Amidst the anticipation of PC players, Ethereum's merger operation has finally arrived late, a full year behind Ethereum's initial timetable. After the merger is completed, Ethereum's ETH will shift from PoW to PoS, officially freeing itself from hardware dependence

Amidst the anticipation of PC players, Ethereum's merger operation has finally arrived late, a full year behind Ethereum's initial timetable. After the merger is completed, Ethereum's ETH will shift from PoW to PoS, officially freeing itself from hardware dependence.

Many netizens believe that the merger of ETH was a decision made due to external criticism and environmental pressure. In fact, ETH's PoS transformation had a clear plan at the beginning of Ethereum's establishment. Founder Vitalik Butlin has been promoting the PoS transformation process according to the plan. It is more likely that due to the impact of PoW, ETH's PoS process has been delayed for a considerable amount of time.

Note: Vitalik Butlin (Image source: Wikipedia)

With ETH officially transitioning to PoS, its mining is no longer tied to computing power, which means that many miners' graphics cards will no longer be able to participate in ETH's mining. On September 15th, when the merger was completed, ETH's entire network computing power and difficulty were simultaneously reduced to zero. PC players were finally looking forward to a historic moment of two years. With the completion of ETH's merger, the graphics card market and virtual currency market also began to experience drastic fluctuations.

So what is PoW? What is PoS? How will ETH be generated in the future?

From PoW to PoS

PoW, in fact, is the abbreviation of Proof of Work. When translated into Chinese, it is "proof-of-work"The earliest Bitcoin and the most popular ETH were both developed with PoW as the core. As is well known, a virtual coin is just a series of keys, which have no entity or equivalent. Therefore, a new voucher is needed to prove that you have indeed paid a certain price to generate this virtual coin.

How to prove it? The approach of Bitcoin is to provide a very complex calculation formula, allowing users to consume computer resources to calculate the formula answer. The reward for this answer is "Bitcoin". Many virtual currencies that have emerged since Bitcoin use the same proof method, such as ETH.

The advantage of PoW is obvious, as it effectively avoids trust issues and ensures that every virtual coin appearing in the market is truly generated, rather than being illegally generated by the issuer or cheaters.However, not all PoW virtual coins are trustworthy, and some virtual coin issuers quietly leave behind backdoors in their algorithms, so that a large number of virtual coins can be generated for profit after the price of virtual coins increases.

Image source: veer

The most famous example is the Chia coin, which took only a year to cool down completely from its popularity. The key reason is that the algorithm of Chia coin was found to have a clear backdoor, through which the issuer can directly control the quantity of Chia coins. This is the most serious dishonest behavior. The consequence of dishonesty in the virtual currency market is a sharp drop in the value of the currency, which was eventually delisted, and Chia coin is like this.

Another drawback of PoW is that it consumes a large amount of resources, such as high-performance computing chips, a large amount of power resources, and a large amount of precious metal raw materials (used to produce hardware), while consuming so many resources produces a virtual currency that has no practical significance for the real world. The PoW form of virtual currency has always been criticized by numerous environmental organizations, and many countries have also restricted and prohibited the virtual currency industry on the grounds of energy security and financial security.

With the deepening contradiction between the energy crisis, carbon emissions, semiconductor capacity and other issues, the virtual currency also needs to find a new direction to get rid of the dependence on PoW, which is PoS,PoS is fully expressed as Proof of Stake, which is a proof of equity (also known as a deposit proof).

What is PoS? for instance,ETH under PoW is a factory that emphasizes getting more for more work, and users must increase their workload in order to receive more compensation. ETH under the PoS mechanism is a joint-stock company, and the more shares held, the more profits can be obtained from the company's operations.

So how do we generate new blocks under the PoS mechanism? The actual process is relatively complex, so let's take ETH as an example. All users holding ETH are "validators" on the blockchain, and users holding more than a certain number of ETHs have the right to propose.

