Vitalik Buterin has been constantly talking about how he envisioned the Ethereum blockchain as a PoS consensus platform. But at the time of launch, this algorithm had not been worked out and was unstable. Therefore, he chose PoW technology. But now the developers have already launched updates, the purpose of which is to change the Ethereum algorithm to PoS. Analysts unanimously claim that this will lead to a strong increase in the ETH rate and possible flipping. Why does PoS affect the price of a cryptocurrency?

Features of the algorithm and the impact on the price of ether

 

The PoW algorithm provides for the solution of complex mathematical problems by miners. The blockchain participant who finds the answer first gets the right to join the block to the chain. That is, it is he who takes the reward for this action. 

The disadvantage of this approach is that it takes a lot of electricity to maintain the blockchain, and crypto farms generate a huge amount of heat. This causes significant harm to the environment.

PoS consensus or proof of ownership is a way to form a blockchain, for which it is enough to have a certain amount of cryptocurrency in the account. For ethereum, you need to block ether coins on your wallet. Coins act as collateral, and are also withdrawn if the validator violates the established rules.

The obvious disadvantages of the PoW consensus forced the developers of Ethereum to accelerate the transition to the “proof of ownership” algorithm. Several factors contributed to this:

  • firstly, a significant increase in the load on the ether blockchain due to the growing popularity of this platform among users;
  • secondly, high commissions in the ether network, which users are forced to pay for speeding up transactions in the system;
  • thirdly, increased pressure from the public, which is fighting for the abolition or reduction of mining harmful to the economy.

Ether is already considered a greener currency compared to BTC. More transactions are packed into one block, that is, each of them leaves a smaller carbon footprint. However, after switching to PoS, energy costs will decrease by 99%. That is, the crypt will become one of the most “environmentally friendly”.

Changing the Ethereum algorithm to PoS will contribute to the growth of the ETH rate against other currencies. The process started in December 2020. It is expected to be completed within 2022. Already, the PoS chain is working, and it also allows validators to earn money by staking.

But in order to receive income from storing crypto, you need to freeze the amount of 32 ETH in the ETH2 network and profit from it after switching to the protocol of the second version. The amount of the reward will depend on the number of validators at that time.

Now investors have a chance to buy ether at a relatively low price and profit from the growth of the exchange rate after switching to Ethereum 2.0.