Last month saw a seismic shift in the cryptographic landscape as Ethereum retired its proof-of-work (PoW) system and transitioned to a proof-of-stake (PoS) model, in a momentous development dubbed the “Merge”. Hailed as a ‘green’ move, the Ethereum Foundation painted this as an energetic win, significantly curtailing the energy demands of the network, and investors who previously eschewed Bitcoin due to its energy-intense practices, are now embracing Ethereum.
Yet as a former core developer intimately involved with these technologies, I see this Pivot in a somewhat divergent light. Undeniably, it’s a technical feat and has merits for Ethereum, but the economic justifications underlining it, among others that staking lessens wastefulness, bolsters security and ratchets up profitability, demand further scrutiny.
First and foremost is the vaunted energy saving. It’s true on a superficial level – Ethereum’s direct energy draw was cut dramatically by the Merge. However, it fails to consider that the graphic processing units (GPU) formerly engaged in Ethereum mining still exist and still consume significant energy. In addition to this, the explosion of the market for maximal extractable value (MEV) in the aftermath of the Merge created a novel drain on computational power. To count energy saved solely through Ethereum’s direct mining activities constitutes an accounting sidestep, overlooking both the capital locked in Ethereum and the cost of operating the network.
The touted security benefits of Proof-of-Stake are also a subject of dispute. Proponents argue that PoS is more secure due to the tactics used to target potential attackers, but critics contest these points. This vulnerability is referred to as “weak subjectivity” in Ethereum circles. In contrast, Bitcoin’s “longest chain wins” rule is more consistently neutral.
Finally, claims that PoS will increase profitability are contentious. Yes, the block subsidy fell considerably post-Merge, but a previous Ethereum developer, Paul Sztorc, weeks ago illuminated that network security is never cost-free. Any attempts at skirting this are nothing more than creative accounting. Under a PoS system, transaction fees are hidden, causing everyday users to bear the brunt of this cost. Over $1 billion of MEV is estimated to have been extracted from Ethereum users over the past two to three years.
In summary, while Ethereum’s shift to proof-of-stake is undoubtedly a landmark event in distributed systems and consensus mechanisms, it does not magically transfigure it into a platform that outperforms PoW in terms of being less wasteful, more secure and cheaper. It is different, not necessarily superior.
Source: Coindesk
