In September 2022, Ethereum underwent the biggest upgrade in its history — the transition from the Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS). This event, known as The Merge, opened a new chapter for the Ethereum network.
 

What caused this dramatic change? How has this transformation affected the cryptocurrency ecosystem? In this article, we will look at the main differences between PoW and PoS in the context of Ethereum, and analyse the consequences of this change for the functionality, security and stability of the network.
 

Proof-of-Work vs. Proof-of-Stake

Proof-of-Work (PoW) is the original consensus mechanism used in Ethereum before the update. It involves miners solving complex mathematical problems to add new blocks and verify transactions. This approach provides security and transparency to the network, but has some significant drawbacks:

- High power consumption.

PoW requires powerful computers to run all the time. Before switching to PoS, Ethereum consumed 50.63 TWh of energy per year — about as much as countries like Singapore or Bangladesh.
 

- Negative environmental impact.

The high energy consumption came with a significant carbon footprint — around 23.86 million tonnes of CO₂ per year, equivalent to the emissions of 5.1 million cars.
 

- Limited bandwidth.

Before the upgrade, Ethereum's throughput was only about 15 transactions per second, which didn't meet the needs of the growing ecosystem of DeFi and dApps.
 

- Hardware issues.

Mining required specialised devices (GPUs or ASICs), which raised the threshold for entry into the network. It also led to hardware shortages and price increases that affected related industries.
 

Proof-of-Stake (PoS) works differently. Instead of mining, validators block their ETH in staking to participate in creating new blocks and validating transactions. This mechanism solves the main problems of PoW:

- Reduced power consumption.

After switching to PoS, Ethereum's power consumption dropped by more than 99%, making it one of the most energy efficient and environmentally friendly blockchain platforms.
 

- Simplified hardware requirements.

A basic device and 32 ETH in stakes are enough to participate in the network, lowering barriers to entry.
 

- Expanded bandwidth.

Simplifying the transaction confirmation process has increased network throughput.
 

However, PoS also has its drawbacks:

- Technical complexity.

The new consensus mechanism requires more complex algorithms and coordination between validators.
 

- Risks for validators.

In case of errors or malicious actions, validators risk losing their share.
 

Is PoS beneficial for Ethereum?

The short answer is yes. While PoS and PoW have their pros and cons, Proof-of-Stake is considered a more sustainable and environmentally friendly option due to its significantly lower power consumption. The choice of consensus algorithm depends on the goals and priorities of a particular blockchain network, but for Ethereum, PoS has proven to be the optimal solution that fits perfectly into its long-term strategy of sustainable and scalable development.
 

In addition, the move to PoS has opened up new revenue opportunities for users. Revenue for validators on the Ethereum network comes from transaction fees and block creation rewards. Successful participation in validating the network allows for a stable profit, but the amount of profit depends on a number of factors, including the total amount of funds sent to the wager, the level of network activity and the reliability of the validator.
 

When analysing the profitability of PoS vs. PoW on the Ethereum network, there are a number of key factors to consider:

1. ETH price.

It directly affects the income of validators and the cost of validation and mining. A higher price leads to higher rewards, but also increases the opportunity cost of staking.
 

2. Network complexity.

Determines the probability of finding new blocks and earning rewards. The higher the complexity, the lower the revenue per unit of computing power and the more energy required.
 

3. Network hashing rate.

Affects competition and security. Higher speed attracts more miners, increasing competition for rewards and increases resistance to attacks.
 

4. Stake rate.

Affects the profitability and security of the network. Increasing the amount of money staked strengthens the security of the blockchain, but decreases the rewards per unit of staking.
 

5. Hardware cost.

Determines the initial investment and operating costs for miners. Expensive equipment requires significant investment and high maintenance costs.
 

6. Energy cost.

Is a key factor as it affects electricity costs and environmental impact. Rising energy prices increase the cost of mining and the carbon footprint.
 

By moving to PoS, Ethereum has not only reduced energy consumption, but also provided a more flexible and inclusive participation model for users.
 

The future of Ethereum after the transition to PoS

The upgrade not only strengthened Ethereum's position in the cryptocurrency market, but also became a starting point for further innovation. The network became more inclusive and scalable, opening up new horizons for users and developers.
 

In the long term, Ethereum is likely to evolve to improve security, increase transaction processing speed and strengthen its position against its competitors. The successful transition to PoS already makes Ethereum a benchmark for a sustainable and innovative blockchain.
 

Proof-of-Stake has not only changed Ethereum's internal architecture, but also its perception in the world. Greenness, scalability and accessibility have made Ethereum an example of how technological change can meet the challenges of the times and the expectations of the community. The bet on PoS proved to be a winning one, confirming the network's ambitions to become a leader in cryptocurrency innovation.