• In 2022, Ethereum completed its radical shift to a new, energy-friendly system for powering its network.
• This event, known as the Merge, marked a massive reduction to the network’s energy footprint and put Ethereum on a path to becoming a deflationary asset.
• However, the Merge was not without its problems, including concerns around centralization and a lack of a long-hoped-for bump to the price of ether (ETH).
In 2022, Ethereum made significant progress towards creating a global computer and decentralized financial system when it completed its radical shift to a new, far more energy-efficient system for powering its network. This event, known as the Merge, marked a key moment in the blockchain’s history and was years in the making.
The Merge saw Ethereum transition from a proof-of-work system, which is notoriously power-hungry and consumes vast amounts of energy, to a proof-of-stake system. This new system requires validators to “stake” ether (ETH) with the chain in order to write transactions to its ledger, and is estimated to have cut the network’s energy consumption by around 99%. Furthermore, the Merge put Ethereum on a path to becoming a deflationary asset, as the number of coins in circulation will gradually decrease over time.
Unfortunately, the Merge was not without its problems. Its new power structure has led to charges that Ethereum is becoming overly centralized, with a small group of stakeholders controlling the majority of the network’s resources. Furthermore, the Merge failed to spark a long-hoped-for bump to the price of ether (ETH), which has sunk more than 20% since the event. Additionally, the Merge did not address Ethereum’s relatively high transaction costs and slow network speeds.
Finally, Ethereum’s year was also marked with problems stemming from external sources. There have been record-shattering hacks on Ethereum-linked infrastructure and concerns around censorship, which have raised questions about the security of the network.
The Merge was a monumental moment for Ethereum, but it also highlighted areas that need to be improved. Going forward, Ethereum must continue to innovate and build on the progress made in 2022 in order to create a secure, efficient, and accessible global computer and decentralized financial system.