The transformation of Ethereum: More than a year has passed since the transition from PoW to PoS, as well as the centralization and review issues. This transformation is known as "consolidation" and introduces the concept of "pledge", which is a new method for adding and approving transaction blocks to the blockchain
The transformation of Ethereum: More than a year has passed since the transition from PoW to PoS, as well as the centralization and review issues. This transformation is known as "consolidation" and introduces the concept of "pledge", which is a new method for adding and approving transaction blocks to the blockchain. In PoW mode, miners compete to add blocks by solving password challenges. In PoS mode, Ethereum validators pledge 32 ETHs on the network, and they are randomly selected to add blocks.
In these two modes, miners and validators can only receive ETH token rewards when their blocks are added to the blockchain. This transformation has had a huge impact on Ethereum's energy consumption, resulting in a 99.9% decrease in its energy consumption. The merger of Ethereum has completely reformed the consensus mechanism of the network. The previous PoW mode used a large amount of energy to operate, while the current PoS mode reduces energy consumption. This change was an important controversial focus for early critics of NFT and DeFi, as Ethereum's energy consumption before the merger was equivalent to that of a small country.
Compared to Ethereum, Bitcoin still uses PoW as the consensus mechanism for its network, and its energy consumption is comparable to that of Singapore. However, despite a significant decrease in Ethereum's energy consumption, it still faces the problem of centralization after the merger. Ethereum's old consensus model has been criticized for concentrating power in the hands of a few cryptocurrency mining companies, which have the funds, dedicated hardware, and expertise to build large-scale mining facilities. Before the merger, only three mining pools dominated most of Ethereum's computing power.
Although Ethereum's transition to PoS mode aims to involve more people in network operations, centralization remains one of the biggest challenges faced by Ethereum. In order to make a pledge on Ethereum, the verifier needs to lock in 32 ETHs in the network, which is approximately $50000. These funds can earn stable interest, but if the verifier makes mistakes or engages in dishonest behavior, these funds may be revoked. Moreover, setting up validator nodes to pledge on the network is a complex task that requires the risk of economic penalties.
Therefore, some intermediary services have emerged, such as companies and projects such as Coinbase and Lido, which allow users to gather their ETHs together to create validator nodes for 32 ETHs. However, this situation has raised concerns about the degree of centralization. At present, the largest pledge provider is the decentralized pledge pool Lido, which accounts for 32.3% of the total share of pledged ETH. If the threshold of 33% is exceeded, it may lead to security issues. In addition, after the merger of Ethereum, validators gained significant additional profits through a method called Maximum Extractable Value (MEV).
Verifiers and builders can charge users fees by strategically inserting or reordering transactions before adding them to the network. However, the popularization of MEV has also brought about issues of centralization and censorship. Therefore, some third parties have intervened and attempted to solve this problem. For example, Ethereum R&D company Flashbots invented MEV boost, a software that validators can run to reduce the negative effects of MEV. However, Flashbots' solution to MEV issues is controversial as it seems to exacerbate the problem of centralization.
Currently, approximately 90% of the blocks on Ethereum are processed through MEV boost, which has sparked a debate on the internet. In addition, there has been a rise in liquidity pledge tokens after the merger. Anyone can obtain rewards and participate in Ethereum's security system through pledge, but the pledged tokens cannot be traded, purchased, or used in DeFi. To address this issue, some third-party liquidity pledge services have emerged, such as Lido, which can provide pledgors with derivative ETH tokens representing pledged assets, allowing them to use them in DeFi transactions.
This is very attractive for investors who hope to obtain the maximum return from their investments. At present, the liquidity pledge market is worth nearly $20 billion and is still growing rapidly. Finally, the merger has brought some changes to ETH's token economics. Most importantly, the merger has led to the first deflation of ETH, which means the total supply is decreasing. This is mainly due to the implementation of EIP-1559, which starts to "burn" a portion of ETH in each transaction on the network. However, the decrease in ETH's supply has not significantly affected its price. Now, the circulation of ETH has decreased by 0.24% compared to a year ago.
Although some investors hope that deflation can increase the value of ETH, it is currently difficult to determine its impact. In the short term, macroeconomic factors may have a greater impact on ETH prices. Overall, the merger of Ethereum has brought about many changes, including a reduction in energy consumption, the emergence of centralization and censorship issues, and the rise of liquidity pledges. Although the merger has made some progress, it still faces many challenges, including centralization issues and the impact of MEV. In the future, the Ethereum community needs to continue working to address these issues in order to achieve a more decentralized and secure network.
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