The crypto world has developed so rapidly that the merger of Ethereum makes people feel that it has been a long time since. But it has only been a year since the network fully transitioned to proof of use (PoS)
The crypto world has developed so rapidly that the merger of Ethereum makes people feel that it has been a long time since. But it has only been a year since the network fully transitioned to proof of use (PoS). In terms of price, the trading price of Ethereum is roughly the same as the price at the time of the merger in September 2022, with ETH trading at approximately $1600 on the day before the merger. But this is just the tip of the iceberg, and many aspects have undergone substantial changes since the Ethereum changes. In this issue, the VeDAO Research Institute will conduct an inventory of the various changes that occurred in the year after the merger of Ethereum.
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energy consumption
Prior to the transformation, Ethereum used the same consensus mechanism as Bitcoin to validate on chain transactions: Proof of Work (PoW). It requires miners to compete to solve complex mathematical equations in exchange for participating in energy intensive processes, and therefore receive rewards. But when Ethereum turns to PoS, this means that validators, not miners, need to pledge Ethereum to ensure network security in exchange for rewards. One of the most significant impacts is the reduction in Ethereum energy consumption. A report from the CryptoCarbon Ratings Institute (CCRI) points out that the energy used by Ethereum has decreased by approximately 99.99% compared to before the merger, resulting in a 99.99% reduction in the carbon footprint of the Ethereum network *.
Cryptocurrency has gained popularity in mainstream media due to its high energy consumption. Therefore, environmental factors such as ESG ratings will be obstacles to the adoption of cryptocurrencies. Due to environmental issues with cryptocurrencies, the cryptocurrency initiatives of financial institutions from BlackRock to Fidelity have also received attention. And this Ethereum merger has made these opposing voices meaningless.
Liquidity pledge
Since the merger of Ethereum, the number of Ethereum pledges has almost doubled. According to the dashboard created by Dragonfly data analyst @ hildoby on Dune, the current number of ETHs pledged in Ethereum deposit contracts has exceeded 26.96 million, with a pledge rate of 22.44%.
But the upgrade of Ethereum has also raised concerns about centralization and censorship. This is because people are concerned that the control of verifying online transactions may be isolated in the hands of a few people, whether it is a company like an exchange or a project that makes it easier for users to gather funds and receive pledge rewards. Due to Coinbase's sponsorship of a group of TornadoCash users in litigation against the US Treasury and OFAC (Office of Foreign Asset Control), some people were particularly concerned that before the Ethereum merger, exchanges such as Coinbase would participate in the pledge due to US sanctions on the mixed currency service TornadoCash. Due to concerns about centralized practices reviewing transactions to maintain compliance, applications like LidoFinance have become a better choice for decentralization.
However, Lido currently accounts for approximately 32.3% of all pledged ETHs, and it is now considered a potential weakness in the decentralization of the Ethereum ecosystem, which has raised concerns among some community members. They say that Lido's growing influence is weakening the decentralized nature of the entire Ethereum.
According to CoinGecko data, STETH has performed outstandingly in terms of liquidity pledge tokens, with a market value of $13.8 billion. As the second largest token in Ethereum's market value, RocketPoolETH (RETH) has a market value of $912 million.
Nevertheless, liquidity pledge has always been the main source of decentralized financial growth. The liquidity pledge allows ETH holders to pledge their tokens for rewards and still utilize the value of Ethereum by issuing corresponding tokens that are linked to their prices. Although the value of assets related to decentralized exchanges has decreased since the merger, liquid collateral continues to thrive.
Expansion Solution
The merger is not aimed at improving the speed of Ethereum. Therefore, according to data from the analysis website L2Beat, the average TPS (transaction volume per second) of Ethereum has mostly hovered around 10 since September last year. Nevertheless, it still laid the foundation for the future. According to VitalikButerin's vision for the Ethereum roadmap outlined before the merger in July last year, this' surge 'is a series of upgrades planned after the merger, expected to improve Ethereum's scalability.
However, extended solutions aimed at addressing the current limitations of Ethereum are increasingly appearing in cryptocurrencies. According to L2Beat's data, the average TPS between all Ethereum L2 networks has now exceeded 50, a significant improvement from last year.
Overall, the well-known L2 networks zkSyncEra, Optimism, and ArbitrumNova have had a total of over 61 million transactions in the past 30 days. This is twice the number of Ethereum transactions during the same time period. It can be said that the merger of Ethereum's underlying security has contributed to the recent emergence of L2 technology. Overall, this merger has indeed laid the foundation for further enhancing scalability.
United States Securities and Exchange Commission (SEC)
At the same time, pledge has become a regulatory hotspot in the United States, and the SEC has pursued multiple cryptocurrency exchanges that provide services to help users earn online rewards.
Kraken reached a settlement with the SEC in February, involving a fine of $30 million, as its pledge as a service plan constituted an unregistered securities issuance. Similar claims have also been filed in lawsuits against Coinbase and Binance for their respective pledged products. Although the SEC has involved some tokens in lawsuits against Coin An and Coinbase, claiming that they are examples of unregistered securities, some have noticed and questioned why regulatory authorities did not classify tokens using PoW as illegally issued assets.
However, there are still differences among US regulatory authorities on how to classify Ethereum. The result was a clear territorial battle between the two largest financial regulatory agencies, the SEC and the Commodity Futures Trading Commission (CFTC): CFTC Chairman Rostin Behnam stated in March that ETH is a commodity; In February, Gary Gensler, the chairman of the SEC, stated that "everything except Bitcoin" was securities, but in April he avoided questions about Ethereum.
epilogue
The core developers of Ethereum have been developing the next major upgrade plan for Ethereum, known as the "Denchun Upgrade". It includes the introduction of a feature called proto banking, which, once fully implemented, is expected to expand Ethereum to over 100000 transactions per second. Other features being developed, such as account abstraction, will effectively make managing encrypted wallets as simple as managing email accounts. Earlier this month, Vitalk talked about a feature called "StatelessClients" in a speech during the blockchain cycle in South Korea, which will make it possible to run Ethereum nodes on smartphones.
Looking back, compared to the turmoil in the crypto market and corporate collapse in 2022, this merger seems to be just a mundane footnote in the crypto history book. But in the future, this may be a beacon that illuminates the overall direction of Ethereum, leading people to believe again that Ethereum can achieve these major technological upgrades and accomplish some ambitious things; Although Ethereum may be slower than we hoped, it will eventually continue to evolve while remaining true to its own values.
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