Ethereum’s Merge: What Has Changed Two Years Later?
Key Takeaways
- The Merge reduced Ethereum’s energy consumption by 99.95%, making it one of the most eco-friendly blockchains.
- Ethereum launched the Dencun upgrade in March 2024, integrating proto-danksharding, which significantly boosts transaction throughput, moving toward a goal of 100,000 TPS.
- While proof-of-stake lowered entry barriers, concerns about centralization remain, with large entities like Lido controlling a significant share of validators.
- Vitalik Buterin’s roadmap includes critical updates like danksharding, Verkle trees, and data pruning, which will further enhance scalability, decentralization, and efficiency.
Ethereum underwent a significant transformation on Sept. 15, 2022 known as “The Merge,” transitioning its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS). Yesterday marked the two-year anniversary of Ethereum’s Merge. The goal of this change was to improve the network’s environmental sustainability, security, and scalability.
As of September 2024, two years later, Ethereum is still evolving and continues to influence the blockchain community as well as the larger technological and economic spheres.
This article explores the major modifications made after the Merge and offers a comparative overview of Ethereum’s situation prior to and following this significant update.
Energy Consumption Reduction
With an annual energy consumption of about 100 terawatt-hours (TWh), Ethereum’s PoW consensus mechanism was known for being extremely energy-intensive, equal to the energy consumption of entire nations like Argentina.
By switching to PoS, Ethereum was able to cut its yearly energy usage to around 0.3 TWh, a 99.95% reduction in energy consumption. Due to its sharp decline, Ethereum is now seen as a pioneer in environmentally friendly blockchain technology, allaying worries about the environment and drawing in eco-aware developers and investors.
Scalability Improvements
With only 15 transactions per second (TPS), Ethereum had severe scalability issues that resulted in network congestion and expensive gas prices during peak hours.
The Merge aimed to improve Ethereum’s transaction speed to 1,000 TPS, but this has not yet been achieved on layer-1. Ethereum implemented significant measures to address scalability, such as the launch of the Dencun upgrade on March 13, 2024 that included proto-danksharding (EIP-4844).
The goal of this upgrade is to increase rollup data availability, which is crucial for layer-2 scaling solutions. To achieve substantially better throughput, proto-danksharding, an intermediate step towards full sharding, lowers the cost of storing transaction data on the blockchain.
As of September 2024, Ethereum’s mainnet consistently processes around 12.87 transactions per second (TPS). However, with the integration of layer-2 scaling solutions such as Arbitrum, Optimism, and the newer Degen Chain, the combined TPS across the Ethereum ecosystem can reach over 246 TPS during peak periods.
This marks a significant improvement in Ethereum’s transaction capacity compared to its performance in 2023 when it averaged around 12-14 TPS on the layer-1 chain alone. Relying on these layer-2 solutions is essential for handling the increasing demand and maintaining efficient transaction throughput as Ethereum progresses toward its long-term scalability goals.
Change in Transaction Fees
High gas costs were a recurring problem that discouraged small-scale transactions and customers. They frequently spiked to $50–$100 per transaction during network congestion.
Following the Merge, layer-2 solutions’ adoption and scalability advancements stabilized and dramatically reduced gas fees, which now average between $2 and $5 per transaction. Due to this decrease, both users and developers may now more easily access the Ethereum network and participate to a greater extent.
Ethereum Security and Decentralization
PoW had a strong security foundation, but because mining operations were expensive, there was a risk of centralization, which may result in mining pools dominating sizable segments of the network.
However, the security of PoW depended on operational and geographic heterogeneity across the mining pools.
PoS has reduced entrance hurdles for validators, the network now has over 500,000 active validators as opposed to thousands of miners in the past. Decentralizing the validation process in PoS potentially improves security because it eliminates the need for pricey hardware. But, this decentralization is really weakened by the dominance of a small number of major staking platforms.
For instance, Lido, Coinbase, Kraken, and Binance control a significant portion of the 500,000+ validators. By 2024, these organizations will have control over 60–70% of the staked Ethereum, with Lido owning more than 30% of the validators. Concerns are raised by this concentration that these organizations may have disproportionate influence over the security and governance of the network.
So what’s the solution to ensure the security of the network without compromising decentralization?
Decentralized staking solutions, such as liquid staking, which aim to distribute staked Ether (ETH) more equitably over a wider network of validators, are one way to reduce these risks.
Evolution of the Ethereum Ecosystem and Dapps
The development of decentralized applications (dApps) relied on Ethereum as their foundation, however scalability problems hindered their development and use, especially in fields like non-fungible tokens (NFTs) and decentralized finance (DeFi).
Upgrades made after the Merge have accelerated the development and sophistication of dApps. Innovation in DeFi, gaming, NFTs, and enterprise solutions has been stimulated by enhanced scalability and reduced fees, which have made it possible to create more intricate and intuitive applications. Increased acceptance and confidence are shown in the $100 billion growth in the total value locked (TVL) in DeFi on Ethereum.
Impact on Ethereum’s Market Position and Adoption
With a market valuation of almost $300 billion in 2022, Ethereum was the second-biggest blockchain after Bitcoin.
With increased sustainability and performance following the Merge, Ethereum’s market capitalization has reached $600 billion, securing its position as the industry leader in smart contract technology.
The widespread acceptability of Ethereum-based solutions has been aided by the integration of these solutions by major financial firms, leading to a surge in institutional usage.
The Road Ahead
With a target of 100,000 transactions per second, Ethereum’s future is centered on the Surge and Verge stages as of September 2024. These phases feature important enhancements like danksharding to further boost scalability and transaction speed.
The network has begun leveraging proto-danksharding with the Dencun update in March 2024. This technique maximizes data availability for rollups, which is essential for scaling layer-2 solutions.
Verkle trees in the Verge phase, which will reduce the size of Ethereum nodes and facilitate the maintenance of decentralization while increasing efficiency, are the next steps, according to Vitalik Buterin .
Ethereum is also working on the Purge, which would eliminate outdated historical data to enhance performance and streamline operations. All of these updates are intended to strengthen Ethereum’s standing as the foundation of decentralized apps, enabling it to support a wide array of industries and use cases on a global scale
Conclusion
Ethereum has experienced revolutionary developments that have greatly improved its usability, sustainability, and efficiency two years after The Merge.
In addition to addressing scalability and environmental issues, the move to PoS has sparked innovation within the network, resulting in increased adoption and a more prominent position in the market.
Ethereum is at the forefront of blockchain technology and will continue to set the standard for advancements in the decentralized space as it evolves.
FAQs
Post-Merge enhancements, including sharding and layer-2 solutions, have increased transaction speeds from approximately 15 TPS to over 1,000 TPS, significantly reducing congestion and delays. Yes, the energy consumption has decreased by over 99.95%, making Ethereum one of the most sustainable blockchain networks. The Merge has doubled Ethereum’s market capitalization to around $600 billion, boosted institutional adoption, and expanded its use cases across various sectors, enhancing its position as the leading smart contract platform. How has the Merge affected Ethereum’s transaction speeds?
Has the Merge made Ethereum more environmentally friendly?
What impact has the Merge had on Ethereum’s market adoption?
