The Five Biggest Questions About Ethereum 2.0 Merge

How can investors profit from Proof of Stake?

How can investors profit from Proof of Stake? Will Ethereum become the network for the world after the merge? And what about energy use?

Proof of Work will soon be history for Ethereum; the network is on the path to the Merge. This is the move to Proof of Stake. The long-awaited upgrade is expected to take place on September 15. We'll outline the five key questions for you in advance.

Will the Ethereum Merge affect Ethereum’s energy usage?

Proof of Work uses a lot of energy, that’s public knowledge. The "proof of work" comes in the form of compute power. Those who contribute more boost their chances of processing a block and pulling in rewards.

A fiercely competitive market: With price rallies in crypto, mining has become more profitable. The network’s compute power (hashrate) has surged in recent years. According to Digiconomist, both networks together currently consume as much electricity as Australia.

The Merge will end mining on Ethereum. Instead of mining, validators will secure the network by staking Ether. This results in a significant improvement in energy efficiency, with consumption cut by an estimated 99.95%.

2. Will scalability improve?

This is no secret: Ethereum has a scalability problem. With a processing capacity of about 15 transactions per second, Ethereum’s performance still lags behind what’s required for the world’s largest smart contract platform. Bottlenecks become evident when transaction requests surge and fees spike. The bad news: the consensus change itself doesn’t change that at first. The good news: the Merge paves the way for later scaling solutions.

After the upgrade, Ethereum development will focus on integrating so-called Layer 2 solutions. These are sidechains that handle transaction processing and bundle them for on-chain settlement on Ethereum. This will enable thousands of transactions per second instead of 15. Solutions are expected next year.

How can investors profit from Ethereum 2.0?

Investors can profit from staking. It’s the opportunity for holders to earn yield on locked Ether. Even with small amounts, you can indirectly earn from network hashing.

The current validator entry barrier on Ethereum is high: 32 Ether, roughly $60,000 USD. Small investors can pool capital via staking pools and stake Ether with less capital. Investors lock up their tokens and receive an annual percentage yield (APY) for providing them, calculated based on the amount staked. Returns are typically lower than a full validator node, but costs are also much lower. Proof of Stake thus enables small investors to participate financially in securing the blockchain.

4 Will the Ethereum network be more decentralized now?

A definite yes: since validators with higher stake have a higher chance of winning, Proof of Stake tends to favor wealthier participants. On one hand, that can reduce decentralization. On the other, Proof of Stake also opens network participation on more favorable terms than Proof of Work.

Proof of Work comes with high costs: buying, operating, and maintaining mining rigs. Private miners have been pushed out over time. The sector is currently dominated by a few big players. Large miners with higher hashrates also enjoy a competitive edge under Proof of Work.

With Proof of Stake, there are no ongoing costs beyond the stake itself. Access is more inclusive, and security is spread across more participants than before. That, in turn, increases decentralization under Proof of Stake.

5 Will Ethereum 2.0 become a true world computer with Proof of Stake?

Sustainability, scalability, financial inclusion, decentralization: with the shift in consensus, Ethereum is well on its way to making the vision of a “world computer” a reality. The idea is a global smart contract platform that anyone can use, for dApps, NFTs, DeFi transactions, or transfers.

Incorporating scaling solutions is a crucial piece of the puzzle. Only with consistently low fees and higher throughput can Ethereum deliver on its world computer promise.