The Ethereum merge—completed over a year ago—marked one of the most significant upgrades in blockchain history. By shifting from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism, Ethereum introduced staking as a new way to validate and add blocks to the blockchain. This transition eliminated energy-intensive mining and dramatically reduced the network’s environmental footprint. Yet, despite its success in sustainability, Ethereum continues to face critical challenges around decentralization, transaction censorship, and infrastructure concentration.
Below are five key insights into Ethereum’s evolution since the merge, highlighting both its achievements and ongoing concerns.
Ethereum’s Energy Consumption Drops 99.9%
The merge fundamentally transformed Ethereum’s consensus mechanism—the system used by a decentralized network of participants to secure the blockchain and process transactions. Previously, Ethereum relied on PoW, where miners competed to solve complex cryptographic puzzles, consuming vast amounts of electricity in the process.
This energy-intensive model made Ethereum a target for environmental criticism, especially during the rise of NFTs and DeFi. Pre-merge, Ethereum’s energy usage was comparable to that of a small country. In contrast, Bitcoin—which still operates on PoW—consumes roughly as much electricity as Singapore, according to the Cambridge Bitcoin Electricity Consumption Index.
Post-merge, Ethereum’s energy consumption plummeted by 99.9%. The shift to PoS removed the need for high-powered mining rigs and continuous computational competition. Instead, validators now secure the network by staking ETH, a process that requires minimal energy.
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This achievement stands as a landmark moment for green technology in crypto. Regardless of other debates, one fact is clear: Ethereum is no longer an environmental liability.
Staking Centralization Emerges as a Major Challenge
While PoW was criticized for concentrating power among a few large mining pools—three of which controlled most of the network’s hash power before the merge—PoS was expected to democratize participation. Without the need for expensive hardware, more users could theoretically become validators.
However, a significant barrier remains: the 32 ETH (~$50,000) requirement to run a validator node. This high threshold excludes many retail participants, leading to the rise of staking services offered by centralized entities like Coinbase and decentralized pools like Lido.
These intermediaries allow users to pool their ETH to meet the 32 ETH requirement, simplifying the staking process and distributing rewards—minus fees. While convenient, this model risks recreating centralization.
Lido, the largest liquid staking provider, currently controls 32.3% of all staked ETH. Approaching the critical 33% threshold raises red flags: if any single entity surpasses this level, it could theoretically compromise network security through coordinated control over block validation.
Although these services enhance accessibility, they also shift power away from individual validators and into the hands of a few dominant platforms—ironically mirroring the centralization issues PoS aimed to solve.
MEV and Censorship: A New Layer of Risk
Another unintended consequence of the merge is the growing influence of Maximal Extractable Value (MEV)—the profit validators and block builders can earn by reordering, inserting, or censoring transactions before they’re confirmed.
MEV has become a substantial revenue stream for validators. To manage its impact, Flashbots developed MEV-Boost, a tool that optimizes block construction for maximum profit. Today, about 90% of Ethereum blocks are built using MEV-Boost.
While MEV-Boost increases validator earnings, it has also introduced new centralization risks. Most MEV-Boost blocks are relayed through Flashbots’ own infrastructure, giving the organization outsized influence over transaction flow.
This became controversial when Flashbots complied with U.S. Treasury sanctions by blocking transactions linked to Tornado Cash—a privacy tool. Although legally compliant, many in the Ethereum community viewed this as a form of transaction censorship, undermining the principle of a neutral, permissionless network.
In response, developers have pushed for decentralized alternatives to Flashbots’ relays. As of now, 17.3% of blocks use non-Flashbots relays, and censorship rates have dropped from a peak of 78% in November 2022 to 35%, signaling progress toward a more resilient and neutral network.
Liquid Staking Tokens Dominate the ETH Ecosystem
One of the most transformative trends post-merge is the rise of liquid staking tokens (LSTs). Traditional staking locks up ETH, preventing users from using their assets in DeFi—limiting liquidity and yield opportunities.
LSTs solve this problem. When users stake via platforms like Lido, they receive stETH, a token that represents their staked ETH and accrues rewards over time. Unlike locked staked ETH, stETH can be freely traded or used as collateral in lending protocols.
Even after the Shapella upgrade enabled full withdrawal of staked ETH in April 2023—removing a major risk—liquid staking demand has not declined. The LST market is now worth nearly $20 billion and growing.
Lido’s stETH dominates the space with 72.24% market share. Its widespread adoption across DeFi platforms underscores the value users place on liquidity and composability—key tenets of decentralized finance.
ETH Supply Turns Deflationary
The merge also triggered a structural shift in Ethereum’s tokenomics: ETH is now deflationary.
Prior upgrades like EIP-1559 introduced a fee-burning mechanism, where a portion of every transaction fee is permanently removed from circulation. The merge amplified this effect by drastically reducing new ETH issuance under PoS.
As a result, Ethereum’s net supply has decreased by 0.24% over the past year. This deflationary pressure could increase scarcity and long-term value—similar to Bitcoin’s halving events.
However, price performance since the merge has been flat, suggesting that macroeconomic factors—such as interest rates and market sentiment—currently outweigh supply dynamics in influencing ETH’s valuation.
Still, many investors view deflation as a positive signal: it aligns Ethereum’s economic model with store-of-value narratives while supporting network security through staking incentives.
Frequently Asked Questions (FAQ)
Q: What is the Ethereum merge?
A: The Ethereum merge refers to the network’s transition from proof-of-work (PoW) to proof-of-stake (PoS) in September 2022. This upgrade eliminated mining and introduced staking as the method for validating transactions and securing the blockchain.
Q: How much less energy does Ethereum use after the merge?
A: Ethereum’s energy consumption dropped by 99.9% after switching to PoS, making it one of the most energy-efficient major blockchains.
Q: What are liquid staking tokens (LSTs)?
A: LSTs like stETH are tokens that represent staked ETH and earn rewards while remaining liquid and usable in DeFi applications.
Q: Why is Lido’s dominance a concern?
A: Lido controls over 32% of all staked ETH. If any single entity exceeds 33%, it could theoretically threaten network security through coordinated control over consensus.
Q: What is MEV and why does it matter?
A: Maximal Extractable Value (MEV) is profit earned by reordering transactions. While lucrative for validators, it raises concerns about fairness, centralization, and censorship.
Q: Is ETH truly deflationary now?
A: Yes. Due to EIP-1559 fee burning and reduced issuance post-merge, Ethereum’s net supply has decreased slightly—marking its first deflationary phase.