ETH Makes Change to Proof of Stake System

The Merge, which signifies the Ethereum blockchain’s transition from its initial proof-of-work consensus method to proof-of-stake, has occurred. All indications so far are positive. However, there are a few things Ethereum investors should be aware of.

Before September 15, 2022, Ethereum transactions were verified using proof-of-work (PoW). PoW is an energy-intensive crypto consensus method. And it depends on mining to verify new transactions, add them to the blockchain network, and generate new tokens.

In contrast, the proof-of-stake (PoS) mechanism relies on validators instead of miners to validate new transactions on the network. In this method, a validator is chosen randomly, partly depending on the number of coins they staked in the blockchain network. Anyone with a minimum of 32 ETH available to stake in the network can become a validator on the Ethereum blockchain. However, staking pools and cryptocurrency exchanges allow users to participate in the network with smaller amounts of ETH.

Ethereum’s transition to a Proof-of-stake mechanism makes the network more secure, less energy-consuming, and better for introducing new scaling solutions than the initial proof-of-work method.          

How Did the Markets React?

Even though the Merge went well, cryptocurrency prices declined by the end of the day on Thursday, with Ethereum down 5.5%.

Richard Usher, head of over-the-counter trading at the London-based cryptocurrency business BCB Group, said in an interview concerning the merge: “long in the making, it has thus far gone without a hitch. Given the enormous amount of option interest that has been opened recently, the short-term price action has been muted, and I believe that this will continue.”

“I believe that today marks a very important development in the usability of cryptocurrencies in the future. While it might not immediately impact BTC (Bitcoin) or other cryptocurrencies, it will support the development of all crypto assets moving forward,” he further stated.

The value of cryptos like Bitcoin has fallen in recent months, placing pressure on the erratic cryptocurrency market during what has been dubbed “crypto-winter.”

Usher asserted his profound belief that the Merge “will give weary investors confidence that the wider crypto assets have a place in their portfolios” when the broader risk markets begin to recover.

What The Merge Does not Do

According to the Ethereum Organization, many user expectations for the Merge simply weren’t in the original blueprint. Most importantly, the Merge would not significantly speed up the Ethereum network, and adding a transaction would still be expensive.

The Ethereum Organization claimed that nothing has changed “that directly influences network capacity or throughput,” despite a significant decrease in the processing power required to validate a block under PoS. The higher the network traffic, the more expensive gas is.

Therefore, apologies to those who hoped PoS Ethereum would reduce transaction costs—gas fees will still be costly. Expect block processing time to remain constant as the Ethereum network’s capacity and throughput remain unaltered.

Your Staked ETH is on Hold

This is probably the most significant but less talked about problem with the PoS merging. While individuals with at least 32 ETH in their wallets can stake, they cannot withdraw any of their staked money or any money they earn by validating blocks. But when? We don’t know exactly. Withdrawals are scheduled for the Shanghai upgrade, which is the next major upgrade after the Merge.

Ethereum’s stakeholders will have to wait for the Shanghai upgrade, which currently has no set date.

According to Bloomberg, the Shanghai upgrade won’t go online for at least six months (and that’s in 2023). But withdrawals will still be limited to prevent users from withdrawing an excessive amount of ETH at once.

P.S. After Ethereum switched to proof-of-stake, Gary Gensler, the chair of the SEC, said that proof-of-stake cryptocurrencies might be governed by securities regulations.

 Still curious? Find out more about Ethereum and other cryptocurrencies here on cryptogorilla.com.

Conclusion

Ethereum’s change to proof of stake is an excellent improvement to the blockchain. But you should know that it is not the fix to all of its problems.

I hope this article has equipped you with the vital info you need about Ethereum’s change to the Proof of Stake system.