An Event Study of the Ethereum Transition to Proof-of-Stake Elie Kapengut1and Bruce Mizrach2

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An Event Study of the Ethereum Transition to

Proof-of-Stake

Elie Kapengut1and Bruce Mizrach2

1Rutgers University, New Brunswick, NJ USA

2Department of Economics, Rutgers University, New Brunswick, NJ USA

First Draft: October 13, 2022

Revised: February 25, 2023

Abstract

On September 15, 2022, the Ethereum network adopted a proof-of-stake (PoS) consen-

sus mechanism. We study the impact on the network and competing platforms in a

two month event window around the Beacon chain merge. We ﬁnd that the transition

to PoS has reduced energy consumption by 99.98%. Miners have not transformed into

validators, and total block reward income (in USD) has fallen by 97%, though transac-

tion fees (in ETH) for Ether have increased nearly 10%. The Herﬁndahl index for the

top 10 is 1,009; the network is 19% less concentrated after the merge. Ethereum supply

growth has been deﬂationary since the merge. The time between consecutive blocks is

now steady at 12 seconds and transactions per day are up 7.0%. On Polygon, Matic

fees rose but token fees fell. Polygon also slows, processing 3.3% fewer transactions per

day. Solana’s fees fall by $0.0003, and transactions per day are down 48%. Stablecoin

transfer volumes fall on Ethereum and Polygon, but rise on Solana.

Keywords: Ethereum; proof-of-stake; merge; cryptocurrency.

JEL Codes: G12; G23.

∗Correspondence: Department of Economics, Rutgers University, 75 Hamilton Street, New Brunswick,

NJ 08901 USA. email: mizrach@econ.rutgers.edu, (908) 913-0253 (voice) and (425) 795-9942 (fax).

arXiv:2210.13655v2 [q-fin.TR] 28 Feb 2023

1 Introduction

The Ethereum blockchain began operation on July 30, 2015. For more than seven years,

the chain was secured by a proof-of-work (PoW) protocol. This entailed large clusters of

specialized computers, known as mining networks, competing with one another to ﬁnd a

random number called the nonce. The ﬁrst miner to show that the hash of the nonce was

below the network’s diﬃculty level would be allowed to add the new block to the chain. The

miner would receive a block reward and collect gas fees for the transactions included in the

block. As the network diﬃculty increased, the energy resources consumed by the miners

grew ever larger.

Figure 1: Electricity Consumption of the Ethereum Network

Note: The data are collected by Digiconomist, https://digiconomist.net/ethereum-energy-con

sumption

On August 13, 2022, the electricity consumption of the network, using the methodology

of de Vries (2018), reached a peak, annualized at 93.975 Terra Watt Hours per year.1For

context, this exceeds the usage by the Phillipines.2

Vitalik Buterin, founder of the network, had advocated for a transition to proof-of-stake

(PoS) as early as 2016.3This validation method requires stakers to verify new transac-

tions. Instead of searching randomly for the nonce, stakers place their Ethereum holdings

into a smart contract as collateral. If stakers fail to fulﬁll their validation responsibilities–

accidentally or maliciously–they can be punished by losing their staked coins. Stakers for

1An alternative, more conservative methodology is used by Krause and Tolaymat (2018).

2https://en.wikipedia.org/wiki/List of countries by electricity consumption

3https://medium.com/@VitalikButerin/a-proof-of-stake-design-philosophy-506585978d51

any given block are chosen via a pseudo-random algorithm known as RANDAO.4Edgington

(2022) provides a more comprehensive discussion about RANDAO, and Park et al. (2020)

contains details on Ethereum’s implementation of PoS.

Since PoS forgoes the energy-intensive problem solving characteristic of proof-of-work,

the Ethereum transition to PoS has cut the electricity usage of the network to 0.015 Terra

Watts, a 99.98% decrease, as seen in Figure 1.

Figure 2: Ethereum Blockchain Pre and Post Merge

Note: Nonce and diﬃculty, which were critical to proof-of-work, are now empty since they

are not part of proof-of-stake. The miner column is now populated by the fee recipient–the

validator. The data are from the Ethereum Mainnet which we obtain from Kaggle.

