Ethereum after Merge: Trades Off decentralization for scalability<br><br>

Ethereum POS merge

Ethereum after Merge: Trades Off decentralization for scalability

Recent transition of Ethereum from Proof-of-Work (PoW) to Proof-of-Stake (PoS) has attracted many controversies. Raised concerns around centralization and security among the supporters of PoW mining. Advocates of the PoW mining are under the impression that staking would centralize the network, possibly threatening its independence. The ones who are supporting the PoS network acknowledged the scalability and precision that would arise from the new system.

In the mid of September, Ethereum marked the success of one of the most complex upgrades by officially abandoning the energy-intensive, miner-based system – moving from PoW to PoS. Consecutively, they were able to cut down 99.95% of their energy consumption.

However, the on-chain analysis gives a holistic view of the pros and cons of the Merge. Analyses from the Ethereum blockchain indicated that the transition from PoW to PoS took place with the ETH mining challenges and with the hash rate dropping to zero. 

Comparative chart of Ethereum hash rate and mining difficulties: Source (Glassnode)

PoS opponents warned about the evident issues with the on-chain centralization. An amount of $13.8 million was transferred from ETH to ETH2 deposit contract via staking providers. Around 60% of the amount, or 10 million ETH, is concentrated with only four staking service providers — Coinbase, Binance, Lido, and Kraken.


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Source: Glassnode

Increasing number of Active Validators: However, the new network has attained the highest number of active validators. The criteria for the ‘validators’ to be called ‘active’ is when their activation is completed but they are lined in an exit queue and have balances greater than 32 ETH. As of now, the number of such validators has reached 430,000 and has witnessed a significant increase since the Merge was announced in January 2022. 

Furthermore, an increasing number of independent validators increases the network’s decentralization drastically and offers more positive alternatives to centralization, as witnessed among staking providers. 

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Source: Glassnode

Increased Block Space: Another tangible benefit that POS brings to Ethereum is scalability. The newly implemented deterministic block times increased the block space per day by 15%. After moving to PoS, the block times are reduced from 13.5 seconds to 12 seconds, which has created a precision staking consensus. Immediately following the merge, the block interval median time and mean programmed time were reduced to 12 seconds.