Key facts:
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Ethereum fully delivered on reducing energy consumption and decentralization.
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Ether, for its part, has not yet complied by increasing its price and its deflationary pace.
Ethereum Merge occurred on September 15, 2022, migrating the network’s proof-of-consensus approach from Proof-of-Work (PoW) to Proof-of-Stake (PoS), making it the first major Cryptocurrency network to make this transition.
Before and after the event, expectations were high about the Ethereum Merge, even if they vary in their content.
There were positive predictions, such as that of Evan Van Ness, founder of WeekInEthereum. This considered that it was “a moral imperative to switch from Bitcoin to Ethereum” with the advent of Merge. His argument: Ethereum now consumes 99% less energy than Bitcoin.
Also negative, like that of the bitcoiner tax economist José Antonio Bravo, for whom the transition to PoS would cause the centralization of the network, moving from being in the hands of a few Mining pools to being in the hands of “a few computer equipment lessors.”
Two years after the event, have the community’s predictions come true? Let’s make these predictions as simple as possible and try to decipher them, one by one.
Table of contents
Prediction 1: Ethereum will reduce energy consumption by -99.95%
A member of the Ethereum foundation, Carl Beekhuizen, did This prediction was made a year before the event. It was based on energy estimates obtained from the operation of the Beacon Chainwhich had already been working alongside the Ethereum genesis network (which used PoW) for months.
According to statistics from the Crypto Carbon Ratings Institute (CCRI) in October 2023, Ethereum consumed 0.0026 TWh per year. According to the same institute, today the network consume 5,988,771.3 kWh (kilowatts per hour) on an annualized basis, equivalent to 0.00599 TWh (terawatts per hour) per year.
Estimates indicated that Ethereum would reduce its energy consumption with Merge. Source: indices.carbon-ratings.com
Before Merge and while using the proof-of-work consensus mechanism, Ethereum consumed 21 TWh per year. Ethereum’s reduction in consumption was, and remains, significant: 3,500 times, approximately.
Did the prediction come true? Yes, the exponential reduction in energy consumption estimated for Ethereum after the Merge was fulfilled to the letter. This remains the case today, despite the fact that energy consumption has doubled in quantity from October 2023 until today.
Prediction 2: PoS will lead to centralization of power in Ethereum
Characters like Vijay Boyapati or Dan Talmon considered during 2021 that the transition to proof of stake exerted pressure to centralize Ethereum. For the former, proof of stake is a financial system with political motivations similar to traditional finance. He believes that proof of work “was the only way to separate money and state.” For the latter, PoS is similar to Cantillon effect: Whoever has more ether, has more power at the expense of others.
These analysts’ predictions are not exact; that is, they were not established using a clear and unambiguous criterion by which we can clearly distinguish whether they were fulfilled or not. However, we can look at data on the current levels of centralization in Ethereum and try to determine, broadly speaking, whether the network is more centralized than its old proof-of-work version.
According to data collected According to Consensys, until 2020 this was the situation of Ethereum in terms of centralization levels:
- Over 90% of all blocks on Ethereum over the past two years were mined by 56 known mining pools.
- Over 90% of Ethereum block rewards during this period were earned by 56 known mining pools.
- Over 80% of Ethereum’s hashrate over the past two years was attributed to those 56 mining pools.
- On two occasions in history, two pools owned more than 51% of the network hashrate.
According to current data According to Dune data platform, 81.3% of the market value of staked ether is distributed across 92 known pools. These include staking pools, liquid staking pools, centralized exchanges, and voluntary agglomerations of solo miners. The remaining 18.7% is made up of unpooled solo stakers and other unknown pools.
This list of stakers only shows the first 9, but there are 92 in total. Source: Dune
If the old network Ethereum was controlled by 56 different groups in 2020 two years before the Merge, today the known groups that practice staking on the network number 92. Without necessarily being causal, This data seems to indicate that, in effect, Ethereum PoS is more decentralized.It also indicates that a larger number of pools hold a slightly smaller concentration of Ethereum’s total market cap.
One reason for this could be that the barrier to entry for practicing proof-of-work is getting higher. Doing so requires an increasing amount of expensive and specialized equipment, as the difficulty of processing blocks tends to increase over time.
The pie chart allows you to better see the total number of stakers. Source: Dune
Practicing proof-of-work requires managing a complex cost structure that must balance maintenance and service costs, as well as electricity prices. In contrast, participating in Ethereum staking or one of the pools that do this only requires having money, buying Ethereum and delegating it to staking.
