The transition of the Ethereum network to the updated Ethereum 2.0 has just overcome one of the last hurdles, with the Ethereum developers having successfully tested merging the proof-of-work model into a proof-of-stake model. This merger, which is expected to go into effect in June, is important and will bring numerous significant benefits to investors, the network and the industry.
What changes exactly will the merger bring that will be a big deal for cryptocurrencies and investors? Ethereum will undergo a triple halving event, making it so a deflationary assetwill offer staking rewards for investors they will potentially provide to high-performance and the energy efficiency of the entire network is set to become astronomically better as it gradually phased out mining.
Proof-of-work to proof-of-stake migration
Ethereum will move from a proof-of-work model that relies on miners to a proof-of-stake model that relies on long-term ether holders betting large amounts of ether to vote for the correct block validations with each creation. . Those who vote for bad blocks will have their Ether supply cut off, creating a robust and secure system.
When the network migrates, it will significantly reduce rewards for new blocks (by around 90%, according to IntotheBlocks estimates), creating an ecosystem where more ethereum is burned in gas tariffs than we create on a daily basis. This shortening of the supply causes the ether to become a deflationary activity versus an inflationary activityas it was before.
“People have been so excited about the bitcoin halving; merging is like dividing by two and a half. If the merger were just a halving of Ethereum, it would be the greatest cryptocurrency history and everyone would be talking about the next big bull market. “
The proof of the investment model will reward the holders of Aether (long-term ether holders who authorize the use of their tokens for network operations) with newly minted ether if their tokens are used by the network. While staking can be done actively, it is also possible to contribute to a pool managed by another person and passively earn ether.
While it is not yet known what the staking yield for the ether will be, estimates vary between 5% and 15%, with an average consensus of returns above the current CPI of 7.9%. At a time when most other investments offer negative returns, investing in Ethereum could offer positive real returns.
“Through the merger with the Proof of Stake chain, the fees previously collected by the miners will be passed on to those who participate. This should translate into staking rewards of between 7% and 12%, “IntoTheBlock wrote in a newsletter.
Energy efficiency and faster speed
By removing miners and adopting a proof-of-stake model, the Ethereum network will do so increase its energy efficiency by more than 99%. For investors and institutions who have long shunned due to energy and emissions issues with cryptocurrencies, the world’s second largest cryptocurrency is on the way. to offer an ecological solution.
In addition to becoming more energy efficient, the network will become faster overall when it implements sharding, whereby the entire Ethereum network is divided into blocks, called shards, in order to spread the load over a larger number of parts. This will increase the speed of transactions and help solve the congestion problems that the Ethereum network often encounters as a head office for DeFi, NFT and the like.