Over the past eight years, we’ve seen everything from ICOs to Web3, and DeFi to NFTs. So… what does the switch to Proof-of-Stake mean for Ethereum’s future?
Ethereum has come a long way since launching in 2015 — when a young Vitalik Buterin, hurting after his beloved World of Warcraft character was weakened, vowed to address the “horrors” that centralized services can bring.
Home to one of the earliest cryptocurrencies in existence, this is a blockchain that’s always been at the cutting edge of innovation. Through ERC-20 tokens, Ethereum played an instrumental role in the flurry of initial coin offerings we saw in 2017 — and the creation of decentralized apps, many of which we continue to use today. Ethereum also led the charge when non-fungible tokens hit the market — with NFT mania sweeping the world in 2020 and 2021. And it was this blockchain that brought DeFi to the masses, delivering an alternative to centralized financial institutions and supporting the unbanked in the process.
All of this comes before we’ve even discussed The Merge — arguably one of the biggest achievements in this industry’s history. In a years-long project that’s comparable to completely renovating your house while still living in it, Ethereum made an audacious switch from the Proof-of-Work consensus mechanism to Proof-of-Stake. This made miners obsolete, replaced them with validators, and saw the network’s energy consumption tumble by 99%.
At this point, it’s time to take a step back — and focus on the future, not the past. We’ve seen how fast moving Ethereum’s development has been so far, and the network’s knack for being at the center of up-and-coming trends. But what will this network look like in 2025, when it’s celebrating its 10th anniversary? Will it still be at the center of the cryptocurrency world? What’s next in the roadmap? Will transaction fees finally come down?
The impact of Proof-of-Stake
We briefly touched upon The Merge earlier — but it’s difficult to overstate this milestone’s significance. Finalized in September 2022, this is an upgrade that paves the way for countless others.
Instead of miners being tasked with verifying transactions and adding new blocks to the blockchain, that job now falls to validators who lock up 32 ETH to run their own node — receiving rewards for securing the network in the process. Those who wished to get involved in staking were able to make deposits from December 2020 onwards. But it was only in April 2023, once the Shapella upgrade went live, when validators could start to make withdrawals.
You may think that many of those who had voluntarily locked up their ETH would be clamoring to get it back after a two-and-a-half-year wait — but you’d be wrong. Many of those who got in on the ground floor are ardent believers in this technology who are in it for the long haul. Just 1% of validators completely unstaked their ETH in the first 48 hours — hardly enough to make a dent in overall security.
In fact, Shapella’s arrival actually led to a huge increase in the number of validators and deposited ETH — primarily because the activation of withdrawals made staking much more flexible and accessible than before. Data from The Block shows there were 567,500 validators and 18.17 million ETH in the deposit contract on the day of the upgrade. Five months on, there are 839,000 validators (up 48%) and 26.84 million ETH deposited (also up 48%.)
So we’re seeing a sharp upward trend in adoption — but how will this affect the picture in 2025? Well, there are a few metrics to take into account here. First up, CoinJournal figures from August noted that just 19% of Ether’s supply has been staked so far — that’s far less than the likes of Solana on 71%, and Cardano on 62%.
Assuming this figure rises over the next two years, there could be two potential consequences. The current annual percentage yield for staking stands at 4%, but an increase in staked ETH could see that fall. However, as an increase in staking would considerably reduce the circulating supply, this could deliver a price boost at times when demand rises.
Other factors that could exacerbate price action further is the number of new Ether hitting the market. Back when miners were in control, approximately 13,000 ETH were being issued on a daily basis — but this has now fallen by a whopping 88% to just 1,700. On top of this, transaction fees are now being burned following The Merge, further reducing the volume of ETH in circulation. Whereas annualized inflation stood once at about 4%, it has now plunged closer to 0.5%. At certain points over the past year, it’s even been deflationary.
Data from Beacon Chain indicates that about 2,700 ETH in staking rewards are being issued every day. On an annualized basis, that’s 985,500 ETH — worth $1.6 billion at current market rates. JPMorgan has previously estimated that yields across the sector (across all blockchains) could surge to a whopping $40 billion by 2025.
Put together, all of this could be significant when the next bull run beckons.
What’s next on the roadmap?
The Ethereum Foundation is currently spearheading a plethora of improvements that should drive down gas fees considerably by 2025 — making microtransactions much more affordable, and ensuring it’s financially practical to use this blockchain in emerging markets. Ethereum co-founder Vitalik Buterin stated this was a key priority at last year’s Blockchain Futurist Conference in Canada — and pointed out that while daily take-home pay is $4 in Zambia and $16 in Mongolia, it can cost $20 to process a single transaction.
