From Ethereum 1.0 to 2.0: Implications for the Blockchain-Based

NFT Market

Yungui Chen

, Yong Fan and Liwei Tian

School of Computer Science, Guangdong University of Science and Technology, Dongguan, China

Keywords: Ethereum 2.0, NFT Market, PROOF-of-Stake Consensus Algorithm.

Abstract: The Non-fungible Token (NFT), a pioneering embodiment of singularity within blockchain technology, has

been increasingly recognized for its distinctive identity and exclusive attributes. Therefore, it is often used

to protect intellectual property and gaming fields. Today, the issuance of NFTs is predominantly grounded

on Ethereum's infrastructure. This study delves into a profound dissection of Ethereum 1.0's constraints,

notably its inefficiency and disproportionate energy consumption. As we navigate the evolution of

Ethereum from its 1.0 version to the more advanced 2.0, we spotlight the enhancements it offers - optimized

performance, lessened energy consumption, and fortified security mechanisms - features reminiscent of a

metamorphosis. We used an analytical approach to extract blocks from EthereumPoS and EthereumPoW for

comparative analysis. Preliminary results indicated a pronounced reduction in transaction fees associated

with Ethereum 2.0 - a promising leap towards increasing blockchain accessibility while maintaining its

security integrity.

1 INTRODUCTION

In the vibrant arena of blockchain technology,

branches such as Decentralized Finance (DeFi) and

Non-Fungible Tokens (NFTs) (Wang, Q.- Kugler,

L.) have charted groundbreaking paths. Foremost

among these, the birth of the NFT market represents

a game-changing application of blockchain

technology. By offering an unprecedented approach

to verifying digital ownership, NFTs bestow

significant value upon innovative expressions

ranging from artworks to game assets and musical

compositions. However, the accelerated evolution of

the NFT market has underscored a suite of critical

challenges chiefly tied to Ethereum, the leading

platform for NFT issuance, touching on aspects of

performance, efficiency, and ecological footprint.

Ethereum (Chen, T., Chen, H.), while being the

esteemed podium for the origination and deployment

of NFTs, employs a consensus protocol hinged on

the principles of Proof of Work (PoW) (Meneghetti,

A., 2020) - an architecture that is not without its

share of complexities and challenges. These

encompass low operational efficiency, excessive

energy expenditure, and the generation of electronic

waste. These shortcomings cast shadows on the

scalability, efficiency, and environmental-

friendliness of the Ethereum network, posing a

formidable barrier to the continued growth of the

NFT marketplace.

Navigating this sea of complexities, the

Ethereum team has set sail on a sequence of

enhancements, collectively identified as Ethereum

2.0 (Cassez, F., 2022). The transformation of

Ethereum's consensus protocol from the labyrinth of

PoW to the streamlined Proof of Stake (PoS) (Saleh,

F., 2021) is anticipated to significantly escalate

network efficiency, reign in energy usage, and

amplify network scalability via avant-garde sharding

technology. This seismic shift not only holds the

promise to redefine Ethereum's operational

dynamics but also has the potential to carve deep

imprints on the canvas of the NFT ecosystem.

The focus of this paper is to unravel the

intricacies of the ripple effects Ethereum's

metamorphosis from 1.0 to 2.0 could cast onto the

blockchain-anchored NFT market. We adopt a

trident strategy: initially, we shed light on the core

issues of Ethereum 1.0 that are firmly rooted in the

PoW algorithm; subsequently, we take a deep dive

into the defining characteristics of Ethereum 2.0 and

its potential ramifications on the NFT market;

finally, employing a robust empirical approach, we

gauge the aftershocks of Ethereum's shift from the

PoW to the PoS paradigm on transactional tariffs.

Chen, Y., Fan, Y. and Tian, L.

From Ethereum 1.0 to 2.0: Implications for the Blockchain-Based NFT Market.

