Chainlyze: Ethereum Flywheel Shows No Signs of Stopping

Transition to Proof-of-Stake Continues to Drive Successes

Since Ethereum's "Merge" transitioned from proof-of-work to proof-of-stake in September 2022, the blockchain has been transformed, and the network has flourished. The flywheel of successes has many drivers.

One of the main benefits of the transition to proof-of-stake is the significant reduction in energy usage. Before the merge, Ethereum miners' estimated energy consumption was in the range of 90 terawatt hours per year, equivalent to the energy usage of 18 million homes.

The merge has reduced energy consumption by over 99%, which has pleased environmentalists and paved the way for greater institutional participation in the network.

On-chain activity has remained stable since the merge, with daily transaction volume typically remaining between 1 and 1.25 million, daily active users between 300,000 to 400,000, and daily transaction fees of $3 to $4 million.

The growth of the Ethereum ecosystem facilitated by layer-2 rollups is not captured by these stable on-chain metrics. On-chain transaction volume on L-2 rollups has final settlement on the Ethereum mainnet, and large L-2s such as Optimism and Arbitrum are expanding rapidly and adding over 1 million transactions per day to the final settlement on Ethereum.

The Merge was also of major importance for large institutions, as BNY Mellon, the world's largest custodian bank with over $40 trillion in assets, is working on a pilot program to tokenize Treasury securities. The merge showed BNY Mellon and other institutions that Ethereum's management is mature, steady, deliberate, and technically competent.

Validators continue to be compensated through inflation, just as miners were pre-Merge. However, transaction fees are now burned, and when transaction fees exceed the block reward paid to validators, the overall supply of Ethereum decreases, which can be thought of as a payment to all holders of Ethereum. In mid-January, a decisive deflationary trend began.

Despite the numerous scams, hacks, and scandals in 2022, the on-chain health of the Ethereum ecosystem remains robust.

About Chainlyze:

Chainlyze is a platform that allows you to identify or monitor where the smart money flows, move to identify new trade opportunities and trace historical activity. With an overview of top user wallets, you can map out the activity of leading figures in the industry. Alongside this, the team has outlined its focus on keeping their users informed by providing research on the latest trends in the industry.

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