Staking a Claim in Ethereum’s Next Era
Cloudflare’s involvement with web3 began nearly four years ago with an IPFS gateway, followed a year later by an experimental Ethereum gateway. Those early bets were designed to help nascent internet technologies mature. Now, with web3 usage having surged over the past two years, the company is shifting its experimental focus toward the scalability and environmental problems facing blockchain networks.
The rapid growth of decentralized finance, NFTs, and DAOs has pushed traffic on major networks to unprecedented levels. But the consensus mechanisms underpinning many of those networks were designed in an era of minimal usage. Proof of Work (PoW) protocols, while highly secure, consume electricity in direct proportion to network activity. At the scale of today’s adoption, that inefficiency is no longer an acceptable trade-off. Acknowledging this, Cloudflare states it has not and will not run its own PoW infrastructure on its network.
The Computational Cost of Consensus
PoW secures a blockchain by requiring miners to compete in solving a cryptographic puzzle. A hash function takes an input x and produces an output y. While computing y from x is trivial, finding an x that yields a y with specific properties—such as a certain number of leading zeros—is computationally expensive and probabilistic. This deliberate difficulty makes it costly for any single actor to subvert the network.
That security, however, comes at a steep price. As the Cambridge Bitcoin Electricity Consumption Index showed, when web3 usage spiked in 2020, the Bitcoin network’s electricity consumption rivaled that of Switzerland (see the chart below). For most of the past decade, low usage levels made this inefficiency tolerable. Those days are over.
A New Experiment: Running Ethereum Validator Nodes
Cloudflare’s next web3 experiment is focused on the next generation of consensus protocols: Proof of Stake (PoS). Over the coming months, the company will launch and fully stake Ethereum validator nodes across its global network, participating in the community’s transition from PoW to PoS known as “The Merge.” These nodes will serve as a research platform for studying energy efficiency, consistency management, and network speed within PoS systems.
PoS replaces the computational race of miners with an economic incentive structure. Validators—entities that verify new blocks—must lock up a significant amount of collateral in a smart contract to demonstrate good faith. For Ethereum, that requirement is 32 ETH. Validators who follow the network’s rules earn rewards; those who violate them lose parts of their stake. This design encourages broad participation, and the more validators in the network, the harder it becomes for any bad actor to mount a 51% attack.
Once Ethereum operates on PoS, block creation works differently. Validators are selected at random to propose a new block. That block is then submitted to a committee of 128 other validators, who attest that the transactions are legitimate and the block is non-malicious. If deemed valid, the attestation is appended to the blockchain. Critically, this process lacks the heavy computational lifting of PoW mining, which results in a dramatic reduction in energy usage.
Early estimates from the Ethereum Foundation suggest the entire network could consume as little as 2.6 megawatts of power after the shift. In practical terms, that represents a 99.5% reduction in energy consumption compared to its pre-merge PoW state (see figure below).
The Significance of The Merge
The Merge is not a typical network upgrade. Previous Ethereum forks were enabled at specific block heights, meaning that once enough blocks were mined, new consensus rules applied automatically. The Merge, however, requires a single state root for the fork to occur. This root will mark the beginning of Ethereum Mainnet’s PoS history and is set at a specific difficulty rather than block height, a safeguard to prevent merging a high block with low difficulty. Once The Merge completes later in 2022, Ethereum will operate entirely without PoW.
Cloudflare’s participation is intended to support Ethereum’s infrastructure decentralization. By operating validator nodes from regions like EMEA, LATAM, and APJC, the company aims to add both geographic and network-layer diversity to the ecosystem. Running blockchain infrastructure at scale is a difficult engineering problem, and PoS systems introduce their own set of operational challenges that need time and testing to fully understand. These experiments are a starting point for that work.
