What is Ethereum's Proof of Stake?

Proof of Stake (PoS) is Ethereum's consensus mechanism since September 2022. Instead of miners using powerful computers to validate transactions (Proof of Work), validators stake 32 ETH as collateral and are randomly selected to confirm blocks. This reduced Ethereum's energy consumption by over 99.95% and made the network more secure and scalable.

The Merge was Ethereum's transition from Proof of Work (PoW) to Proof of Stake (PoS), completed on September 15, 2022. It merged the original Ethereum mainnet with the Beacon Chain (PoS chain that had been running since December 2020). The Merge was one of the most significant events in crypto history, eliminating mining and reducing energy usage by 99.95%.

Did The Merge reduce Ethereum gas fees?

The Merge itself did not directly reduce gas fees. Gas fees are determined by network demand, not the consensus mechanism. However, The Merge was the foundation for future scalability upgrades (like sharding and Layer 2 rollups) that are progressively reducing effective transaction costs. EIP-4844 (proto-danksharding) significantly reduced Layer 2 fees.

What is EIP-1559 and how does it affect ETH?

EIP-1559, implemented in August 2021, changed Ethereum's fee structure by burning a portion of every transaction fee instead of paying it entirely to miners/validators. This means ETH is constantly being removed from circulation. During high-usage periods, more ETH is burned than created, making ETH deflationary. This has positive long-term implications for ETH's value.

How do I sell Ethereum for Naira in Nigeria?

Send ETH to your Monica wallet address. Monica automatically converts it to Naira in 5-15 minutes and deposits it in your Nigerian bank account for free. No need to place sell orders or find buyers. Check the current ETH to Naira rate on Monica's calculator before converting.

Ethereum's Proof of Stake — What Nigerian Users Should Know

What Is Ethereum?

Ethereum is the world's largest smart contract blockchain. Unlike Bitcoin, which primarily functions as digital money, Ethereum is a programmable blockchain that runs decentralized applications (dApps). Think of it as a global computer that anyone can build on. It powers DeFi (decentralized finance), NFTs, stablecoins (including most USDT), gaming, and thousands of other applications.

Ethereum was proposed in 2013 by Vitalik Buterin and launched in 2015. It introduced the concept of smart contracts, which are self-executing programs that run on the blockchain without any central authority. These smart contracts enable everything from decentralized exchanges to lending platforms, from digital art marketplaces to governance systems.

For Nigerian users, Ethereum is significant because it hosts the majority of the DeFi ecosystem, it is the platform for many stablecoins used for dollar savings, and ETH itself is one of the most traded cryptocurrencies in Nigeria. Understanding how Ethereum works, especially the transition to Proof of Stake, helps you make better decisions about holding and trading ETH. For a broader crypto overview, see our beginner's guide.

The Merge: From Proof of Work to Proof of Stake

What Was The Merge?

The Merge was Ethereum's transition from Proof of Work (PoW) to Proof of Stake (PoS), completed on September 15, 2022. It was the result of years of research and development. The original Ethereum mainnet "merged" with the Beacon Chain, a PoS chain that had been running in parallel since December 2020. After The Merge, Ethereum no longer uses energy-intensive mining. Instead, validators who stake ETH secure the network.

The Merge was one of the most technically complex upgrades in blockchain history. Switching the consensus mechanism of a live blockchain with hundreds of billions of dollars in value was like changing the engine of an airplane mid-flight. The fact that it completed successfully without any downtime or issues was a remarkable engineering achievement.

Proof of Work vs Proof of Stake

Proof of Work (Old)

How it works: Miners use powerful computers to solve complex math problems. First to solve wins the right to add a block and earn rewards
Energy use: Enormous (comparable to small countries)
Hardware: Expensive GPUs and ASICs required
Security: Secured by computational power
Participation: Requires expensive hardware and cheap electricity
Environmental impact: Very high carbon footprint
Still used by: Bitcoin, Litecoin, Dogecoin

Proof of Stake (New)

How it works: Validators lock up (stake) 32 ETH as collateral. They are randomly selected to propose and validate blocks
Energy use: 99.95% less than PoW
Hardware: Standard computer sufficient
Security: Secured by economic stake (risk losing ETH if dishonest)
Participation: Requires 32 ETH or use liquid staking
Environmental impact: Negligible
Used by: Ethereum, Solana, Cardano, Avalanche

Why Did Ethereum Switch?

