## Ethereum Merge: Transition from Proof of Work to Proof of Stake – Key Transformations

Since December 2020, when the Beacon Chain was launched, the Ethereum ecosystem has been preparing for a fundamental change. The so-called eth merge represents a groundbreaking moment in the evolution of second-generation blockchain projects. The update, which was implemented in September 2022, combined the consensus layer with the execution layer, effectively replacing the Proof of Work (PoW) mechanism with the Proof of Stake (PoS) system.

### Why did Ethereum need this transformation?

Although the Ethereum blockchain has solidified its position as the leading platform for decentralized applications since its launch in 2015, it has faced serious limitations regarding throughput. This issue arises from a fundamental conflict – the so-called scalability trilemma proposed by Ethereum creator Vitalik Buterin.

Every blockchain must balance three elements: **scalability**, **security**, and **decentralization**. The Ethereum network in its pre-merge update form was unable to achieve a satisfactory level of scalability while maintaining decentralization and security, as the Proof of Work protocol has inherent limitations:

- The number of transactions per block is rigidly limited.
- Blocks must be created at a constant rate, which makes flexible scaling difficult.
- As demand for the network increases, transaction fees and confirmation times rise.

To solve these issues, the Ethereum team proposed a series of upgrades known as Ethereum 2.0.

### Components of Ethereum modernization

The Ethereum transformation is not limited to the merge. It includes a series of stages:

**Beacon Chain (Phase 0)** – Launched in December 2020, it introduced the Proof of Stake protocol to the ecosystem. Users could stake ETH, securing the network and earning rewards, while the Ethereum mainnet continued to operate on Proof of Work.

**The Merge** – The key merging of two independent systems: the execution layer of the main network ( and the consensus layer )Beacon Chain(. This moment is a breakthrough for the eth merge.

**The Surge, The Verge, The Purge and The Splurge** – Subsequent stages aimed at further increasing the efficiency and scalability of the network.

) Change of consensus mechanism: From mining to staking

The transition from Proof of Work to Proof of Stake is not just a technical change, but a revolution in the approach to network security.

In the **Proof of Work** system, miners competed for the right to add the next block by solving complex mathematical puzzles. This process required huge amounts of electrical energy.

After the merge update, the network transitions to the **Proof of Stake** system, in which:

- Validators ### instead of miners ( are chosen to create new blocks
- The selection is based on the amount of staked ETH and randomness.
- Rewards come from transaction fees, staking rewards, and a portion of MEV )Maximal Extractable Value(
- Energy consumption decreases by more than 99%

This model is significantly more environmentally friendly and energy-efficient, which is a crucial argument for proponents of sustainable development.

) Impact on ETH emission and supply

The transaction history will be merged with the Beacon chain, but the ETH currency remains unchanged. Users holding ETH tokens do not need to take any special actions.

The change in the emission system is, however, significant:

- **Before the merge**: Approximately 13,000 ETH were issued daily, of which a significant portion came from mining rewards.
- **After the merge**: Emission dropped to about 1,600 ETH per day ###exclusively from staking rewards(

This reduction of about 90% could have significant implications for the price of ETH, according to the classical model of supply and demand. However, cryptocurrency markets are volatile and depend on many factors, so future price movements are difficult to predict.

The current ETH price is **$3,000** ) as of 2025-12-21(, which serves as a significant reference point for investors monitoring changes in the network's fundamentals.

) Sharding - The Next Step in Scalability

The further development of Ethereum is guided by the concept of sharding, which is to be implemented after the merge upgrade.

Sharding involves dividing the network into multiple shard chains (shards), each containing only a subset of the entire network's data. This allows for:

- Nodes can verify transactions more efficiently.
- The network bandwidth is significantly increasing
- Transaction costs and times should decrease

The process will be multi-phase:
- **Version 1**: Fragmented chains provide more data to the network
- **Version 2**: Shards can store and execute code

This solution is meant to be one of the greatest achievements of blockchain technology in terms of scalability.

### Diverse approaches to solving scalability issues

Why is Ethereum involved in so many different solutions at the same time? The strategy is based on several premises:

- **Absorption of growth**: Each solution prepares the network for the next waves of adoption
- **Security redundancy**: If one approach turns out to be insufficient, others will support it.
- **Avoiding points of failure**: A diversified architecture reduces the risk of total overload

This approach provides users with access to multiple transaction channels, allowing them to avoid extreme spikes in fees.

( Derivative tokens and staking – Case BETH

For users interested in staking ETH, there were products such as BETH – a tokenized version of staked ETH. After the merge, validators receive:

- Staking rewards
- Part of transaction fees
- Participation in MEV

This potentially means an increase in the annual interest rate )APY### for validators compared to the previous period.

### Preparation for change

For typical ETH holders, the merge change proceeded smoothly - no special actions were necessary. Funds in ETH remained accessible, and the token retained its value and functionality.

Individual services ( such as mining, loans, or staking ) may have experienced temporary interruptions, but these were transitional adjustment periods.

### Long-term prospects

The merge update is just the second in a series of comprehensive improvements for the Ethereum ecosystem. After the implementation of all planned upgrades, the Ethereum blockchain should achieve:

- **Higher scalability** – throughput will increase thanks to sharding
- **Better security** – a diversified architecture will be more resilient
- **Energy efficiency** – the transition to PoS has significantly reduced energy consumption
- **Maintaining decentralization** – the system remains open to new validators

Vitalik Buterin explained that the following improvements (The Surge, The Verge, The Purge, The Splurge) should not be viewed as rigid stages, but as simultaneous, complementary directions of development.

### Final Remarks

The Ethereum merge represents a groundbreaking moment in the history of blockchain. The transition from Proof of Work to Proof of Stake addresses three key challenges: scalability, security, and energy sustainability. While the merge update itself has been implemented, the real test will be assessed in the long-term outcomes – whether the combination of the merge with the planned improvements in sharding will actually solve Ethereum's scalability issues.

**Risk Disclosure**: The prices of digital assets are subject to significant market fluctuations and volatility. The value of your investments may decrease or increase, and losses can be total. Each investor is fully responsible for their decisions. Past performance does not guarantee future results. Invest only in products that you understand, and only in accordance with your risk tolerance. Consult with an independent financial advisor before making any investment.