Ethereum is expected to transition from a Proof-of-Work (POS) based consensus protocol to Proof-of-Stake (PoS). Despite the delays, the development team behind the cryptocurrency is finally getting close to making the transition.
Ethereum is expected to make the official switch to PoS this year with an update, titled ‘the merge,’ which will join the Beacon Chain with the Mainnet. The Beacon Chain help enable the monetization of ETH via an exchange since 2020. While staking cryptocurrencies helps support the transition and earn interest on the stakes.
Co-founder of Crypto Trader and CEO of OnChain Capital, Ran Neuner in a comment to Kitco News stated:
Proof of work is very high electricity consumption, very high equipment consumption way of mining cryptocurrencies or proving transactions. And it is one of the big criticisms that Bitcoin faced.
After the merge occurs, graphics card miners are expected to no longer be useful for adding blocks to the Ethereum blockchain, due to the ‘difficulty bomb,’ a mechanism to remove the incentive of mining ETH in favor of staking.
The community has been discussing this transition since 2016 and gets pushed back every time. During the Ethereum Core Devs Meeting #124 on October 15, a proposal to push the difficulty bomb was discussed.
Neuner elaborated:
What they’re doing is they’re moving Ethereum from proof-of-work to a much more energy-efficient proof-of-stake. It’s much more energy-efficient and it’s much faster. The only issue is that somehow you have to combine the chains: the old proof-of-work chain and the new proof-of-stake chain.
The difficulty bomb exponentially increases mining difficulty at a certain block height, freezing the chain and forcing a hard fork. The difficulty bomb is now estimated to occur around June 2022. Many in the Ethereum community expect the transition to proof of stake to finally occur.
Once the transition occurs, it will become extremely difficult and destructive for miners who are currently mining Ethereum. Miners will have to transition their graphics cards to mine other coins that are much smaller than Ethereum but are less profitable with their equipment.
Neuner stated:
For a long time, ETH was devaluing against Bitcoin until about January 2020, and since January 2020 that trend has been completely reversed and we’re seeing ETH strengthen towards Bitcoin … For now, if you ask me if you’ve got a gun to your head and can only invest in one, Bitcoin or ETH? My money’s on ETH.