While rollups already offer transactions that are up to eight times cheaper than on the Layer 1 network, developers believe ZK-rollups could mean transactions cost less than $0.001. Techniques such as proto-danksharding (funny name) are set to add about 1MB of space to each block specifically for rollup data — that’s the real-world equivalent of being able to pack more clothes in a suitcase.
This won’t be without challenges, and in the past, there have been delays in delivering the Ethereum roadmap. The Merge suffered repeated setbacks in 2021, and in a rare setback, the Holesky testnet recently failed to launch altogether because of a misconfiguration.
Back in June, Buterin set out three major technical transitions that need to occur in the coming years as Ethereum matures. First, he argued that it’s crucial for everyone to use L2 scaling solutions by default — because if they don’t, “every product aiming for the mass market inevitably forgets about the chain and adopts centralized workarounds for everything.”
Ethereum’’s co-founder also pointed to smart contract wallets as a vital tool for enhancing security. They can ensure accounts are protected even if keys are lost and stolen — offering a greater degree of familiarity for people accustomed to bank accounts and Web2 apps. Buterin believes blockchains are currently too difficult for everyday consumers to use — and too much crypto is lost forever because of complicated interfaces that open the door to mistakes. In his eyes, failing to improve security will mean people are uncomfortable with self-custody and are more likely to use centralized exchanges. And given how some of these platforms froze withdrawals and went bankrupt in 2022, this isn’t an optimal solution.
Finally, the developer is calling for privacy-preserving transfers to be available for all — an alternative to the status quo, where many transactions are made public on the blockchain for “literally anyone to see.” Buterin thinks that this is too high a sacrifice for many users, and may be a roadblock in the path to adoption.
Buterin stressed that “keeping things both decentralized and understandable to users is paramount,” adding: “Achieving scalability, wallet security, and privacy for regular users is crucial for Ethereum’s future. It is not just about technical feasibility but about actual accessibility for regular users. We need to rise to meet this challenge.”
According to the Ethereum Foundation, some planned upgrades may be five or even 10 years down the track — meaning this network will still be a work in progress by 2025. Developers say they’re determined to futureproof the blockchain so it can be relied upon for centuries to come. Priorities include:
- Removing code that is no longer needed — simplifying Ethereum and reducing the chance of bugs and vulnerabilities that can be exploited
- Reducing the amount of time it takes for blocks to finalize. This currently takes 15 minutes, which is inconvenient for apps and exchanges and opens the door for manipulation by attackers
- Making it easier and less resource intensive to run a node
- Ensuring that Ethereum is resistant to quantum computing, which could compromise some of the cryptography currently securing the network
Ultimately, Ethereum’s roadmap is a living, breathing thing that’s constantly changing as new trends, information and technology come to light.
The known unknowns…
As the old saying goes, there are “known unknowns” — factors that could have a huge impact on the health of Ethereum, and ETH, by 2025.
Right now, there are huge question marks surrounding the regulation of digital assets — especially in the U.S. A lingering question is whether the Securities and Exchange Commission, which has adopted a heavy-handed approach with the industry, regards ETH as a security.
In recent years, the SEC has also been dragging its heels on approving crypto-related exchange-traded funds, which would allow institutional investors to gain exposure to digital assets without owning it directly. After repeatedly rejecting spot Bitcoin ETFs, a court ruled that the SEC was wrong to reject an application by Grayscale Investments. This landmark decision could ultimately make an approval more likely — and potentially open the door to a spot Ether ETF after that.
Given how so many companies have environmental, social and corporate governance goals, the switch to Proof-of-Stake could prove much more appealing for institutions. Bitcoin has been roundly criticized for its electricity use and carbon emissions — issues that Ethereum no longer has. The Merge generated a positive reaction among politicians in both Brussels and Washington, and this could prove beneficial as lawmakers continue to grapple with regulation.
…and what we don’t know
Of course, there are potential wildcards that could alter Ethereum’s trajectory. Five years ago, few could have predicted that we would see a global pandemic followed by rampant levels of inflation. Interest rates have now surged as central banks battle to bring this under control, and this has had an impact on tech stocks and the digital assets sector alike.
And just like AI took the world by storm in late 2022, who knows what the next trend around the corner is. The metaverse has struggled to take off because of clunky hardware and a lack of quality content, but tech giants are continuing to pour billions into virtual worlds. By 2025, it’ll also be interesting to see whether Web3 projects have meaningfully entered the mainstream — after all, it took a few years for NFTs to make their presence felt.
The verdict
It can be an overused phrase in crypto circles, but when it comes to Ethereum, it’s true: we’re still early. The benefits posed by switching to Proof-of-Stake will only emerge in the years to come — and there’s little doubt that it’ll attract more consumers to the space.
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