Ethereum’s transition from Proof of Work (PoW) to Proof of Stake (PoS) in 2022 was heralded as a major technological shift. It reduced the network’s energy consumption by over 99%.

However, Meltem Demirors, General Partner at Crucible Capital and former CoinShares executive, argues that this transition was a costly mistake.

According to Demirors, Ethereum’s move to PoS has devalued the network by enabling the proliferation of Layer-2 (L2) solutions. She believes L2 scaling solutions dilute the core Ethereum ecosystem. In her opinion, Ethereum could have become a $1 trillion protocol had it remained on PoW, leveraging a strong energy-computation ecosystem akin to Bitcoin’s.

In contrast, had Ethereum retained its PoW model, it could have driven innovation in GPU computing. She likened this to how Bitcoin miners propelled advancements in hardware technology.

“Proof of Stake was a mistake. Ethereum could have been a trillion-dollar protocol with its own robust energy to compute ecosystem. Instead, MEV extracts billions in value from users and apps,” she explained.  

Her argument suggests that under PoW, Ethereum could have sustained a stronger, more centralized Layer-1 (L1) network without the fragmentation introduced by Layer-2 scaling solutions.

In 2022, Ethereum made headlines as ultra-sound money, achieving ‘zero net issuance’ 55 days after The Merge. It came following the London Hard Fork in 2021, which introduced EIP-1559, burning a portion of transaction fees and reducing ETH’s total supply over time.

However, recent data suggests that Ethereum has been experiencing its longest inflationary period since the shift to PoS. According to Ultrasound Money, Ethereum’s annual inflation rate is now 0.76%. As of this writing, the network issues 943,000 ETH annually while burning only 27,000 ETH annually.

This contradicts the earlier deflationary narrative that positioned ETH as a better store of value than Bitcoin.

“At the current rate of network activity, Ethereum will not be deflationary again. The narrative of ‘ultra-sound’ money has probably died or would need much higher network activity to come back to life,” CryptoQuant analysts recently highlighted.

Recently, Peter Szilagyi, a key Ethereum team lead, stated that ETH was never meant to be money. This statement challenges the fundamental narrative of Ethereum’s transition to PoS, which, in part, was intended to make ETH more valuable and deflationary.

“ETH was never meant to be money. ETH was meant to support a decentralized world, which does entail ETH having value. That said, none of the OGs wanted ETH to be money, ever. Bring forth the tar and feathers,” Szilágyi wrote.

What would its ultimate purpose be if ETH was not meant to be money? Critics argue that this lack of a clear vision weakens Ethereum’s long-term value proposition. Despite these changes, the Ethereum network is witnessing significant scaling activity.

Vince Yang, CEO of zkLink, noted that the EIP-4844 upgrade remains beneficial for Ethereum, especially for Layer 2 networks.

“Scaling activity on Ethereum is at its highest thanks to the significant reduction of gas costs to execute transactions on Layer-2s. Compared to earlier this month, Ethereum’s combined transactions have exploded to an all-time high from 140 to 285 TPS,” Yang told BeInCrypto.

This scaling activity is crucial for developing new blockchain applications and strategically positioning Layer 2 and Layer 3 solutions.

BeInCrypto data shows ETH was trading for $1,971 as of this writing, down by over 2% in the last 24 hours.