Proof-of-Work vs. Proof-of-Stake
The proof-of-work is a system whereby one party (the prover) proves to others (the verifiers) that they have spent computational effort solving an arbitrary mathematical puzzle to prevent people from taking advantage of the system. Proof-of-work has been deemed unsustainable because of the amount of computational power needed in solving mathematical puzzles.
Proof-of-stake, on the other hand, is a consensus mechanism. It is different from the proof-of-stake mechanism in using an army of validators that validate incoming transactions and add them to the blockchain. A person can become a validator by staking coins which also means making the coins available to be used in the proof-of-stake process. It enables coin holders to monetise their holdings rather than leaving them idle in their crypto wallet. Under the proof of stake mechanism, the locked away coins are the validator’s incentive to not take advantage of the system.
Reasons Behind The Planned Move
One of the main reasons behind this move is scalability. The current Ethereum network can only process 30 transactions per second, but by carrying out this upgrade, the network could process up to 100,000 transactions per second, thereby removing all issues of delays and congestion.
Another reason behind this move is improved security. On average, proof of stake networks have a small set of validators which means a decreased network security, but with the new upgrade, the network would require a minimum of 16,384 validators.
Finally, the upgrade is in line with Ethereum’s plans on having a more sustainable coin. The proof-of-stake mechanism has proven more sustainable as it doesn’t require large computational power to process transactions.
- Implication on price
The successful completion of these points in Ethereum’s roadmap would push its price to newer heights. This is because scalability brings more usage, which would bring more demand, and this demand comes from a place of confidence in the security of the network on the part of the coin holders.
Also, more climate-conscious investors would be attracted to investing in the coin as a result of its sustainability.
What is “the merge”?
“The merge” combines both the current Ethereum Mainnet and the beacon chain proof-of-stake system. This will mark the end of proof-of-work for Ethereum and the full transition to proof-of-stake.