Ethereum's decision to move to Proof of Stake was driven by several factors:

Environmental sustainability: PoW consumed as much electricity as some countries. This was increasingly criticized and threatened regulatory action against crypto
Scalability foundation: PoS is the prerequisite for future Ethereum upgrades (sharding) that will dramatically increase transaction throughput
Security improvement: Attacking a PoS network requires purchasing and staking enormous amounts of ETH, making attacks prohibitively expensive
Reduced issuance: PoS requires far less new ETH issuance to incentivize validators compared to miners, reducing sell pressure
Decentralization: PoW had become dominated by large mining operations. PoS allows participation from anyone with 32 ETH (or less through staking pools)

Impact on Gas Fees

A common misconception is that The Merge reduced Ethereum gas fees. It did not directly do so. Gas fees are determined by network demand, not the consensus mechanism. However, The Merge enabled future upgrades that are progressively reducing fees, and Layer 2 solutions built on top of Ethereum now offer transactions for pennies.

Why Gas Fees Were High

Ethereum gas fees spike when many users compete for limited block space. During NFT mints, DeFi booms, or meme coin frenzies, fees can reach $50-200+ per transaction. This makes Ethereum's base layer impractical for small transactions. A Nigerian user who wants to send $20 worth of USDT on Ethereum might pay $10-30 in gas fees, which is absurd.

The Layer 2 Solution

Layer 2 networks (Arbitrum, Optimism, Base, zkSync) process transactions off the main Ethereum chain and then batch-settle them on Ethereum for security. This provides Ethereum's security with dramatically lower fees (often under $0.10) and faster confirmation times. For Nigerian users, this means:

Interacting with DeFi protocols on Layer 2 costs pennies instead of dollars
Sending USDT or ETH on Layer 2 networks is fast and cheap
The Ethereum ecosystem is becoming practical for everyday transactions

EIP-4844 (Proto-Danksharding)

Implemented in 2024, EIP-4844 introduced "blob" transactions that dramatically reduced the cost of posting data to Ethereum for Layer 2 networks. This made Layer 2 transactions 10-100x cheaper. For the average user, this meant Layer 2 fees dropped from $0.50-2.00 to under $0.05 in many cases. This upgrade was a direct result of the foundation The Merge laid.

EIP-1559 and the ETH Burn Mechanism

How EIP-1559 Works

Implemented in August 2021, EIP-1559 fundamentally changed how Ethereum transaction fees work. Before EIP-1559, the entire gas fee went to miners. After EIP-1559, each transaction fee has two components:

Base fee: This portion is burned (permanently destroyed), removing ETH from circulation
Priority tip: This goes to validators as an incentive to include your transaction quickly

The base fee adjusts automatically based on network congestion. When blocks are more than 50% full, the base fee increases. When they are less than 50% full, it decreases. This creates a more predictable fee market and ensures a portion of every fee is permanently removed from the ETH supply.

Is ETH Deflationary?

The combination of PoS (lower issuance) and EIP-1559 (fee burning) can make ETH deflationary. Here is the math:

PoS issuance: Approximately 1,600-1,700 ETH per day is issued as staking rewards
EIP-1559 burn: Varies based on network activity. During high usage, over 5,000 ETH per day can be burned
Net result: When burn exceeds issuance, total ETH supply decreases (deflationary). When issuance exceeds burn, supply increases slightly (inflationary)

Since The Merge, Ethereum has experienced extended periods of deflation. This means the total supply of ETH is actually shrinking over time during periods of high network usage. For ETH holders, this is bullish because decreasing supply with constant or increasing demand typically drives price appreciation. This dynamic is often called "ultrasound money."

ETH Staking Explained

Staking is the process of locking up ETH to help secure the Ethereum network in exchange for rewards. Validators need 32 ETH to stake independently. For most Nigerian users, liquid staking platforms (Lido, Rocket Pool) allow you to stake any amount of ETH and receive staking rewards, typically 3-5% annually.

Solo Staking (32 ETH Required)

Running your own Ethereum validator requires 32 ETH (a significant investment) and a computer that runs 24/7. You earn staking rewards directly from the protocol. Solo staking offers the highest rewards and contributes most to network decentralization, but it requires technical knowledge and a substantial capital commitment.

