The transition of Ethereum from POW to POS – what will happen to mining. Can Ethereum become a security

September 19, 2022 should be a significant date in the crypto industry. It is on this day that the transition of the Ethereum cryptocurrency to the Poc (Proof of Stake) algorithm is expected. Expectations from this process are ambiguous. Some experts claim that the transition will solve the main problems of Ethereum and open up new prospects for the development of the network, others predict the end of mining and the depreciation of video cards. Time will tell what will happen after the transition of Ethereum from POW to POS, and for now it will consider the main differences between the algorithms and what prospects the alternative promises.


What is the difference between PoW and PoS

The PoW (Proof of Work) algorithm can be described as follows: if a user wants to perform a transaction, he transmits encrypted data to the blockchain network, which is checked on the miners’ computers. The computers then have to write this transaction to the next block.

To do this, you need to know the value of the hash function, which is found by iterating over the numbers. The miner whose computer turned out to be the first is rewarded with a certain amount of cryptocurrency. And a new block is added to the existing blockchain chain.

Modern miners must have huge computing power and incur significant costs for electricity and computer cooling. Therefore, mining has long been beyond the power of individuals. Large mining companies win. Manufacturers of video cards that provide mining also receive large profits, including due to the increase in the value of shares placed on stock exchanges.

В чем отличие PoW от PoS

Switching to the PoS algorithm actually means abandoning mining in the Ethereum blockchain. The winnings will be distributed among all network participants in proportion to the number of coins (tokens) they have.

What will happen after the transition of Ethereum to PoS

A significant advantage of switching to PoS is a significant acceleration of transactions and a reduction in transaction fees.

After switching to the PoS algorithm, the Ethereum network will split (fork). In parallel, there will be an old Etherium network running on the PoW algorithm, and a new Etherium 2.0 network running on the PoS algorithm.

After the fork ends, all assets from the old network will be duplicated to the new one. But their cost in the old network will be only a few percent of the original one. Since it is not known exactly how the fork process will take place, it is associated with certain risks for Ethereum owners.

The consequences for mining companies and video card manufacturers will also be negative. There are suggestions that they may take actions that could prevent the rapid spread of Etherium 2.0.

Ethereum v2.0

How to secure your assets when duplicating the network

Since the fork can be painful for individual users, it is better to take precautions.

In addition to the main Ethereum network, there are networks of the 2nd level: Arbitrum and Optimism. They were designed to speed up transactions. Some experts believe that the probability of force majeure during a fork for these networks is higher, and recommend transferring a significant part of assets to the main network, including from pools.

It is also recommended to cancel all bets on the popular Open Sea platform, where digitized works of art are sold in the form of unique tokens. If the payment goes through the old Ethereum network, sellers may lose funds.

Can Ethereum Become a Security

The attitude of states to cryptocurrency is ambiguous. Only in some countries (for example, Malta) cryptomonets can be used as an official means of payment. But, basically, government financial regulators don’t like the idea of losing control over financial transactions. Moreover, the profit from the sale of cryptocurrencies is taxed in any case.

In the United States, the head of the Securities and Exchange Commission has repeatedly stated that cryptocurrencies are similar to securities and should be regulated by relevant laws.

Although the issue has not been fully resolved, a number of coins (Ripple, Stellar, Zcash, Horizon) are now at risk. Financial experts believe that after the transition to the new protocol, Ethereum can join them. The probability of this is estimated as ~ 30%.

For the owners of Ethereum, such a development of events can be a collapse. Ethereum in this case expects delisting from 90% of decentralized exchanges, and its price may drop sharply.

So, although the creator of Ethereum Vitalik Buterin warmly supports the transition to a new algorithm, the consequences of this step are currently unpredictable. Holders of the crypt and those who use the Ethereum blockchain network need to closely monitor the process and, if possible, try to secure their assets.

Published: 13 September, 2022

Leave a Reply

Your email address will not be published. Required fields are marked *

Cryptocurrency and bitcoin earningsView all

Forex market and PAMM investments View all

Payout Comments

Inverstors-planet is a unique portal that tells about making money on the Internet. Articles, reviews, videos, ratings, news and other thematic materials are posted here. We talk about projects in the market Forex, HYIP, economic online games, earning bitcoins, making a profit without attachments and other directions. You will find information on the type of earnings you are interested in. The materials are regularly updated and supplemented. The portal provides a unique opportunity to order referral rewards that we receive for your investments or active actions. You have the opportunity to order referral bonuses in full without any restrictions. All information on the site is for informational purposes only! You must remember that investing on the Internet is associated with risks. Be extremely careful, make a decision consciously. Do not invest last or borrowed funds!

iInternet earning monitor «Refback service»

Investors planet: is a unique, developing portal that introduces you to Internet earning and gives you the opportunity to request a referral refund in full.

iUser agreement

All information on the site is for informational purposes only! Remember that investing in the Internet involves risks!