Here’s a recent headline on Reuters: “Ethereum blockchain to undergo major upgrade to cut energy use”
I’m seeing a lot of media reports that focus heavily on the fact that energy usage will decline rapidly under Proof of Stake, with some reports making it seem like it’s the main reason for the merge.
However, this is incorrect – I see the cut in energy use as more of a positive side effect of the merge. The main benefits are improved tokenomics (yield, burning, etc provides more rationale for fundamental value than before), and it may help lay the groundwork for future upgrades that eventually help with scaling.
It’s not a bad narrative for Ethereum proponents, because at least people who know nothing about crypto and buy this carbon narrative will now be incrementally more supportive of Ethereum. And maybe it’s easier to explain than the real reason for the average person. But it’s still kind of weird how uninformed the press coverage about crypto is.
Actually kind of positive for Ethereum that they aren’t focusing on the yield component – which if they were it might make it incrementally more likely we get SEC style regulation under the premise it’s a security / equity-like.
Edit: Olmops noted that some articles from before the big climate FUD wave did refer to the reduction in energy use from Proof of Stake as a key benefit.
I also do see more recent articles where Consensys / Vitalik / Ethereum Foundation place a lot of emphasis on the energy consumption reduction.
If I had to guess, I’d expect this is PR.
I do continue to believe the energy reduction isn’t the primary reason the developers chose to do this but I thought this was an important caveat to call out given this post has gotten a lot of views.
My view is: Ethereum has super expensive gas fees and has not been very scalable which drove an explosion in funding for competitor L1 chains like Solana. The merge allows for sharding which should help alongside rollups to make Ethereum more scalable. I think it would be tough for Ethereum to compete with newer / faster chains without a scaling roadmap.
In addition, by creating a yield / burning component, there is more rationale for the token to be valuable. It is my belief that a token can not have fundamental value based on just utility supply and demand. It’s unclear to me if the future cash flows will be sufficient to justify Ethereum’s price in the long run particularly as there is fee competition and market share loss with other chains – but we’ll see.
Another point MoneroArbo brought up is that the PoS switch does shift who has power over the network as well, which could possibly factor into the decision making of the developers.
Note that Vitalik had an article called “Why Proof of Stake” https://vitalik.ca/general/2020/11/06/pos2020.html
He lists the reasons as:
– PoS offers more security for the same cost
– Attacks are much easier to recover from in proof of stake”
– Proof of stake is more decentralized than ASICs