DOI: 10.5220/0012286800003807

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 2nd International Seminar on Artiﬁcial Intelligence, Networking and Information Technology (ANIT 2023), pages 515-519

ISBN: 978-989-758-677-4

515

2 DRAWBACKS OF ETHEREUM

1.0'S POW ALGORITHM

Currently, the prevalent method of issuing Non-

Fungible Tokens (NFTs) is based on Ethereum, and

the consensus protocol of Ethereum prior to the

Paris upgrade is Proof of Work (PoW). As depicted

in Figure 1, the PoW algorithm belongs to the class

of consensus protocols based on computational

power, where the entity with the most computational

power prevails. However, this characteristic imbues

PoW with numerous shortcomings, which have

become constraints on the popularization and

development of NFTs (Saleh, F., 2022).

Figure 1: The computational power competition model in

PoW.

2.1 Low Efficiency

  



  



  (1)

The PoW consensus protocol necessitates

significant node participation in competition

computing. Equation (1) describes the mathematical

logic of PoW mining. D is the target difficulty value.

All miners attempt to find the suitable nonce to

obtain a BlockHash close to D. With potential

benefits, more participants and computing power get

involved in the mining process, but only one node

can gain the right to package the block. The

calculation results of other nodes are wasted. This

leads to low efficiency in the blockchain system,

extended transactions confirmation time, and lower

throughput (Chen, Y., 2022).

2.2 Excessive Energy Consumption and

Carbon Emissions

As the computational power required for mining

grows, the energy consumption of Bitcoin and

Ethereum exhibits a consistent upward trend each

year (Gallersdörfer, U., 2020). This has raised

concerns about the escalating electricity usage and

its associated environmental consequences. The

mining process serves only one purpose preserve

choosing who ought to be rewarded. Therefore,

mining is regarded as a severe waste of resources.

Figure 2 shows the annual electricity consumption

of Ethereum from 2014 to 2022.

10-2016 08-2017 06-2018 04-2019 02-2020 12-2020 10-2021 08-2022

0.0

0.5

1.0

1.5

2.0

2.5

Monthly consumption(TWH)

Month

Figure 2: Ethereum's electricity consumption from 2014 to

2022.

2.3 Generation of Electronic Waste

Electronic waste refers to outdated mining machines.

The lifecycle of a mining machine is typically two to

three years. Although they can continue to work

after two to three years, the likelihood of "mining"

becomes meager. With the mining difficulty

coefficient increasing, mining with old equipment is

no longer feasible, as the cost of electricity cannot

offset the mining output. If the mining electricity

consumption C exceeds the mining revenue R, the

miners will discard the equipment. These mining

machines explicitly designed for PoW are discarded

and become electronic waste. Electronic waste in

cryptocurrency mining has become a grave concern

overseas (Jana, R. K., 2022).

3 ETHEREUM UPGRADES

Ethereum 2.0 signifies the enriched edition of the

Ethereum blockchain, aiming to amplify network

speed, performance, and scalability. The

enhancement, progressing through three stages, was

initiated with the Beacon Chain, which has been

operating for two years. The second stage, The

Merge, concluded on September 15, 2022, while the

final stage, Sharding, is predicted to conclude

between 2023 and 2024.

Ethereum 2.0 (London upgrade, August 5,

2021) enacted the EIP-1559 reform proposal,

changing transaction fees computation and

allocation method. Transaction fees are made up of

two parts: the Base Fee and the Priority Fee. The

former gets burnt, while the latter is awarded to

miners as an additional charge determined by users.

This design tries to reduce transaction cost volatility,

improving predictability and usability for users.





 



 



(2)

ANIT 2023 - The International Seminar on Artiﬁcial Intelligence, Networking and Information Technology

516

The Merge (ethereum.org), called the "Paris

upgrade," denoted a significant network update

executed on September 15, 2022. This event held

great importance as Ethereum transitioned from

PoW to PoS. According to Formula (2), in the PoS

protocol, the quantity and duration of staked coins

are factors in obtaining the right to mine. As shown

in Figure 3, the one who holds more ETH and holds

it for a longer time will win. The PoS algorithm

brings several benefits, including reducing energy

consumption and the cost of running the network. In

addition, it also enhances network security and

decentralization.

