This summer, the Ethereum blockchain will radically change the way it works. It will move from a proof-of-work system to a proof-of-stake system. Explanations.
This is probably the most anticipated event of this year by crypto investors. On September 19, the Ethereum blockchain, the most widely used “web 3.0” network on the planet, will change its operating method from a “proof-of-work” system, similar to that of Bitcoin, to a system “proof-of-stake”.
Concretely, a proof-of-work system is based on a set of decentralized machines called “miners” which are responsible for solving complex problems to mine blocks. A complex but above all very energy-intensive process, from which Ethereum wishes to detach itself to adopt a more “ecological” model.
The “proof-of-stake” system is by nature radically different since it is not based on the use of miners but of “staking pools”. Concretely, the network is no longer secured by machines but by “pools”, Ethereum reserves stored in specific places. If in the past miners were rewarded for their work with ETH tokens, now it will be the investors who will receive the rewards. To be able to participate in the program, one must either have at least 32 ETH tokens or create a “pool” with other investors, in which case the rewards will be shared between the different stakers.
This method not only drastically reduces the carbon footprint of the blockchain, but should also speed up transactions and drastically reduce transaction costs. During peaks, transactions on the Ethereum network could reach record amounts, and exceed 100 euros. The annual power consumption of the Ethereum blockchain is currently similar to that of a country like Finland. The transition to “proof-of-stake” should enable the network’s ecological footprint to be reduced by 99.95%.
Bitcoin, on the other hand, should remain on a “proof-of-work” model, which is older, slower, but which has nevertheless proven itself in terms of network security.
“Bitcoin and Ethereum serve different purposes” explains Chris Kline, the co-founder of Bitcoin IRA to Forbes. “Bitcoin is an asset available in limited quantities, Ethereum is the backbone of Web 3.0. Both have a distinct role.”
Several tests have already been carried out in recent months in preparation for the transition. Last June, the Ethereum network successfully passed its “Ropsten” network test. In August, a new test will take place, on the “Goerli” network. This is the last step before the final transition. And casually, the transition represents a huge challenge, as explained by the vice-president of Polygon. “It’s an upgrade on a network that is “live”, and has millions of users. Ethereum moves billions of capital every day and supports tens of thousands of applications. The transition of the network has been prepared for two years. All tests have been successfully completed, so I think they are more than ready for the transition.”
Nevertheless, the transition presents enormous challenges for Vitalik Butterin’s teams. As one of the employees of Cardano, one of the rival blockchains, explained to us recently: “The transition from Proof-of-work to Proof-of-stake is not so easy. It’s like wanting to replace four tires while driving at 200km/h.”
All this should of course have an impact on the price of the ETH token. After having come close to $1,000, the token has seen its price soar in recent days, again approaching $1,600. That is an increase of nearly 60% of its price in the space of a few weeks.
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