What is the difference between Proof of Work (PoW) and Proof of Stake (PoS)? Will the merger create a new fork? What will be the role of stablecoins in forking? We have collected the answers to all these questions in one article.
The Ethereum merge, which has been highly anticipated recently, continues at full speed. The Ethereum Mainnet will merge with the Beacon Chain Proof of Stake system with this merger. At this point, Beacon Chain, also known as Beacon Chain, coordinates the network by acting as a consensus layer.
Thus, Ethereum will transition from Proof of Work (proof of work) to Proof of Stake (proof of stake) as its working principle. The Ethereum Protocol support team shared the details of the Goerli/Prater merger in a blog post they published.
According to the shared information, the Goerli and Prater networks will merge for the final testnet migration of Proof of Stake. It was stated that these two networks will operate under the name Goerli after the merger. Once Bellatrix is activated, the Goerli/Prater combination will be complete. This completion is expected to take place between 6-12 August. It is stated that the transition and merger from Proof of Work (PoW) to Proof of Stake (PoS) will be completed on September 19.
First of all, let’s share the differences between Proof of Work and Proof of Stake for those who don’t know. Proof of Work, which we usually see on the Bitcoin network, takes advantage of processing power and computation, while Proof of Stake focuses on asset ownership.
If you remember, we mentioned to you that while Proof of Work is expected to be replaced by Proof of Stake in Ethereum, validators are rewarded with interest for their holdings of at least 32 ETH. This interest scheme, which Ethereum uses to turn individual investors into validators, can also be realized through pools.
This revenue share system, which is introduced with Proof of Stake, becomes operational when users lock their assets. These assets cannot be withdrawn from the wallet until they are unlocked. However, it is marked on the network as the user’s share.
In short, the Proof of Stake protocol allows users to get a share of the revenue by confirming transactions. With this method, users create new blocks in the chain while performing transactions as validators.
As a result of the transition to Proof of Stake, Ethereum will have transitioned to a more sustainable and environmentally friendly structure in terms of energy use. However, wallet owners will be able to withdraw the ETH they have staked so far, that is, locked. However, it should be noted that locked ETHs cannot be liquidated immediately after the merger. The team states that it will undertake a cleanup after the merger.
It is planned to assign Validators who lock their ETH in their wallets to validate the Ethereum Mainnet after the merger. However, it should be noted that after the merger, the need for mining will disappear. Here, it is thought that miners will start locking their earnings to the new Proof of Stake system, namely the Beacon Chain.
Still, some miners may want to stay on the PoW version. In this case, it is possible for miners who want to stay in the PoW version to create a new fork as a minority. However, the economic value generated in this fork is likely to be lower than the operating cost.
If you remember, an attack on The DAO in 2016 led to the long-term fork of Ethereum as ETH and Ethereum Classic. Currently, ETH is trading at $ 1,698.28 while Ethereum Classic is trading at $37.15.
In the meantime, it should be noted that miners who do not want to throw away their devices, which they bought with large investments, have switched to Ethereum Classic. With this transition, there has been a significant increase in Ethereum Classic hash rates in the last 1 month.
The Role of Stablecoins in Forking
In addition to all these, when we look at the current statements of Vitalik Buterin, we come across the prediction that USDC and USDT will play a decisive role in the bifurcation. Speaking at the BUIDL Asia conference, Buterin stated that if chain USDC and USDT qualify as Ethereum and stay on that chain, the chain it stays on will be more functional.
Buterin used the following statements on the subject:
“Because at this point cryptographically there will be 100 billion USDT on one chain and 100 billion USDT on the other chain. So Tether should stop respecting one of these chains.
Along with this statement, Buterin stated that there will be no such contention in the upcoming merger of Ethereum. Buterin said that central stablecoins are more of a concern for future forks.
According to Buterin, in the next 5 to 10 years, Ethereum will see more forks. The role of central stablecoins in these forks will become even more important.
However, it is currently not possible to make realistic predictions about exactly how the fork will affect Ethereum prices. We will have the chance to see how all these issues will take shape after the merger.
In the meantime, in order to better understand the merger, it may be useful to examine the content in which Vitalik Buterin describes his plans for the Merger in 2021.
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