Figure 3: The stake-based consensus model in the PoS.

Ethereum 2.0 (in the future) will have a new

feature known as sharding technology, which

divides the network into smaller segments that can

operate simultaneously, thereby enhancing the

system's efficiency and capacity to process more

transactions concurrently. Moreover, sharding aids

in reducing network congestion, transaction

confirmation latency, and transaction fees.

4 IMPACT OF ETHEREUM

UPGRADES ON THE NFT

MARKET

The Ethereum upgrades, mainly the Paris upgrade,

profoundly impact the NFT market. This impact can

be evaluated from four perspectives:

4.1 Enhancing Performance and

Scalability of NFTs

Currently, Ethereum, based on the PoW consensus

protocol, can only support about 30 TPS [Kim, H.,

2021]. This cannot meet the needs of the NFT

market. Fortunately, Ethereum will adopt a new

consensus protocol after the Paris upgrade, which is

expected to significantly enhance network

performance and scalability. According to the

estimation of the Ethereum Foundation, the PoS

consensus mechanism can help Ethereum's

transaction processing speed reach hundreds or even

tens of thousands per second. This performance

improvement will enable the NFT market to

accommodate more users and handle more

transactions, thereby promoting innovation

4.2 Improving Security and Attack

Resistance of NFTs

Because of the PoW consensus protocol, the NFT

market is vulnerable to security threats such as 51%

assaults, selfish mining, and double spending (Li, X.,

2020). These attacks can negatively impact NFT

ownership, authenticity, and scarcity. However,

Ethernet's adoption of the PoS consensus protocol

after the Paris upgrade strengthens network security

and resistance to such attacks. Vitalik Buterin's

analysis suggests that the PoS consensus protocol

can resist over 67% of malicious validators (Buterin,

V., 2020), whereas the PoW consensus protocol can

only withstand over 50% of malicious miners.

Moreover, the PoS consensus protocol introduces a

penalty mechanism that penalizes validators who

engage in malicious behavior or go offline by

confiscating their staked tokens. This mechanism

incentivizes validators to remain honest and active,

ensuring the regular operation of the network.

4.3 Reducing Energy Consumption and

Carbon Footprint of NFTs

Formula (3) shows the linear relationship between

carbon emissions and electricity consumption.

Considering the substantial power consumption

necessitated by the PoW consensus protocol,

resulting in significant energy waste and carbon

emissions, the NFT market also encounters

environmental and social responsibility concerns.

Following the Paris upgrade, Ethereum will shift to

the PoS consensus mechanism, substantially

reducing energy consumption and carbon footprint.

As per the estimations by the Ethereum Foundation,

adopting the PoS consensus mechanism has the

potential to decrease Ethereum's energy usage by

99.95%. This implies a decrease in annual energy

consumption from approximately 50.6 TWh to

around 2.62 GWh. This reduction is equivalent to

decreasing the yearly electricity usage of a medium-

sized country like Bulgaria to that of a tiny town like

Harrisburg. Such a transition would facilitate the

development of an environmentally friendly and

sustainable NFT market.

     (3)

From Ethereum 1.0 to 2.0: Implications for the Blockchain-Based NFT Market

517

4.4 Lowering NFTs Minting Fees and

Transaction Fees

In Ethereum 1.0, the minting and transaction costs

for NFTs (often referred to as "Gas fees") tend to be

exceedingly high, posing a significant barrier for

artists and collectors. Exorbitant Gas fees make low-

cost NFT creations impractical, constraining the

development and popularization of the NFT market.

Ethereum 2.0, by changing the consensus

mechanism and introducing sharding technology,

dramatically enhances the network's throughput,

thereby reducing the Gas cost for each transaction.

