Ethereum has made a major change to the way it works. Has it become less useless?
Just over a month ago on September 15th the second most famous crypto currency after Bitcoin, Ethereum, underwent ‘the Merge’. Perhaps an overly dramatically choice of name, but the merge was a fairly big event in the crypto space as a major crypto currency transitioned from what’s called proof of work to proof of stake. I’m not very versed in the technical aspects of blockchains but I have been a vocal critic of crypto currencies, and have written extensively about why in previous posts on the blog. Did the merge significantly change Ethereum? And if so, did it improve Ethereum to the point where it might become a useful currency?
As mentioned, I’m hardly an expert but from what I understand the main goal for the merge was to go from a so-called proof of work system to a so-called proof of stake system. Basically, proof of work is the classic way of running a blockchain, different users compete to ‘mine’ new Ethereum and in the process makes sure the chain works as it should. In contrast, proof of stake delegates the task of making sure the chain works to committed users which have a certain amount of Ethereum. The main argument for the merge was, as far as I can tell, environmental as proof of stake is far less energy intensive. The Ethereum website claims that: “The Merge marked the end of proof-of-work for Ethereum and start the era of a more sustainable, eco-friendly Ethereum. Ethereum's energy consumption dropped by an estimated 99.95%, making Ethereum a green blockchain.” Based on this you’d think the merge was very successful.
On other measures though, it has been less successful - or to be more precise it has done nothing to ameliorate the existing problems. The ‘Misconceptions about The Merge’ section on the Ethereum page features sections like:
“Misconception: ‘The Merge failed to reduced [transaction] fees.’
False. The Merge was a change of consensus mechanism, not an expansion of network capacity, and was never intended to lower [transaction] fees.”
And:
“Misconception: ‘Transactions were accelerated substantially by The Merge.’
False. Though some slight changes exist, transaction speed is mostly the same on layer 1 now as it was before The Merge.”
So what to make of Ethereum post-merge then? To me the merge seems like great PR move, and a great victory for the environment, but ultimately a non-event in terms of usability. It didn’t lower transaction costs or make transactions faster, it didn’t introduce tangible value, and it didn’t make Ethereum a better store of value, medium of exchange, or unit of account. The merge was certainly very technologically impressive, but as Dan Olsen points out in his excellent ‘Line Goes Up’ moving from a proof of work to a proof of stake just formalises the existing power structure which favours early adopters and wealthy hardcore fans. The merge was a step in the right direction for Ethereum but it has a very long way to go to be anywhere near a useful currency.
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I've always been interested in politics, economics, and the interplay between. The blog is a place for me to explore different ideas and concepts relating to economics or politics, be that national or international. The goal for the blog is to make you think; to provide new perspectives.
Written by Karl Johansson
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Cover photo by David McBee from Pexels, edited by Karl Johansson
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