Ethereum’s Transformational Upgrades

Every blockchain faces a trilemma involving scalability, security, and decentralization. The Bitcoin blockchain is well-known for its security and decentralization, with scalability as its major challenge. The Ethereum network, launched in 2015, was designed to address Bitcoin blockchain’s deficiencies. From the outset, Ethereum's design laid a solid foundation for future upgrades known as hard forks.

Minor updates occur once or twice a year, typically without much impact on most users. Every few years, the Ethereum blockchain undergoes a significant upgrade that transforms its ecosystem. A notable example was the "Merge" in 2022. Prior to that, users were not just holders, buyers, and sellers of ETH, but miners also played a crucial role in maintaining the blockchain. The "Merge" marked a monumental shift by eliminating mining in favor of staking.

The "Merge" and 'Shapella"

The "Merge", rolled out in September 2022, was divided into two phases: "Bellatrix" and "Paris". This was a pivotal upgrade not only for Ethereum itself but also for the broader industry. The discontinuation of mining rigs exerted selling pressure on Nvidia stock, which declined by 40% over several months. Mining has been a significant growth driver for Nvidia since Ethereum’s introduction by its creator, Vitalik Buterin, in 2015, with the company's stock surging from $0.60 in early 2015 to $32 in its peak in 2021 (adjusted for stock splits in 2021 and 2024).

Since the "Merge," owning 32 ETH allows holders to create a node and become stakers. Initially, staking offered an annual reward of 10-12%. As of January 2025, the highest annual market reward is 3%. The introduction of staking made the network 99% more energy-efficient and paved the way for sharding — the next step (post-post-Pectra) in addressing Ethereum's blockchain trilemma.

The Shapella upgrade in April 2023 enabled users to withdraw staked ETH, triggering a massive surge in staking deposits from 18 million to 27 million in just six months. Only 139,000 ETH was withdrawn after that hard fork, 95% of which consisted of rewards. Thus, the "Pectra" upgrade, soon expected, may drive another wave of staking as users gain greater control over their assets.

Between 2020 and 2024, the average annual amount of staked ETH on December 1 was 17,434,457 with a median of 15,414,880. As of January 2025, 34 million ETH are staked, out of a total supply of 120 million.

What will "Pectra" bring to Ethereum?

"Pectra," an upcoming Ethereum upgrade, aims to address the blockchain trilemma. Its name stands for "Prague" and "Electra." Anticipated to roll out in Q1 of 2025, Pectra is focused on improving scalability and efficiency by introducing changes to both the execution (transactions processing) and consensus (blockchain validation) levels.

The "Prague" execution layer will eliminate redundant voting for withdrawals, transferring this responsibility to the execution layer. This will allow stakers to autonomously withdraw their staked ETH without validator approval, granting more control over their funds. Additionally, enabling gas fees to be paid with other cryptocurrencies could reduce reliance on ETH, making decentralized applications (DApps) more accessible and driving broader adoption of the Ethereum ecosystem.

The "Electra" consensus layer will reduce withdrawal time for staked ETH from approximately 12 hours to less than 15 minutes. The rise of the fixed amount of 32 ETH to a maximum of 2048 ETH will reduce fragmentation and will make staking more resourceful for large stakers by cutting the number of nodes they need to manage, thus enhancing its scalability capacity.

The bottom line

For nine years, the Ethereum Foundation has pursued its vision of creating a secure and decentralized blockchain through constant upgrades while maintaining an open ecosystem for innovation. Advancements like layer-2 and layer-3 solutions, combined with DApps, are transforming how we interact with the world — whether it's buying real estate, engaging in e-commerce, gaming, or voting — thereby reshaping reality itself.