The transition of Ethereum to POS (Proof-of-Stake) has been in the community’s plans for a long time. A Year after the launch of Ethereum in 2016, ether creator Vitalik Buterin was already wondering about the benefits of POS on POW (Proof-of-Work) on his blog: https://vitalik.ca/general/2016/12/29/pos_design.html
So, today we decided to highlight this topic and see what changes it might bring.
Disclaimer: This article is not an investment recommendation. It is based on analysis of information from open sources for educational and entertainment purposes. DYOR and stay safe.
Pros of the mergeAccording to Vitalik, there are two main benefits of switching to POS that will undoubtedly elevate the Ethereum network to the next level.
1. Increasing network scalability by changing the reward paradigm and increasing fines for attackers. For example, in order to become a validator, you need to hold a certain number of tokens and to validate blocks, the validator constantly puts the size of his stake on the line. Thus, abuse of trust will lead to the complete loss of all funds in staking, disproportionate to the reward.
2. Positive dynamics will also increase the number of honest validators and reduce the negative environmental impact that POW has.
Big changes incoming?We finally made it to the moment when this transition is possible, after 5 years of preparing the network for it. The transition is planned for mid-September 2022, and before that, tests should take place in testnets to check the network’s performance. A recent event was the transition of the Goerli testnet to POS (August 11, 2022). https://blockworks.co/ethereum-steps-closer-to-pos-as-goerli-testnet-merge-goes-live/
SpaceSwap has also transitioned its contracts to the new Goerli network, making our infrastructure ready for the planned transition to POS along with the entire network.
However, such a transition does not please POW miners, since their services and equipment will become unnecessary. Some say that after the transition there may be a division of networks into 2 parts: the new POS network and the old POW. At the same time, your wallet and all assets (if they are there) will be in two networks at once.
This means that there is a chance to earn by selling assets from the POW version of the ETH network on those exchanges where they will be accepted (Poloniex, Bitmex, Gate, Huobi, OKx).
How to prepare?Though the transition may seem simple at first glance, the process may lead to some losses. Let’s figure out how to get ready for the event and not be left with a loss.
- First, withdraw assets to a wallet on the ETH network and register accounts on the exchanges listed above.
- Second, open positions on ETH by providing stablecoins or other assets as collateral.
- Thirdly, after the block on which the hard fork will take place, sell all assets from the network of the POW version.
The most popular misconceptions about the Ethereum mergeWe couldn’t avoid addressing the most common myths about the transition. Despite the merger promising a bright, mining-less future, the reality may be harsher.
1.) The merger will lead to lower gas prices.
True: Prices will remain the same;
2.) Transactions will become faster.
True: The speed will remain the same;
3.) Validators can withdraw staked ETH after the merger.
True: They won’t be able to for another 8–12 months;
4.) Validators will not receive any liquid rewards
True: Validators will only be able to withdraw fees and MEV earnings;
5.) When ETH withdrawal from staking is opened, everyone will exit the Ethereum at the same time.
True: Withdrawal is limited and will take several weeks;
6.) Profitability from staking will triple.
True: Profitability will increase by about 50%;
7.) The merger will bring the network to a temporary halt
True: No downtime is expected.
There are a number of possibilities that the merger of Ethereum may bring to the crypto community. The one thing you can know for sure is that it’s going to be big and, if successful, will lead to significant changes.