July 21, 2024
Ethereum Successfully Transitions to Proof of Stake, Significantly Reduces Energy Consumption
Altcoins News

Ethereum Successfully Transitions to Proof of Stake, Significantly Reduces Energy Consumption

One year after making the historical switch to proof of stake, Ethereum has significantly reduced its energy consumption and improved network accessibility, but there are still a lot of technical challenges to overcome.

On September 15, 2022, The Merge took place, combining the Ethereum mainnet with a different proof-of-stake blockchain known as the Beacon Chain.

The biggest change to Ethereum after the merger was the radical switch from the power-hungry proof-of-work (PoW) consensus mechanism to the power-saving proof-of-stake (PoS) consensus mechanism, which saw the Ethereum network significantly cut its overall power consumption.

The Cambridge Center for Alternative Finance reports that the Ethereum network’s energy consumption has decreased by more than 99.9% from the roughly 21 terawatt hours of electricity it consumed while operating under the PoW system.

In addition to consuming less energy, the merger caused the Ethereum network to become economically deflationary, which means that the quantity of ETH permanently removed from supply has surpassed the amount of new ETH issued to protect the network.

Statistics from the Ethereum statistics provider ultrasound.money show that since the merger, a little over 300,000 ETH, or $488 million at today’s rates, have been burned. The whole stock of ETH is being used at the present burn rate of 0.25 percent annually.

While many supporters thought that Ethereum’s price would rise sharply in reaction to this new deflationary pressure, such expectations were dashed by a number of macroeconomic headwinds like the banking crisis and rising inflation.

Notably, the flagship cryptocurrency asset appeared to profit from much of the conventional financial instability brought on by the banking crisis, as seen by the fact that the growth of ETH in the first quarter of this year was far slower than the growth in the price of Bitcoin.

Putting price action aside, the arrival of stakers as opposed to miners to protect the network was the main focus of the proof-of-stake update.

Following the Shapella upgrade in April 2023, ETH was heavily pushed toward staking. The companies that offer liquid staking, like Lido and Rocket Pool, were the biggest winners from this transition.

Since the merger, suppliers of liquid staking have taken control of the Ethereum ecosystem; statistics from DefiLlama show that over $19.5 billion worth of ETH is currently staked via liquid staking protocols.

With 72% of all ETH staked as of the moment of publication, Lido is by far the biggest staking provider.

The switch to staking has been praised by many supporters of Ethereum, including Labry CEO Lachlan Feeny, for eliminating the need for expensive, sophisticated hardware for mining. Nevertheless, one of the main issues with the rise of liquid staking has been the degree of control given to staking providers, in particular Lido Finance.

“Liquid staking is ultimately good for the network as it ensures that the governance of the network is not restricted only to the wealthy. However, it has also led to the rise of its own problems,” Feeny stated.

Although Lido voted not to participate, at least five Ethereum liquid staking providers are working toward enforcing a 22% limit regulation in an effort to keep the Ethereum network decentralized.

Notably, Lido decided to forego self-limitation in June by a 99.81% majority, prompting Ethereum supporter Superphiz to claim that the staking providers “expressed an intention to control the majority of validators on the beacon chain.”

Concerns about the prospect of the centralization of validation on Ethereum have been raised by this action.

Lido now has 32.26% of the network’s staked ether, which is valued at over $14 billion. There are still many obstacles to be solved, but in the long term, I am certain that liquid staking will benefit Ethereum more than it would without it,” Feeny said.

Feeny added that the mounting regulatory push against cryptocurrencies and blockchain in general in the United States was Ethereum’s top urgent concern.

“Regulatory bodies, particularly in the U.S., appear to be hellbent at the moment on eliminating the U.S.-based blockchain industry,” he stated.

“It would be devastating for Ethereum and the global blockchain community if it becomes too difficult for blockchain companies to operate in the U.S.”

Labry CEO Lachlan Feeny

The diversity of clients continues to be a major problem in addition to stakeholder management. At Korea Blockchain Week on September 5, Vitalik Buterin spoke on stage about the six major issues that must be solved in order to combat centralization.

Many experts contend that the fact that the bulk of the 5,901 operational Ethereum nodes are currently being run via centralized web hosting services like Amazon Web Services exposes the Ethereum blockchain to a single point of failure.

According to Buterin, for Ethereum to stay adequately decentralized over the long term, it must be simpler for regular people to operate nodes, which calls for dramatically lowering the expenses and hardware necessities for node operators.

Statelessness, which eliminates the need for centralized servers by cutting the amount of data required of node operators to almost nothing, was Buterin’s main remedy.

“Today, it takes hundreds of gigabytes of data to run a node. With stateless clients, you can run a node on basically zero.”

Vitalik Buterin

Although this was Buterin’s main worry over the centralization issue, he clarified that it’s possible that these issues won’t be resolved for another 10 to 20 years.

Image: Freepik

Disclosure Statement: Miami Crypto does not take any external funding, or support to bring crypto news to the readers. We do not have any conflicts of interest while writing news stories on Miami Crypto.

Related posts

Dencun Upgrade: Ethereum Gears Up for Mainnet Boost with Proto-Dank Sharding

Kevin Wilson

Hong Kong Bank to Offer Banking Services for Stablecoin Issuers

Christian Green

Concordia Protocol Raises $4 Million in Seed Funding to Streamline Decentralized Finance

Eva Moore

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Please enter CoinGecko Free Api Key to get this plugin works.