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How Ethereum Transition To PoS Would Be Different From PoW?

The long-awaited Ethereum merge is approaching and recent developments on a potential fork of the ETH PoW chain have emerged.

Are you curious about this Merge?

This system has various features that might change your perception of Ethereum trading. For that, you need to understand these consensus mechanisms.

The consensus system PoW and PoS ensure the verification and regulation of the transaction process are to be added to the new block of blockchain ledger without any central authority.

Proof of Stake is a type that is used by blockchain networks for achieving distributed consensus. It needs traders to stake their ETH to become a validator. On the contrary, Proof of work is a type of consensus in which one proves to others (or verifies) that an amount of a typical computational effort has been expended.

How Ethereum Transition To PoS Would Be Different From PoW?

Bitcoin works on a Proof of work consensus algorithm. Contrarily, Ethereum uses a Proof-of-Stake consensus mechanism.

However, there are many emerging speculations around Ethereum’s transition to Proof of Stake and the future of the PoW chain. For understanding, let’s see how this transition is taking place.

Also Read: IT’S TIME FOR THE MERGE: ETHEREUM COMPLETES ITS LAST SHADOW FORK BEFORE TRANSITION

What is Likely To Happen During The Merge?

  • Merge will result in the transition of Ethereum from Proof-of-work to Proof of StakeStake. It is likely to happen on Sept 15.
  • The existing PoW merges with the Beacon Chain, PoS, into the new Ethereum Blockchain (PoS).
  • Staked ETH will only become withdrawable within 6-12 months after the Merge.
  • It will not increase throughput or decrease gas fees.
  • Ethereum’s issuance rate will decrease by 90%
  • ETH will become “more environmentally friendly” by switching from PoW, which consumes a lot of energy.

The transition has more intricacies, but the points mentioned above are the crux of what would happen. You can find more information by searching about Ethereum 2.0, although we must point out that the terminology “Ethereum 2.0” has since been dropped by the ETH foundation.

Also Read: AIMING TO LAUNCH THE NETWORK JUST 24 HOURS AFTER THE MERGE, THE TEAM BEHIND ETHEREUM’S POW FORK

What Would Happen To The ETH Miners After Its Merge:

It’s not like Miners’ work would be over, and they won’t be able to continue in this market!

Miners would have few options on the table, like shifting to other GPU-mined proof-of-work coins such as Ethereum Classic. Vitalik Buterin suggested that miners continued with Ethereum classic and called it “totally a fine chain.”

Also, they can go for Ravencoin. Miners could also use their hardware for other GPU-intensive activities, like machine learning or rendering farms. But, one option recently got attention: The potential fork of proof-of-work Ethereum, which will enable miners to do what they are doing.

What is Ethereum Proof-of-Work (PoW)?

How Ethereum Transition To PoS Would Be Different From PoW?

Think about who will not be excited about this Merge.

Well, like miners, maybe someone who liked PoW and invested a great deal of money in PoW.

According to reports, The Merge is estimated to be around $19 billion Ethereum mining industry and rigs. Ethereum miners are interested in putting their equipment to work elsewhere.

Although, Vitalik Buterin suggested they could go for Ethereum Classic (the original Ethereum) that the current chain forked away from.

However, this is not the plan of miners. For now, EthereumPoW is supposed to become a hard fork of the current chain, which would become PoS. This would make EthereumPoW the fork of a fork. The existence of 3 Ethereum chains is confusing, but EthereumPoW brings several problems.

What Are The Problems That Arose From ETH PoW Fork?

A hard fork breaks a blockchain into 2 different chains. In this case, ETHPoW and ETHOS. The fork would duplicate all the chain’s NFTs, tokens, and native coins. Even the liquidity on DApps would also be duplicated. For instance, if you possess 10 ETH, 10K USDC, and a liquidity provider position pre-fork, you would get the same assets on both chains after the fork.

Now, you think you can easily double your investment via ETH PoW. Right?

Yes, if it were that much easy.

You can double a network but not its value. If you make a copy of Wikipedia, you would have all the information but not the contributors adding or editing it.

Likewise, a PoW fork of Ethereum won’t have the community or developers and, more significantly, won’t have a stable coin or DApps issuers honouring their commitments.

In other words, your stablecoin on ETH PoW would instantly go to zero value. Your LP positions on money markets would instantly be drained of their liquidity for ETHPoW.

On the other hand, Oracles would be seen in support of Ethereum, not Ethereum PoW. Defi on Ethereum PoW would be dead on arrival.

Moreover, there are two more issues!

First, ETHPoW will retain some value, at least in the beginning. You can consider a fork like an airdrop of ETHPoW to ETH holders. But bots are likely to drain all the liquidity pools for ETHPoW and extract all the value in the ecosystem.

Some miners are getting behind ETHPoW in what has been considered a nefarious plan to dump on unsuspecting retail. Second, this entire plan shows the ugly face of crypto. That of self-interest and using uninformed users for exiting liquidity.

So we can say that Ethereum PoW would have to go through the toughest part, forking the chain again to get around the in-built difficulty of bomb-making mining unfeasible with time.

Can You Gain Profit From ETH PoW?

Maybe yes, or maybe no!

Yes, as users with Ethereum would have the same amount of ETHPoW after the fork. ETHPoW is trading at $69 on Gate.io, Poloniex, CoinW, MEXC, and DigiFinex.

This can be a nice airdrop, though you can expect a lot of dumping after the Merge is completed. Its worth would surely not be high enough to buy ETH just to get an “airdrop.”

But also No, as trying to clear the liquidity pools of the liquidity is an expert’s game and not one to e played by the average DeFi users.

Conclusion

So far, we have discussed major points about the consensus mechanism Ethereum used and will use in the future. This is a never-ending debate on the Ethereum transition of PoS; a new chapter has been added which prevails different questions.

Mufasa
Mufasa
Mufasa is the lead writer at CryptoMufasa who likes to share all the latest info on the crypto world with you! Mufasa Enjoys enjoys a good read and recommendations so don't forget to comment on the posts and let him know.

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