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Changes to be expected after the Ethereum consolidation in 2022

2022 is considered the year of consolidation for the Ethereum network, and here are five things users can expect during the network’s upcoming transition to proof-of-stake (PoS). The fundamental improvements to the platform will allow ETH to reach millions of users without losing the inherent decentralization of the network.

Less energy consumption

With the change, remove the consensus layer from Ethereum to PoS miners and replace them with validators. With Proof-of-Work (PoW), Ethereum requires miners to compete for hash power by consuming electricity. By using a random algorithm to determine production blocks, PoS can help keep the network running with lower energy consumption. The Ethereum Foundation predicts that after the consolidation, the network will use up to 99.95% less energy than it currently does.

Deflation of Ether

According to an  research report, the combination of EIP 1559 and PoS will affect the circulating supply of ether. Burning transaction fees, combined with lower rewards and ethers locked for validation, offsets the circulating supply, causing it to drop to 27.3 to 49.5 million ETH. The current supply of the network is 118 million ETH and is still slightly inflationary after the introduction of EIP 1559.

Same level of execution Ethereum

The current execution layer of Ethereum will be moved to the PoS consensus layer and will be supported by the customers currently responsible for Eth1. For existing users and application developers, this means that interaction with Ethereum will remain the same after the merger.

Transaction fees can be increased or kept the same

Although unpredictable, initial transaction fees are likely to increase or stay the same after consolidation. Once Ethereum unravels the story of whether the network is consuming more energy than the average country, users and institutional investors will consider adopting the technology on a large scale and increasing current demand for block storage space. However, post-consolidation upgrades (such as improved sharding, rollup, and call data) focus on increasing scalability without affecting the decentralization of the network.

Improved decentralization and scalability

Running a validator on Beacon Chain requires 32 ETH or $ 120,000 at current prices. This is seen as a barrier to entry while at the same time removing the economies of scale that exist in proof-of-work chains. By replacing the hash power with a stochastic / statistical algorithm and keeping the block sizes small, Ethereum enables any user with average hardware to run an Ethereum validator to make money. In addition, with the PoS mechanism, the Ethereum network will be able to implement sharding and upgrades with a focus on scalability in order to keep transaction costs as low as possible.

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Annie

Championing positive change through finance, I've dedicated over eight years to sustainability and environmental journalism. My passion lies in uncovering companies that make a real difference in the world and guiding investors towards them. My expertise lies in navigating the world of sustainable investing, analyzing ESG (Environmental, Social, and Governance) criteria, and exploring the exciting field of impact investing. "Invest in a better future," I often say. That's the driving force behind my work at Coincu – to empower readers with knowledge and insights to make investment decisions that create a positive impact.

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