Under the PoS protocol, validators no longer need to

perform high-energy-consumption hash calculations

to compete for packaging rights; instead, they are

selected based on their token holdings and duration,

considerably lowering transaction costs. This

suggests that under Ethereum 2.0, the minting and

transaction fees for NFTs will be significantly

reduced, allowing more artists and collectors to

participate in the NFT market, improving NFT

liquidity and market activity, and propelling the

development of the NFT market.

5 EMPIRICAL EVIDENCE

The transaction fees of Ethereum are the most

significant confusion for NFT creators and traders.

The minting and trading of NFTs must be stored on

the blockchain, corresponding to an Ethereum

transaction. This means that the transaction fees of

Ethereum determine the minting cost and transaction

cost of NFTs. We have collected data from

operational blockchain systems to compare the

transaction fees under the PoW and PoS consensus

algorithms.

We collected blocks 17691772-17691873 from

EthereumPoS and blocks 17491733-17491847 from

EthereumPoW and conducted data analysis on 100

effective blocks from each. EthereumPoS represents

the Ethereum main chain executing the PoS protocol

after the Paris upgrade, while EthereumPoW

represents the Ethereum fork chain executing the

PoW protocol after the Paris upgrade.

 





(4)

 





(5)

We collected Txns, Block Byte Size, Gas Used,

and Average Gas Price from the blocks of

EthereumPoS and EthereumPoW. Using Formula

(4) and Formula (5), we can calculate the

transaction fee per transaction and the transaction

fee per byte size.

Figure 4 reveals a significant drop in average

transaction fees after Ethereum's consensus protocol

transitioned from PoW to PoS, aligning with our

expectations. It is imperative to recognize that

within the context of the Ethereum blockchain

network, ETH, Wei, and Gwei are essential units of

measurement for the cryptocurrency Ethereum

(ETH). Serving as the most granular unit, Wei

represents the foundational measure, while Gwei, a

more substantial denomination, is frequently

employed to articulate gas prices, enhancing the

clarity of transactions. The interconversion among

ETH, Wei, and Gwei adheres to the following

relationships:

  



  



 (6)

0 20 40 60 80 100

EthereumPoW

EthereumPoS

Transaction Fee per transaction(1000000Gwei/TX)

Block ID

(a) transaction fee per transaction

0 20 40 60 80 100

EthereumPoW

EthereumPoS

Transaction fee per byte size(1000000Gwei/KB)

Block ID

(b) transaction fee per byte size

Figure 4: Average transaction fees for EthereumPoS and

EthereumPoW.

ANIT 2023 - The International Seminar on Artiﬁcial Intelligence, Networking and Information Technology

518

6 CONCLUSION

The upgrades to Ethereum 2.0 has profound

implications for the NFT market. After the Paris

upgrade, Ethereum transitioned from the PoW

consensus protocol to the PoS consensus protocol,

significantly enhancing the performance, security,

scalability, and sustainability of the Ethereum

network. Reducing energy consumption and carbon

emissions and decreasing electronic waste will allow

NFTs to regain moral commendation. We collected

blockchain data and empirically demonstrated the

significant effect of Ethereum's upgrades in reducing

transaction fees. These changes will have a positive

impact on the NFT market. The Upgrades of

Ethereum 2.0 provide more space and possibilities

for the NFT market, which will powerfully promote

the further development and innovation of the NFT

market.

ACKNOWLEDGMENTS

This work was financially supported by the Research

Capacity Enhancement Project of Key Disciplines in

Guangdong Province (2022ZDJS146), the Key Area

Project of Guangdong General Colleges and

Universities(2021ZDZX1075), the Young Innovative

Talent Project of Guangdong General Colleges and

Universities (2022KQNCX115), Natural Science

Project of Guangdong University of Science and

Technology (GKY-2022KYZDK-9, GKY-

2022KYZDK-12, and GKY-2022KYYBK-14),

Innovation Strength Engineering Project of Guangdong

University of Science and Technology (GKY-

2022CQTD-2, GKY-2022CQTD-4), and Quality

Engineering Project of Guangdong University of

Science and Technology (GKZLGC2022018,

GKZLGC2022029, and GKZLGC2022255).

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