The last block mined under PoW5was 15537393 by F2 Pool Old at 6:42:42 AM GMT on

September 15, 2022. It included only one ERC-721 (NFT) transaction. The ﬁrst PoS block6

15537394 was a normal sized block7with 80 transactions, but it included a 45 Ether (ETH)

priority fee (tip) We will drop the transition day, September 15, in most of our analysis,

analyzing one month event windows around that date.

2 Data and Methods

This paper will examine the composition of the validator pool, block fees and rewards, and

the network speed, on the Ethereum network. Our data sources are the Ethereum blockchain

which we obtain from Kaggle.8Data from the pre-merge Beacon Chain is from Bitquery.9

We will also compare Ethereum to Polygon and Solana on fees, speed and transfer volumes.

The Polygon data are from Quicknode,10 and the Solana data are from its’ command line

interface.11

4https://www.randao.org/whitepaper/Randao v0.85 en.pdf

5https://etherscan.io/block/15537393

6The block was in slot 4700013, epoch 146875. A slot is a time period of 12 seconds in which a validator

can propose a block. There are 32 slots in one epoch.

7https://etherscan.io/block/15537394

8https://www.kaggle.com/datasets/bigquery/ethereum-blockchain

9https://explorer.bitquery.io/eth2

10https://www.quicknode.com/core-api

11https://docs.solana.com/cli

3 Validators

Prior to the merge, blocks were added by the miners. For the period August 14 to September

14, 2022, we computed the number of blocks and associated transactions that each miner

completed. The top 10 miners, by blocks completed, are in Table 1. The Herﬁndahl index

for the top ten is 1,245. Ethermine has the largest market share at 28.6%.

Table 1: Most Active Miners Leading into the Merge

Miner address Blocks formed No. Trans. Miner names

0xea674fdde714fd979de3edf0f56aa9716b898ec8 56,960 11,437,974 Ethermine

0x829bd824b016326a401d083b33d092293333a830 29,304 5,231,405 F2Pool

0x1ad91ee08f21be3de0ba2ba6918e714da6b45836 20,436 2,967,793 Hiveon

0x00192fb10df37c9fb26829eb2cc623cd1bf599e8 14,452 2,253,984 2Miners

0x7f101fe45e6649a6fb8f3f8b43ed03d353f2b90c 9,859 1,397,143 Flexpool

0x2daa35962a6d43eb54c48367b33d0b379c930e5e 7,004 1,086,420 Poolin 2

0x52bc44d5378309ee2abf1539bf71de1b7d7be3b5 5,419 1,035,186 Nanopool

0x3ecef08d0e2dad803847e052249bb4f8bﬀ2d5bb 4,432 816,551 Mining Pool Hub

0xb7e390864a90b7b923c9f9310c6f98aafe43f707 4,390 777,536 Unknown1

0xcd458d7f11023556cc9058f729831a038cb8df9c 3,803 628,777 Poolin 4

Note: The totals are for Ethereum network blocks for the month preceding the merge, August 14 to

September 14, 2022.

Blocks are now secured by validators, participants in the Ethereum 2.0 consensus algo-

rithm who have placed at least 32 ETH into the deposit contract12 shown in Figure 3. A

committee of at least 128 validators, selected by RANDAO, are chosen to add a block for

any given slot. One participant, called the block proposer, forms the block, a process that

entails selecting and verifying a set of transactions has no failures or errors. The block then

needs to be conﬁrmed by the remaining validators, called attesters, who check and give their

vote of conﬁdence to the block. Finality is achieved at the checkpoint block, the ﬁrst block

in the next epoch, with support from 2/3 of the staked ETH.13

The randomness of selection means that validators must have an active system nearly

24/7; they can have some or all of their stake burned 14 and be removed (slashed ) from the

set of validators, for failing to complete an assigned task. As of November 1, 2022, 217

validators have been slashed,15 24 since the merge.

12https://etherscan.io/address/0x00000000219ab540356cBB839Cbe05303d7705Fa

13https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/finality

14A term used to describe ETH that is cut loose from the network and is thus unacessible to any user.

15https://beaconcha.in/validators/slashings

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AnEventStudyoftheEthereumTransitiontoProof-of-StakeElieKapengut1andBruceMizrach21RutgersUniversity,NewBrunswick,NJUSA2DepartmentofEconomics,RutgersUniversity,NewBrunswick,NJUSAFirstDraft:October13,2022Revised:February25,2023AbstractOnSeptember15,2022,theEthereumnetworkadoptedaproof-of-stake(PoS)cons...

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