Users with proposal rights can use their ETH as a "deposit" to initiate proposals. After certain conditions are met, the proposal can be broadcasted across the network, inviting corresponding ETH holders to vote on the proposal. You can choose to agree or disagree with the block generation. After two-thirds of the voting users agree, the block will be finalized, All users participating in block voting will divide the ETH obtained by generating new blocks based on the amount of "deposit" they pay.

If someone initiates a malicious proposal to maliciously generate new blocks with a large number of nodes, the node will be destroyed after the other nodes vote for no trust, and the ETH pledged by the maliciously voted node will be directly destroyed. As the total amount of ETH decreases, the ETH value of other holders will increase, and the attacker's losses will be maximized.

Therefore, except for the malicious nodes held by the attacker, all other honest nodes will be willing to cast a no trust vote. Using this mechanism, it is difficult to complete a malicious attack unless the attacker holds more than two-thirds of the voting nodes. Even if the attack is truly completed and the blockchain is recognized, Ethereum can still intervene manually to delete cheating blocks and maintain community fairness.

However, manual intervention will lead to a crisis of trust in the ETH market, which will directly affect the market value of ETH. If the attacker's purpose is to obtain more ETH, then his attack will lead to his own ETH decrease and the overall assets shrink. In a real sense, the gain is not worth the loss.

Moreover, even if external forces want to carry out malicious attacks, the first thing they need to do is to acquire a large number of ETHs. Only by mastering enough nodes can they launch the attack, and the funds invested after the attack is completed are likely to be completely lost. It is difficult to imagine anyone investing billions of dollars in funds regardless of gain or loss, just to cause the ETH market to collapse.

The Impact of Ethereum PoS

What impact will Ethereum bring when it enters the PoS era? From the perspective of ETH users, they can now bypass the "miners" class and directly participate in the block finalization process, no longer relying solely on the rise and fall of ETH to gain profits. Moreover, the security of PoS will also be higher than that of PoW, and for ETH participants, a more stable ETH market also means better investment return prospects.

For PC players, as the main force of PoW, ETH has shifted to PoS, which means that miners no longer have a demand for graphics cards, so no one will bid up the price of graphics cards anymore. In the future, users can more easily purchase new graphics cards at normal prices.Although a large amount of computing power began to flow into other PoW virtual currencies after the merger of ETH, there is currently no virtual currency to replace ETH. Instead, the influx of computing power has led to a decline in the price of corresponding virtual currencies.

Because virtual currency itself has no value, its value comes from community consensus. To prove the value of your virtual currency, it is not just about having high computing power or a large amount of currency. It also requires sufficient community nodes to maintain consensus and provide trust guarantees for participants.

Moreover, PoW has a 51% chance of being attacked, so most new virtual currencies have shifted to the PoS mechanism, while virtual currencies under the PoW mechanism are gradually being abandoned due to issues such as difficulty for individual investors to participate and lower security (Bitcoin is an exception, and as a founding currency, Bitcoin's position is transcendent).

The transition from ETH to PoS can definitely be regarded as a milestone event in the virtual currency market, symbolizing the official shift of the virtual currency mainstream from PoW to PoS, and it is unlikely that PoW virtual currencies with a status comparable to ETH will emerge in the future.After all, the cost of investing a large amount of hardware is not low, and subsequent operations still require continuous additional costs. Why not invest these funds directly into PoS virtual currencies (such as ETH) and divide them equally?

The purpose of investing in virtual currencies is to generate profits. If there is an easy and fast way to generate profits, traditional PoW will naturally be abandoned, and the only player may be the mine owner who hoarded a large number of graphics cards in the previous mining boom. When only producers remain in a market, the market is not far from self disintegration.

So, most mine owners actually have only two options left: one is to switch to digging other virtual currencies and pray for the dug virtual currency to replace ETH under the debug of not making ends meet (the income is lower than electricity and other costs), and the other is to clear the graphics card inventory and use the money earned to enjoy life or purchase ETH as one of the nodes.

Anyway, the virtual currency market and graphics card market will all experience a new earthquake in the coming period.