Liquid Staking (Any Amount)

Platforms like Lido allow you to stake any amount of ETH. When you stake ETH through Lido, you receive stETH (staked ETH) in return. stETH represents your staked ETH plus accumulated rewards. You can trade, use in DeFi, or hold stETH while your original ETH earns staking rewards in the background. Current staking yields are approximately 3-5% annually.

Staking Considerations for Nigerian Users

Lock-up: Staked ETH was initially locked, but withdrawals are now enabled. You can unstake and receive your ETH back, though there may be a queue
Rewards: Staking yields are paid in ETH, not Naira. The Naira value of your rewards depends on the ETH/Naira rate
Slashing risk: Validators that behave dishonestly or go offline frequently can have their staked ETH reduced (slashed). This risk is minimal for liquid staking through established platforms
Tax implications: Staking rewards may be considered income under Nigerian tax provisions. Consult a tax professional
Smart contract risk: Liquid staking protocols involve smart contracts that carry a small risk of bugs or exploits

Important: Do not stake ETH that you may need to convert to Naira quickly. While unstaking is now possible, the process can take time depending on the queue. If you need quick access to Naira, keep your ETH unstaked and ready to send to Monica when needed.

Ethereum Roadmap Beyond The Merge

Ethereum's development roadmap extends far beyond The Merge. Key upcoming improvements that Nigerian users should be aware of:

The Surge (Scalability)

Full sharding will split Ethereum into multiple parallel processing chains, dramatically increasing transaction throughput. Combined with Layer 2 rollups, this could bring Ethereum's capacity to over 100,000 transactions per second, making it comparable to traditional payment networks like Visa.

The Verge (Verification)

Verkle trees will make it easier for users to verify the state of the Ethereum blockchain without needing to store the entire history. This enables lighter nodes, making it more practical to run Ethereum software on regular devices like phones.

The Purge (Cleanup)

Pruning historical data that nodes no longer need to store will reduce hardware requirements for running an Ethereum node. This further decentralizes the network by making participation accessible with less storage.

The Splurge (Miscellaneous)

Various optimizations including account abstraction (better user experience), EVM improvements (more efficient smart contracts), and other enhancements that collectively improve the Ethereum user experience.

How to Sell Ethereum for Naira on Monica

Selling ETH for Naira on Monica is straightforward: send ETH to your Monica wallet address, and Monica automatically converts it to Naira and deposits it in your Nigerian bank account. Conversion takes 5-15 minutes and bank withdrawal is free.

Open your Monica account at monica.cash/app
Select Ethereum (ETH) from your wallet
Copy your Monica ETH wallet address
Send ETH from your wallet (MetaMask, Trust Wallet, exchange, etc.) to the Monica address
Wait 5-15 minutes for blockchain confirmation and automatic conversion
Receive Naira in your linked bank account (free withdrawal)

Check the current ETH to Naira rate before converting. Use the Monica Calculator to see the exact Naira amount you will receive. For a complete app walkthrough, see the Monica Wallet Guide.

Should Nigerian Users Hold ETH?

Reasons to Hold ETH

Smart contract dominance: Ethereum hosts the majority of DeFi, NFTs, and decentralized applications. If you believe in the future of Web3, ETH is the foundational bet
Deflationary dynamics: EIP-1559 burns ETH from every transaction. During high usage, ETH supply decreases, which is positive for price
Institutional adoption: Ethereum ETFs have brought institutional capital into ETH, providing a demand floor that previous cycles lacked
Staking yield: Earning 3-5% annually in ETH provides passive income on top of potential price appreciation
Ecosystem growth: Layer 2 networks are expanding Ethereum's reach, bringing more users and more fee burn

Reasons to Be Cautious

Volatility: ETH is volatile and can drop 30-50%+ in bear markets. If you need stable value, stablecoins are more appropriate (compare with USDT)
Competition: Solana, Avalanche, and other chains compete with Ethereum for users and developers
Complexity: Ethereum's ecosystem is complex and constantly evolving. Keeping up with upgrades, Layer 2s, and DeFi requires ongoing learning
Regulatory uncertainty: Crypto regulation is evolving globally and could impact ETH's value or utility

For a balanced approach, many Nigerian users hold ETH as part of a diversified crypto portfolio alongside Bitcoin for long-term growth and USDT for stable dollar savings. See our guide on the top cryptocurrencies for 2026 for portfolio guidance.

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