Beyond the Hype, What Does the Blockchain’s ‘Proof of Work’ to ‘Proof of Stake’ Shift Mean

Starting from September 6, Ethereum will radically transform. The blockchain will completely transition from its current energy-efficient Proof-of-Work (PoW) state to the 99.95% more energy-efficient Proof of Stake (PoS).

However, the second largest cryptocurrency, with a market cap of $ 192,894,011,946 and currently trading at $ 1,577, has been struggling to gain ground in recent times. It has dropped about 8% in the past week.

Of course, investors are experiencing anticipatory nervousness in the wake of this mega merger as the cryptocurrency community, especially PoW miners, are very divided on this. Furthermore, rising inflation rates globally and, consequently, increases in interest rates are pushing people to invest in less risky and conservative asset classes such as debt.

But how will this merger impact blockchain and crypto-verse in general?

Vikram Subburaj, CEO of Giottus Crypto Platform, says: “The Merge is the transition of the Ethereum (ETH) blockchain to the Proof-of-Stake (PoS) consensus mechanism, which will result in a net decline of 90% in the annual issuance of ETH. ​​In the short term, the merger could mean high price volatility of ETH depending on its success and the results it brings. ”

“But in the long run, however, this will make Ethereum a stronger crypto asset. The merger could lead to forked chains similar to Ethereum Classic (ETC) that split from Ethereum in 2016, “he adds.

What will change for ETH?

A lot of things. For one, there is about 99.95% less energy consumption coming. Then there is the speed. The current chain processes around 30 transactions per second. After merging, it will be equipped to accept 1.00,000 transactions per second.

This speed will be achieved through sharding. Look at it this way. If you have 10 official tasks to complete in one day, you would be overwhelmed. It is likely to slow down. But if you delegate five to others, you will have more hands working on it. Of course, the work will be done faster.

Right now, all transactions on the ETH blockchain are performed on a single blockchain, which has consecutive blocks. After sharding, there will be more chains running parallel. This will make scaling easier, which would result in more usage and ultimately demand for Ethereum.

Dileep Seinberg, Founder and CEO of MuffinPay, Bill Payment & Utility Crypto, says, “Ethereum’s successful adoption of PoS will demonstrate that such a massive system is capable of large-scale operation while consuming a minimal amount of power. This should encourage the development of even more ambitious Web 3.0 initiatives on the net. Miners will no longer need to solve cryptographic puzzles to validate new blocks once proof of participation is implemented. Alternatively, they will add ether tokens to a pool. Think of these tokens as lottery tickets – the right to validate the next block and associated prizes is yours if your token number is called. The market appears to be generally optimistic about the Ethereum transition and long-term potential. ”

However, there will be no reduction in transaction costs or gas commissions, contrary to the common assumption. Gas costs have often been a controversial issue for ETH users. Their prices had touched as low as $ 40 in May of this year. However, as of August 2022, it was $ 1.60.

Since transaction costs are a function of network demand and its processing capacity, nothing significant will change to that end. According to the Ethereum website: “The merger is a consensus change mechanism, not an expansion of network capacity and will not result in a reduction in gas tariffs.”

Even when it comes to processing speed, not many improvements are expected. Right now, ETH’s main PoS chain – Beacon – adds a new block every 13.3 seconds. After merging, it will only take 10% less time to do it. And since the speed on level 1 will remain the same, nothing is set to change as such.

What’s in store for developers?

It’s no secret that developers are flocking to Web 3.0 in droves. According to the 2021 Electric Capital Developer Report, the number of developers in space has skyrocketed by 80% since 2021.

Of this, ETH has the lion’s share, with 4,000 developers joining on average every month. The popularity is such that one in five developers choose Ethereum to start with. And they find these small updates in speed and processing time after merging insignificant.

“Currently, most decentralized apps (DApps) are based on the Ethereum blockchain. Being more energy efficient and faster, the number of projects on this blockchain will increase, thanks to the increased bandwidth. Furthermore, the so-called Ethereum killers could be under pressure as they could lag behind in attracting new and more projects, ”Seinberg notes.

What should investors do?

Not much, says Subburaj. “For now, investors should only hold Ethereum on a wallet or exchange that supports the merger and any new fork. All the coins will be automatically transferred to the new blockchain while all the new forked coins will also be issued to the investor. NFT holders are encouraged to keep their NFTs in private portfolios. ”

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