In this episode of Understanding Crypto, James Burtt and Paul Abercrombie describe Ethereum’s preparation to transition to proof of stake. According to Paul, the switch might be advantageous for Ethereum because it would speed up transactions and increase energy efficiency. However, they also think that the changeover would eventually affect the security of the network. They discuss whether the mining sector is prepared to make the required adjustments to ensure its continued existence following the transition.

What is P.O.W. and P.O.S.?

Paul and James explain the differences between proof of work (POW) and proof of stake (POS) as well as the implications of this transition. Proof of work is the foundation for blockchain construction. James explains that it is simply a duplicate of the ledger, which uses a lot of processing power. Alternatively, proof of stake, which forms the basis of several other blockchains, replaces the nodes with validators who verify any existing transactions. This procedure necessitates a more hands-on approach and rewards or penalizes the performance of the validators on the network. [Listen from 2:30]

The Compromise: Speed or Security?

Ethereum, a cryptocurrency that was initially designed with proof of work in mind, is currently transitioning to proof of stake. Both James and Paul concur that this decision has many advantages and limitations. “So in this trifecta you've got decentralization, speed, and security. If you bring something more centralized, you can speed up the performance of a blockchain, but then you compromise security," comments Paul. Although switching to proof of stake on Ethereum will ultimately increase transaction speed and energy efficiency, security will be significantly jeopardized. "It's using 90% less energy, but actually some of that security could be questioned. Nobody really knows how that's gonna play out, when that merge happens, whether the following day will be the biggest hack." [Listen from 6:41 ]

According to James and Paul, the entire main network will be affected by the change, and as a result, many people are currently calling for the establishment of an Ethereum proof-of-work fork, which is merely a blockchain with a cloned source code. Paul makes broad projections while James asks about the current market volatility. “So every time there's been a good announcement, it shoots up. If it fails on account of a technical issue on the first day of the merger, the price will fall." They debate how this modification would impact the mining industry, which has made significant investments in GPU mining equipment. According to Paul, creating a hybrid crypto mine that adheres to both validator and mining principles could prove beneficial. However, they note that many miners don’t believe Ethereum’s shift to proof of stake will happen, despite the network publishing a proposed date for the shift. [Listen from 11:19 ]

Key Takeaways:

• Although switching to proof of stake on Ethereum will increase transaction speed and energy efficiency, security may be significantly jeopardized.

Resources

James Burtt on Twitter | LinkedIn | Instagram | Clubhouse

Paul Abercrombie on Website | Twitter | LinkedIn | Instagram