Ethereum co-founder Vitalik Buterik said last month at ETHDenver that after seven years of R&D they have finally made proof-of-stake (PoS) compatible with the test networks. The programmer also said ethereum’s shift from the Proof-of-Work (Pow) consensus could take place in the next few months.
Proof-of-stake allows users of a blockchain network to validate transactions and earn rewards through holding stakes of the currency, in this case Ether (ETH).
Ethereum’s shift from PoW to PoS is seen as a faster and more serious way of securing a blockchain network, as the protocol does not require the use of expensive and energy-intensive mining equipment. The long anticipated shift to ETH 2.0 is also expected to lower transaction costs and supply while improving scalability at the same time. Buterin believes that the move to a PoS algorithm will help “bring ethereum to its final form.”
GlobalBlock market analyst Marcus Sotiriou told Business Insider that he expects “ethereum’s move to proof-of-stake to have a positive impact on price in the long term.”
“This is because it should dramatically reduce the cost of transactions on the ethereum network, which is currently ethereum’s main drawback.”
When sending a transaction on the Ethereum network, users are required to pay a fee in gas which are measured in nanoethe. The amount of gas a user needs to pay depends on the complexity of the transaction. Transactions with more steps or requiring more computer resources will require more gas.
It’s important to note that with the current PoW protocol, transactions are not guaranteed to be processed even if you include enough gas. Miners may choose to process other transactions instead.
Ethereum’s move to a proof-of-stake mechanism should improve network efficiency, relieve transaction congestion and reduce gas fees. These improvements are projected to give Ether a boost, which is another reason analysts are bullish.
“Number of transactions is highly correlated to gas prices. If we expect gas prices to fall, we can expect to see a pump in smaller-size transactions, increasing network utility and driving prices higher,” Amber Ghadder, founder of DeFi start-up AlianceBlock, said.
But in the short term, Ghadder doesn’t see any immediate increase capacity-wise in the network from the shift that will give validators the responsibility for processing transactions, so its direct effect on gas prices could be muted.
“We can expect the launch of ETH 2.0 to be short-term neutral and long-term bullish,” she said.
ETH was last changing hands above $2,640, down about 1% on the day. In the last seven days, the digital asset has lost nearly 5% of its value.