With 2021 winding down and 2022 hopefully being the year of the Merge, I wanted to do a deeper dive into five of the top things to expect with Ethereum’s impending transition to proof-of-stake. The Merge itself will not be as initially glamorous as many market participants and outsiders may believe. However, the underlying improvements and the foundation it sets will allow Ethereum to onboard millions of users without sacrificing decentralization.

Lower energy consumption – Changing Ethereum’s consensus layer to proof-of-stake rids the network of miners and replaces them with validators. Under proof-of-work, Ethereum requires miners to compete for hash power by consuming electricity. By using randomness to assign block production, proof-of-stake is able to run with significantly lower energy consumption. The Ethereum Foundation predicts that after the Merge the network will use at least 99.95% less energy than it does in its current state.

Deflationary ether – An Ethereum research report modeled the impact the combination of EIP 1559 and proof-of-stake will have on ether’s circulating supply. The transaction fee burn combined with lower rewards and ether locked for validating will drive the circulating supply equilibrium down to between 27.3 and 49.5 million ETH. For comparison, the current supply is sitting at 118 million ETH and is still slightly inflationary after the addition of EIP 1559.

Same execution layer – Ethereum’s current execution layer will be ported over to the incoming proof-of-stake consensus layer and supported by the clients that are currently in charge of Eth1. For existing users and application developers, this means that interacting with Ethereum will remain incredibly similar post-Merge.

Increased/similar transaction fees – While impossible to predict, it is entirely possible that transaction fees will initially increase or remain the same post-Merge. Once Ethereum sheds the narrative that it consumes more energy than a moderately sized country, new users and entities may come onboard to use the technology and increase the current demand for blockspace. However, impending upgrades (such as sharding, rollups and calldata improvements) to the network after the Merge will focus on increasing scalability without sacrificing decentralization.

A road to decentralization and scalability – Running a validator on the Beacon Chain requires 32 ETH, an upfront investment of over $120,000 at current prices. While this is not a low barrier to entry, it still removes the economy of scale that exists in mining proof-of-work chains. By replacing hash power with randomness/statistics and keeping block size low, Ethereum enables any user with average hardware to profitably run an Ethereum validator. Additionally, under proof-of-stake, the Ethereum network will have the capability to implement sharding and other scalability focused upgrades that will lower transaction costs down the road.


All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.

Recommended content


Recommended Content

Editors’ Picks

Trump-inspired memecoin MAGA shows bullish on-chain metrics ahead of US elections

Trump-inspired memecoin MAGA shows bullish on-chain metrics ahead of US elections

MAGA trades slightly down to around $3.4 on Tuesday after rallying more than 20% since Sunday. The former President Donald Trump-based memecoin is poised for further gains as daily active addresses and network growth metrics rise, signaling increased network usage and adoption.

More Meme Coins News
Bitcoin ETFs beat Gold ETFs with 65% gain since launch

Bitcoin ETFs beat Gold ETFs with 65% gain since launch

Bitcoin ETFs have reshaped the digital asset investment landscape since their approval in January. Their total assets under management climbed over $70 billion during the weekend, placing them ahead of other investment products, including gold.

More Bitcoin News
XRP eyes 10% rally amid relisting across crypto exchanges and growing institutional demand

XRP eyes 10% rally amid relisting across crypto exchanges and growing institutional demand

Ripple's XRP is trading at $0.5050 up slightly by 0.2% in the past 24 hours as it struggles to sustain a move above a key symmetry triangle resistance. Meanwhile, in its recently released Q3 report, Ripple noted the rising listing and relisting of XRP across crypto exchanges and global platforms.

More Ripple News
Ethereum Price Forecast: ETH struggles below $2,500 amid State of Michigan pension fund investment in ETH ETF

Ethereum Price Forecast: ETH struggles below $2,500 amid State of Michigan pension fund investment in ETH ETF

Ethereum is trading near $2,420, down about 1% on Monday, but could bounce off a key descending trendline close to the $2,258 historically high demand zone. Meanwhile, the State of Michigan pension fund revealed an investment of $11 million in ETH exchange-traded funds.

More Ethereum News
Bitcoin: New all-time high at $78,900 looks feasible

Bitcoin: New all-time high at $78,900 looks feasible

Bitcoin price declines over 2% this week, but the bounce from a key technical level on the weekly chart signals chances of hitting a new all-time high in the short term. US spot Bitcoin ETFs posted $596 million in inflows until Thursday despite the increased profit-taking activity.

Read full analysis
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

BTC

ETH

XRP