (TVL) of the sector of liquid staking protocols reached $17.38 billion in May 2023, exceeding the similar indicators of DEXs. And in August this year, TVL of LSTfi projects surpassed $22 billion. According to DeFiLlama data, as of 11:00 (GMT+3) on September 15, ETH worth over $19.5 billion was blocked in liquid staking protocols.
This concentration of validators is what raises the greatest concerns as it could potentially reduce the level of decentralization of the Ethereum blockchain. The fact that the majority of active Ethereum nodes are managed by centralized web service providers also poses risks. To prevent any possibility of centralization, representatives of liquid staking protocols agreed on a 22% self-limit for all validators. But the Lido Finance community didn’t support the initiative, and the protocol controls about 72% of all staked ETH. Decentralization is also mitigated due to the majority of L2 protocols on Ethereum receiving funding from VCs, which potentially control over 85% of the ecosystem.
The network isn’t without technical problems. For example, according to Vitalik Buterin, Co-Founder of Ethereum, “stretching” Ethereum’s consensus beyond its core functions could have disastrous consequences. He urged the community to resist overloading the functions of validators.
Despite all the problems, profile analysts give a bullish outlook for Ethereum over the next 12 months, and retail investors believe that ETH will soon overtake BTC in price.
The Ethereum network officially changed its consensus algorithm to Proof-of-Stake on September 15, 2022.
