Ethereum’s move to proof of stake: The successes and challenges, one year later

In September 2022, Ethereum abandoned Proof of Work (PoW) as a mechanism for validating and securing crypto transactions. The blockchain then opted for Proof of Stake (PoS), another consensus protocol used to validate and secure crypto operations. This transition, known as Merge, ushered in the era of staking, presenting a more environmentally friendly and more attractive alternative in terms of scalability. However, one year later, what operational assessment can be made of the practice of proof of stake? This is the substance of what we will see in the lines that follow.

What the transition from Ethereum to PoS is supposed to bring

It must be said that the decision of the Ethereum blockchain to abandon PoW in favor of PoS responded to certain relevant criticisms. As effective as it was, this transactional validation and security mechanism ultimately proved to be inefficient. Indeed, this process required miners to solve complex mathematical problems to add each new block to the blockchain. The problem was that solving these problems effectively required particularly large amounts of computing power, making the process costly in terms of energy.

The transition to PoS presented itself as the panacea allowing the Ethereum blockchain to silence ecological criticism concerning its transaction validation system. This, by initiating a particularly notable change in the economic model used by the crypto platform until then. The question that can obviously be asked is whether the migration to PoS has achieved the objectives for which it was deployed. The answer is somewhat positive.

What Ethereum’s PoS Adoption Actually Did

Objectively, the choice by the Ethereum blockchain to abandon PoW for PoS was relevant. In fact, it made it possible to reduce the energy requirements of the device to operate. And this, absolutely drastically. Because, according to the figures, the practice of PoS has concretely made it possible to reduce Ethereum’s energy consumption by around 99.9%! This is an absolutely astonishing result that has had a remarkable impact on the firm’s ecological footprint. The latter was thus able to respond to ecological concerns raised for a long time while positioning itself as a much more environmentally friendly blockchain.

Alongside this positive result, the adoption of PoS by Ethereum had the consequence of making Ether (ETH), the native asset of Ethereumdeflationary. In other words, the creation of new ETH has been slowed down, contributing to a decrease in the total supply of ETH. This may have positive implications on the value of ETH and how market participants perceive this crypto. But beyond these two notable results, the benefits of choosing PoS are still a little mixed, because the challenges are still enormous.

Ethereum’s adoption of PoS has yet to deliver on all its promises

While Ethereum has managed to address environmental concerns through PoS, other issues have yet to be resolved. One of the most important of these is centralization. The migration to PoS was precisely aimed at promoting decentralization by reducing or even eliminating the domination exercised by miners through their unions. But after a good year of transition, Ethereum still faces persistent centralization problems.

For example, validators, who need 32 ETH to participate in the process, encountered obstacles in setting up nodes. As a result, intermediary services such as Coinbase and Lido are gaining more and more ground in this area to the detriment of Ethereum. This has raised concerns that a small number of entities could gain disproportionate control over the network.

Now, Ethereum will have to find a way to defeat intermediary services and mutual funds. Because setting up a validation node for staking on Ethereum has proven to be a complex task, with financial penalties in the event of an error. A challenge that platforms like Coinbase and Lido seem to better meet.

These companies pool users’ ETH, stake it on their behalf, and take a cut of the rewards. The dominance of an entity like Lido, which alone holds around 32.3% of the total ETH staked, has raised concerns. Particularly with regard to possible security problems as it approaches the critical threshold of 33%.

Furthermore, Ethereum faces permanent technical and economic challenges linked to the stake itself. Indeed, while setting up a validation node remains a complex task, the financial requirements for broader participation still constitute a major obstacle. The complex nature of this process highlights the need for continuous refinement of the inclusiveness of the network to ensure its stability.

Conclusion

One year after migration to PoS, Ethereum sits at the intersection of successes and challenges. Thanks to the adoption of PoS as a mechanism for validating and securing crypto transactions, the platform has achieved the feat of reducing its energy consumption. But it seems that the fruits have not yet fulfilled the promise of the flowers. Because this significant progress contrasts with persistent concerns regarding centralization and the emergence of intermediary services. A trend which highlights the complexity of the transition to this new staking model. The challenge for Ethereum now is to work to resolve these problems. This, however, without neglecting to optimize its crypto infrastructure with a view to a more inclusive and decentralized future.