Ethereum price can benefit from moving to proof of stake. Changes will happen from the way the currency is mined to the way the blocs are validated. Our article today will try to provide a simple and concise explanation of what will happen and most importantly, how it will reflect on Ethereum price.
To understand how Ethereum price will react to this upgrade and why it might be a positive catalyst for Ethereum price, we need to understand the difference between Proof of stake and Proof of work.
How Ethereum price can be impacted by the future Proof of State
This infographic from Blockgeeks illustrates quite well the idea of how the two work and how they differ. We have also covered this difference as part of the Ethereum Metropolis upgrade. In fact, this Ethereum conversion from proof of work to proof of stake is a major component of Ethereum’s roadmap to better scalability.
Basically, the difference between the two is that proof of stake removes the requirement for miners to solve complicated algorithms in order to get rewarded. This reduces significantly the energy needed to mine each Ethereum coin.
On the other hand, proof of stake requires miners to hold a certain amount of Ethereum or whatever coin they are mining in a way similar to Dash’s Masternodes.
Important: This along with the info-graphic above should clarify how Ethereum miners will not be put out of work as expressed in some articles. The process will be different and that’s all.
This is when things might get interesting for Ethereum price because now miners are required to hold a certain amount of Ethereum called a minimum stake to be able to get their transaction fee. What this will do is decrease the amount of Ethereum available. In short, the scarcity of the Ethereum available will boost the price.
Risks Ethereum price might face
Risk # 1 is common to all Cryptocurrencies especially if there is a software upgrade. That risk is Security breeches be it to the currency or exchanges. This is even more relevant when there is a software upgrade.
Risk # 2 is what if miners don’t embark on this? Time bomb and increased mining difficulty will likely prevent that. You probably read in some news outlets how Ethereum is a ticking time-bomb. They paraphrase it in that sensational way but unfortunately they do not explain objectively the true purpose behind Ethereum time bomb.
Ethereum’s mining difficulty is set to increase steadily over time. This process will be accelerated once Ethereum Casper upgrade (to upgrade from PoW to PoS) is launched. Therefore, mining on the old chain will be unprofitable and miners will switch to other coins or follow the upgraded chain.
The new chain (Ethereum on Proof of Stake) will offer a much faster block time and that should be an incentive for everyone to switch as well.
To conclude, Ethereum’s mining process will change. This will make mining easier and require less energy therefore sustainable. To mine Ethereum, a minimum stake requirement will have to be agreed upon. The whole process will make it so that holding Ethereum is the most profitable way to go for the projected scarcity as well as the requirement for “mining”.
So for those considering mining Ethereum in the future, it might be a good idea to start accumulating some Ether ahead of time and on dips of course in order to qualify.