Did the prediction come true? It can be said that it did not. Ethereum PoS It is more decentralized than its PoW version, as indicated by the dataAlthough it cannot be confirmed that the change was caused by the Merge, since Ethereum would have continued to grow without the migration to the Beacon Chain, there is no doubt that before and after the event the centralization of the network is not the same.
Prediction 3: Ether will be a deflationary cryptocurrency
The Ethereum foundation argued that under certain conditions, would reduce inflation of ETH or even become deflationary by burning large amounts of the token.
To try and do this, they migrated Ethereum to a single chain, and with the shift to PoS, the mechanism that produced ethers through computational power was extinguished. From then on, coins were only issued as rewards for staked ethers.
This process significantly lowered the rate and amount of issuance of Ethereum’s native cryptocurrency. Has ether now become a deflationary token?
According to the data According to Ultra Sound Money, right after the migration to the Beacon Chain, the daily issuance of ethers began to gradually decrease. It did so markedly at the beginning of 2023, when it reached a negative issuance ratio of -0.25%. That is, every day the supply decreased by 0.25%. In 2024, the negative issuance of ether reached an all-time low in April, at 0.38%.
The ultra sound money chart shows the daily deflation of Ethereum since the Merge. Source: Ultra sound money
Despite previous deflationary percentages, the current daily deflation of the Ethereum supply has slowed down and is now, for the first time, close to the zero point after which the currency begins to be inflationary again. The annual supply of ether decreases by -0.074%. That is, it remains deflationary, but at a much slower rate than at other times in 2024.
At the time of writing CriptoNoticias, 1,748,518.97 ETH have been burned since the Merge, while 1,570,757.72 have been issued. This indicates that more ethers are burned than issued, but the difference between burning and issuance is not large or significant.
More tokens have been burned than have been issued on Ethereum since the Merge. Source: Ultra sound money
Did the prediction come true? Technically yes, because Ethereum will be deflationary as long as its daily emission percentage is negative and below zero percent. However, This deflationary pace is not meeting the expectations of the Ethereum communitynor is it aligning itself with the promise of turning ether into that ultra sound money (ultrasonic money) scarce and valuable. The reason for the slowing of the deflationary pace of ether can be found in the arrival of the Dencun update. Its exact cause is the decrease in commission payments on the network, which causes a minor burning of tokens.
Prediction 4: Ether will rise in price as a result of the Merge
In a written post Just months before the Merge, Arthur Hayes, founder of BitMex, made the following estimate: “When the dust settles at the end of the year, I think ETH will be trading above $10,000,” referring to the end of 2022. He also asserted that ether is backed by “extremely positive price fundamentals from capital flow and return on capital.”
Like him, there was no small part of the Ethereum community that believed that Merge would have a positive, albeit possibly delayed, impact on the price of the cryptoasset.
Someone commented that the change in supply and demand forces caused by the scarcity that Merge would bring would inevitably lead to price increases. “Every day we will need new sellers to prevent the price from… going up!” said the user of DeFi platforms.
Without using any arguments, another Ethereum user claimed that the price could rise to USD 10,000 per ether, a prediction in line with that of Arthur Hayes. Given these pre-merge predictions, we can ask ourselves… what really happened to the price of Ethereum?
A quick look at the price history of Ethereum against the dollar tells us this. From September 12, three days before the Merge, until the end of December 2022, the price of ether fell from USD 1,950 to USD 1,130. Today, there is a consensus that investors and traders are looking to buy the Ethereum price. They sold the news from Merge.
Since then, Ethereum has been slowly increasing its price, although not without experiencing significant drops against the dollar.
A year after the Merge, in September 2023, the asset was trading at around $1,600; exactly one year later, at the time of writing, its price is USD 2,400, not without having flirted with $4,000 in March and May 2024.
The price did not rise exponentially after the Merge, as many people predicted. Source: Tradingview, supercharts.
Did the predictions come true? The most optimistic ones did not, as is often the case. Ethereum never reached $10,000, disappointing many Ethereum investors and supporters.
The prediction of the less optimistic sectors was closer to being fulfilled: the Merge would have a minor or even damaging impact on the price. This was not the case against the dollar, although the poor performance of ether since then is more visible when compared to the price of bitcoin.
As of September 12, 2022, ETH has fallen by 50% compared to at the price of BTC.
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