Criticism Surrounds Ethereum’s Switch to Proof of Stake—Did This Change Lead to a $1 Trillion Market Loss?

Concerns are being raised about Ethereum’s switch to Proof-of-Stake regarding its value proposition. This move from Proof-of-Work may have resulted in a loss of $1 trillion for the network. Significant comments from Meltem Demirors, the Chief Strategy Officer at CoinShares, indicate that Ethereum’s change to PoS in 2022 came at a high price. However, this transition led to a remarkable decrease in energy usage, cutting it by more than 99%. Significantly, the ongoing fluctuations in ETH’s market value present concerns regarding the potential long-term effects on the stability and worth of the network. The Effects of Ethereum’s Transition. Meltem Demirors stated that the Proof of Stake (PoS) mechanism has undermined the core Ethereum network by facilitating the swift growth of Layer-1.43 scaling solutions. She claims that these L2s currently handle a large portion of transactions. She thinks that the network missed out on a $1 trillion growth opportunity by moving away from Proof of Work (PoW). As a result, this has weakened the Ethereum Layer-1 ecosystem rather than reinforcing it. According to her, if Ethereum had remained on Proof of Work, it might have established a robust energy-computing system that could compete directly with Bitcoin. She noted that this could have paved the way for innovative strategies in GPU computing, akin to the advancements seen in Bitcoin mining hardware. Image Source: Meltem Demirors on X. In a similar vein, the economic sustainability of Ethereum is eliciting diverse responses from the market. With the introduction of Proof of Stake (PoS) by developers, Ethereum was perceived as an exceptionally sound form of currency. This stance is a result of processes such as EIP-1559, which incinerates a part of the transaction costs. At one point, ETH reached almost no net issuance, strengthening its deflationary story.