Ethereum’s Switch to Proof of Stake – Better Than Proof of Work?

If you’re at least interested in the cryptocurrency space, you’ve probably heard of Ethereum. It’s currently the second largest coin by market cap, primarily because so many other tokens run on Ethereum, and partly because the development team is very talented.

Either way, this post is about the switch from POW to POS.

So, what is POW (Proof-of-Work)?

Well, POW is currently used by most cryptocurrencies including Bitcoin, Ethereum (for now) and Litecoin. If a coin is minable, that means it’s utilizing a POW system.

Miners use their GPUs or ASICs to solve cryptographic hash functions which verify the blockchain. GPUs primarily designed for gaming like the RX 580 are now being employed by miners.

Their GPUs are rapidly guessing and checking different solutions to a next to impossible math problem. When they successfully solve the equation, the ledger (blockchain) is updated and the miner receives a block reward in the form of a token and/or transaction fees.

This is called Proof-of-Work because miners are doing lots of work in the form of processing mathematical equations with their mining hardware. Without miners, many networks wouldn’t exist. Miners pay for electricity in exchange for tokens.

What is Proof of Stake and How it’s different

Proof-of-Stake is a bit different. Previously miners proved how fast they could verify the network; now, ETH holders will show how much they own by running something called a master node. When you create a master node, you have to lock up a certain amount of ETH to prove you own it.

Rewards are distributed based on how much you have locked away and how long it’s locked away for.  Instead of 1,000 miners verifying the network for example, there might be around 10,000 wallets holding Ethereum through Proof-of-Stake.

With POS, energy is conserved. Miners won’t have to consume loads of electricity to solve cryptographic hash functions which is good for our wallets and good for the planet. In addition, by locking up Ethereum, a scarcity is created which should drive up the price.

Of course, it’s not all sunshine and rainbows. It seems as though with this new system, the rich will get richer and the poor, well, they’ll still be poor. The new system rewards those who already have a lot of Ethereum because block rewards are now distributed based on how much you already have.

Furthermore, the ETH mining community isn’t going to be very happy when the fork occurs, as their mining hardware won’t be usable with Ethereum anymore. They’ll have to switch over to a new currency that is still minable.

I expect to see Ethereum Classic spike at this time, as I believe it will remain POW. It is also possible that a group of members in the ETH mining community will create a new currency that forks from Ethereum, possibly called Ethereum Cash.

If you’re currently mining Ethereum, it would be wise to find a new currency to mine. There are still plenty of options out there, such as Litecoin, Vertcoin, Zencash, and more.

This update has been in the works for a while now, delayed by problems such as wallet updates and some pushback from the community. However, the CEO and the brains behind Ethereum, Vitalik Buterin, is all for the switch to POS.  

Hopefully the switch won’t result in problems for the ETH community or network, as it is a big decision which completely changes the way the network is verified. With that being said, there’s no need to panic. The Ethereum development team knows what they’re doing. After all, they are the founders of the second largest cryptocurrency on the market.

Just like everything else, it’s wise to diversify yourself. Don’t invest everything in one coin; rather, it’s smart to hold a bit of everything. Further still, don’t pour all of your assets into crypto because it’s a very volatile environment.

If you’re currently looking to buy ETH mining hardware, I’d say go for it. If you do decide to make the purchase, understand you won’t be using it for much longer. When purchasing, make sure the card is able to mine other currencies profitably as well because you’ll have to look elsewhere in the future. Until then, try to rake in as much ETH as you possibly can!

Image Source: BlockGeeks

This is a guest post wrote by Jacob Tuwiner, the owner of EasyPC.