Blockchain September 16 On September 15, 2022, Ethereum executed a merger - the Ethereum mainnet merged with the Beacon chain, making a historic shift to proof of stake. One year later, Ethereum's energy usage dropped significantly, and network access Significant improvements have also been made, however, many technical issues remain.

The most significant improvement of Ethereum after the merger is from the energy-consuming Proof of Work (PoW) consensus mechanism to the Proof of Stake consensus mechanism (PoS), which allows the Ethereum network to significantly reduce the overall power consumption. According to data from the Cambridge Center for Alternative Finance, the energy consumption of the Ethereum network has dropped by more than 99.9% from the approximately 21 terawatt hours of electricity used by PoW to run.

Ethereum falls into deflation

In addition to using less electricity, the merger has caused the Ethereum network to become economically deflationary, meaning that the amount of ETH removed from the supply has exceeded the amount of new ETH being minted to secure the Ethereum network.

According to Ethereum data provider Ultrasound.money, just over 300,000 ETH (worth $488 million at current prices) has been burned since the merger. At the current rate of destruction, the total supply of ETH decreases by 0.25% per year.

While many proponents believe that Ethereum’s price will surge due to renewed deflationary pressures, hopes for a significant increase in Ethereum’s price have been dampened by a series of macroeconomic headwinds, including a banking crisis and a spike in inflation.

Notably, ETH’s growth pales in comparison to Bitcoin’s price growth, which in the first quarter of this year appeared to benefit from the traditional financial instability brought about by the banking crisis. Price action aside, the central theme of the proof-of-stake upgrade is the introduction of stakers to secure the network in place of miners. The subsequent Shapella upgrade in April 2023 drove a massive shift in ETH to staking. The biggest beneficiaries of this shift are liquidity staking providers such as Lido and Rocket Pool.

The rise of liquidity staking

Since the merger, the liquidity staking provider has dominated the Ethereum space, with more than $19.5 billion worth of ETH currently staked through liquidity staking protocols, according to DefiLlama. As of the time of publication, Lido is by far the largest staking provider, accounting for 72% of all staked ETH.

However, while many Ethereum advocates, including Labry CEO Lachlan Feeny, have praised the move to staking for removing the barrier of expensive, complex mining hardware, one of the main concerns raised by the rise of liquidity staking is that of staking service providers The degree of control granted to miners, specifically Lido Finance. Lachlan Feeny explained: “Liquidity staking is ultimately good for the network because it ensures that the governance of the network is not limited to the wealthy. However, this also creates its own problems.”

As of now, at least five Ethereum liquid staking providers are working to implement the 22% staking limit rule to ensure the Ethereum network remains decentralized — but Lido is not participating. Notably, Lido voted with a 99.81% majority in June not to self-limit, leading Ethereum advocate Superphiz to declare that the staking provider “expressed an intention to control a majority of validators on the beacon chain.” The move raises widespread concerns that Ethereum’s verification is too centralized.

Lachlan Feeny added: “Lido currently controls 32.26% of all staked Ethereum on the network, worth over $14 billion. In the long run, I believe Ethereum is better off with liquidity staking than without; however, still There are many challenges to overcome.”

Beyond staking, customer diversity also remains a core issue. On September 5, Vitalik Buterin took the stage at Korea Blockchain Week to discuss six key issues that need to be solved to solve the centralization problem. Currently, the majority of the 5,901 active Ethereum nodes are run through centralized network providers such as Amazon Web Services, which many experts claim leaves the Ethereum blockchain open to centralized points of failure.

Vitalik Buterin believes that in order for Ethereum to remain sufficiently decentralized in the long term, ordinary people need to run nodes more easily, which means significantly reducing the costs and hardware requirements for node operators. The main solution he gave is stateless concept that eliminates dependence on centralized servers by reducing the data requirements of node operators to close to zero.

Vitalik Buterin said: "Today, running a node requires hundreds of gigabytes of data. With a stateless client, you can run the node with basically zero overhead."

While this is Vitalik Buterin’s most prominent concern about centralization, he explained that these issues may not be resolved for another 10 to 20 years. For Ethereum, which has just been merged for a year, perhaps only time will give us the answer.