Introduction
Ethereum’s transition from Proof of Work (PoW) to Proof of Stake (PoS) was one of the most significant events in blockchain history. The move, completed in September 2022 through “The Merge,” reduced Ethereum’s energy consumption by over 99%, making it more environmentally friendly and positioning it as a more sustainable blockchain.
While this change was widely celebrated, not everyone agrees it was the right decision. Meltem Demirors, General Partner at Crucible Capital, has voiced strong criticism, arguing that Ethereum’s shift to PoS was a trillion-dollar mistake. According to her, Ethereum could have reached a $1 trillion valuation had it stayed with PoW instead of fragmenting its ecosystem with Layer-2 (L2) scaling solutions.
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A Missed $1 Trillion Opportunity?
Meltem Demirors believes that Ethereum’s move to PoS weakened its core ecosystem, leading to a proliferation of L2 solutions that diluted the strength of Ethereum’s Layer-1 (L1) network. In her view, if Ethereum had continued using PoW, it could have followed Bitcoin’s path, driving innovation in GPU computing and expanding its dominance in blockchain technology.
Bitcoin miners have played a crucial role in advancing hardware technology, leading to significant developments in GPU and ASIC computing. Ethereum, under PoW, had the potential to foster similar innovation. Instead, by transitioning to PoS, Ethereum abandoned its hardware-driven growth and shifted toward a staking model that, according to Demirors, undermined its potential.
Her argument suggests that Ethereum, by remaining on PoW, could have built a stronger foundation and expanded its market capitalization to the $1 trillion range, cementing its dominance alongside Bitcoin.
Ethereum’s Inflation Challenge
One of the key justifications for Ethereum’s move to PoS was the promise of making ETH a deflationary asset. The idea was simple: by reducing supply through transaction fee burning, Ethereum could position itself as “ultra-sound money” with a store-of-value proposition similar to Bitcoin.
At first, The Merge appeared successful in this regard. Ethereum achieved a “zero net issuance” state, meaning the amount of ETH burned was nearly equal to the amount issued, keeping supply in check. However, recent data has challenged this narrative.
According to Ultrasound Money, Ethereum is currently experiencing its longest inflationary period since transitioning to PoS. The network’s annual inflation rate stands at 0.76%, with 943,000 ETH issued annually but only 27,000 ETH burned.
This means Ethereum’s supply is increasing, contradicting its earlier promise of being deflationary. Analysts from CryptoQuant have pointed out that unless Ethereum’s network activity dramatically increases, it is unlikely to become deflationary again. This raises concerns about ETH’s long-term value proposition, especially when compared to Bitcoin, which has a fixed supply of 21 million coins.
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The Debate Over Ethereum’s Purpose
Beyond inflation concerns, Ethereum’s transition to PoS has reignited debate over the network’s ultimate purpose.
Peter Szilagyi, a key Ethereum developer, recently stated that Ethereum was never meant to be money. Instead, he argued that Ethereum’s primary goal is to support a decentralized world through smart contracts and decentralized applications (dApps).
This statement has sparked controversy. Bitcoin’s value is largely derived from its clear use case as a store of value—a digital alternative to gold. In contrast, Ethereum’s shifting narrative has led some investors to question whether ETH will ever hold the same long-term value.
If Ethereum is not meant to be a store of value, what is its primary investment case? This is a question that will continue to shape Ethereum’s future as the crypto market evolves.
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The Rise of Layer-2 Scaling
Despite these criticisms, Ethereum’s PoS transition has fueled rapid development in scaling solutions. The EIP-4844 upgrade has significantly lowered gas costs for L2 solutions, making transactions faster and cheaper.
As a result, Ethereum’s network activity is booming. Transactions per second (TPS) have reached an all-time high, with L2s like Arbitrum, Optimism, and zkSync handling a large portion of Ethereum’s transaction volume.
This growth suggests that while Ethereum’s PoS shift may have led to some challenges, it has also positioned the network for future innovation. The rise of Layer-2 and even Layer-3 solutions indicates that Ethereum is evolving into a multi-layered ecosystem designed for scalability.
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Conclusion: Was PoS a Mistake?
Ethereum’s transition to PoS remains one of the most hotly debated topics in crypto.
On one hand, Meltem Demirors’ claim that Ethereum missed a $1 trillion opportunity is compelling. Had Ethereum stuck with PoW, it might have strengthened its position as a dominant Layer-1 blockchain, driving innovation in hardware and maintaining a deflationary model similar to Bitcoin.
On the other hand, Ethereum’s shift to PoS has allowed it to scale more efficiently and reduce its environmental impact, making it a more sustainable long-term blockchain solution.
The ultimate question is: Does Ethereum’s PoS model create more value in the long run, or did it sacrifice too much to make the switch?
As Ethereum continues to evolve, investors and developers will need to weigh these factors carefully. One thing is certain—Ethereum’s future will be shaped by the decisions it makes today.
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