If the Merge Changed Everything Why Does Ethereum Feel the Same?

Ethereum’s Shift to Proof of Stake Ended Mining and Ushered in Staking, But What Comes Next?


by Samuel Haig

The suspense was unreal. 

For months, Ethereum’s devs conducted tests and teased results as the network made its way toward a historic upgrade. Dubbed The Merge, users expected the next iteration of the beloved DeFi bulwark to cure a raft of ills. Gas fees had become such a bummer, and scalability seemed out of reach thanks to Ethereum’s glacial transaction processing times. The upgrade would fix them all.

Not Part of the Plan

That was the hope. But affordability and transaction speeds were never part of The Merge’s plan. Even as this reality dawned on the crypto community, a funny thing happened — it didn’t matter. In the throes of a bear market, Ether climbed 50% between June 30 and Sept. 15, the day The Merge went live. 

Markets don’t lie, and the message was plain: The Merge was more than an upgrade — it was a vote of confidence in the technological evolution of the most important blockchain on the planet. 

But what was it? And what comes next?

The Merge unified Ethereum’s Proof of Stake Beacon Chain with its mainnet execution layer. As a result, Ethereum switched from processing transactions and blocks of data using a Proof of Work consensus mechanism (the same used by Bitcoin) to a Proof of Stake system. 

This led to a 99.9% reduction in the network’s energy consumption and an 88% drop in new Ether inflation.It also meant dropping miners in favor a new breed — stakers who could offer up their Ether to participate in tending the blockchain.

In an instant, Ethereum broke away from the power hungry system that so befouled Bitcoin. Rather than be yet another force worsening global warming, Ethereum redesigned itself to be largely carbon neutral. That meant investors eager to build up green portfolios could tap Ethereum as a crypto asset. 

As for DeFi, it set Ethereum on a new road, with a series of upgrades stretched out before it that will address scalability challenges and gas fees. The key to The Merge’s success was how much work went into its preparation.

Widespread Coordination

The Merge underwent rigorous testing, requiring widespread coordination across the Ethereum ecosystem. Developers simulated the upgrade in three public testnet executions and 20 shadow forks — deployments on closed devnets used to test pairing Ethereum’s leading four execution layer and five consensus layer clients — before the code was deemed ready for prime-time.

That meant long delays and  some critics doubted whether Ethereum’s devs would deliver the upgrade before 2023.


The number of new Ether issued each day plummeted from 13,500 ETH to around 1,800 ETH daily after the upgrade. Coupled with the burn mechanism introduced to Ethereum with EIP-1559 in August 2021, analysts tipped Ethereum’s network token to become deflationary — meaning that more ETH is destroyed through transaction fees than is created as staking rewards.

But the plummet in on-chain activity amid the 2022 bear market coupled with the increasing migration of activity from Ethereum’s mainnet of Layer 2 scaling solutions posed a barrier to Ethereum realizing its deflationary promise. Ethereum’s daily burn rate fell from 15,500 ETH in mid-January to a low of 603 Ether in August.

The supply of ETH continued to grow following The Merge, before appearing to peak in October at around 120.53M Ether. An increase in on-chain activity drove ETH’s supply down to 120.51 — more than 6,000 less Ether than existed at the time of The Merge.

ETH’s supply currently sits at X, X less/more than when it transitioned to Proof of Stake.

Dissent from Ethereum’s displaced miners also crescendoed into a whimper. ETHW currently houses just 2% of Ethereum’s former hash rate, and with the fiat value of daily rewards equating to 0.2% of those issued under Proof of Work Ethereum, ETHW miners’ earnings have dropped 89% since The Merge.  

Bob Summerwill, the executive director of ETCCooperative, told The Defiant that the jump in Ethereum Classic’s hashrate following The Merge was very beneficial for the chain’s security. “The migration of ETH to POS leaves ETC as by far the majority hash chain in the Ethash/Etchash hardware category, very secure from 51% attacks,” he said.

If one entity controls 33% it can act in a malicious way by briefly halting finality on the chain.Superphiz

But Summerwill acknowledged that small miners have not remained profitable now that large former Ethereum miners have joined the network. He estimated that 80% of Ethereum Classic’s pre-merge hash rate has been turned off, with mostly “less competitive GPU [miners]” going offline. “Any Ethash ASICs will have had to come to ETC — it was their only real option — now meaning that ETC is likely heavily ASIC dominated, which is ideal for ETC security.”

Seen as a Positive

“In general, ETC came out of the Merge with a strong product differentiation and with security and stability which we had not had for many years, or perhaps ever,” Summerwill concluded, adding that The Merge is “very much seen as positive” for the Ethereum Classic ecosystem.

Importantly, little changed for end-users following The Merge. Users continued to trade, farm, game, and transact on the network exactly as they had done before, marking a quiet yet critical victory for developers.

But Proof of Stake detractors argue that Ethereum’s validators became more centralized after The Merge.

Data from Rated Network shows that Lido, a staking collective comprising 29 independent validators, holds 29.5% of staked Ether. Leading centralized exchanges Coinbase, Kraken, and Binance follow with 24% combined, with institutional platform Bitcoin Suisse rounding out the top five with 2.5%.

Still, Superphiz, the organizer of the EthStaker group, told The Defiant that the staking participation has “absolutely exceeded expectations.”

He highlighted that stakers were able to overcome client centralization, with Prysm representing more than 75% of nodes earlier this year. Prysm currently accounts for 42% of nodes, followed by Lighthouse with 37%, and Teku with 17%.

Malicious Way

Superphiz commended the community for slowing its adoption of Lido. “If one entity controls 33% it can act in a malicious way by briefly halting finality on the chain,” he said. “Based on community outcry, Lido’s growth slowed and has consistently remained below 30% of the network since.” Superhpiz estimates there are more than 10,000 solo stakers live on the network. 

The popularity of MEV-Boost, software from Flashbots that allows validators to double their rewards by earning a share of profits generated through MEV, has also garnered criticism.

In August, Flashbots revealed MEV-Boost would prevent transactions from wallet addresses sanctioned by the U.S. Treasury Department from being included in blocks created by validators using the software. Flashbots also open-sourced components of its MEV-Boost software at the same time, encouraging the community to develop new versions of the code.

According to data from MEVWatch, only 13% of Ethereum blocks produced since The Merge were created by validators not using MEV-Boost. Validators complying with Treasury Department sanctions represent 67% of post-merge Ethereum blocks, raising concerns about validators censoring transactions from wallets that are blacklisted by governments.

Blacklisted Wallets

However, Basile Sportif, founder of Uqbar Network, believes these concerns are unfounded. He tweeted that validators excluding blacklisted wallets are continuing to build on top of previous blocks containing transactions from those same addresses, emphasizing that a third of validators will still include transactions from blacklisted wallets.

“Your dirty tx is going to get in just fine,” Sportif said. “Even just a couple % of honest validators is sufficient to stop this ‘censorship’.

Leave a Reply