Bitcoin and other cryptocurrencies are having a really bad time: After hitting all-time highs at the end of last year, the situation is now dire and the accumulated losses are huge compared to those peaks. The economic situation, which is now more dependent on these virtual currencies than ever before, is not helping, but there is hope for at least some of these cryptocurrencies. This hope is called Proof of Stake.

What is Proof of Stake?. As we explained in a recent article, Bitcoin and Ethereum until now relied on a mechanism called Proof of Work (PoW). This system required a great deal of energy to solve complex mathematical problems with specialized hardware, but Ethereum has been planning the use of a very different mechanism called Proof of Stake (PoS) almost since its creation.

In this system, users verify their transactions based on the number of cryptocurrencies they own in the system based on their ‘stake’. This will have a direct consequence on the environmental impact of the Proof of Work system: it will decrease from 84,000 Wh consumed per transaction to approximately 35 Wh.

Ethereum ready. Everything is ready so that the Ethereum network and ETH token can make a full transition to this system. The first successful test has already been completed with a testnet called the Beacon Chain, which will allow the fulfillment of the “Ethereum vision” seeking “greater scalability, security and sustainability”.

Combining. This is the name of the transition from PoW to PoS mechanism. The good progress of testing on Beacon Chain – along with some other setbacks – means that this major transition will occur between the third and fourth quarters of 2022, according to those responsible for Ethereum. Vitalik Buterin stated a few weeks ago that this could happen. If all goes well, it will happen in August.

deflationary ethereum. Another consequence of this transition to the PoS mechanism will be the “Triple Halving”, which directly refers to Bitcoin’s “Halfways”. After the transition to PoS, ETH emission will decrease by approximately 90% due to the reduction in the amount of cryptocurrencies users will stake.

This event will be linked to a cryptocurrency “burning mechanism” called EIP-1559, in which supply and demand are controlled. These two events will likely make ETH directly deflationary, as noted on Twitter. Julio Alonso —Co-founder of Xataka and Weblogs SL — “indirectly increases the value of the company in the same way as the repurchase of shares”.

Leaving Bitcoin? Another potential consequence of this switch to PoS is to turn Ethereum into a platform that is much less connected to Bitcoin: when the value of one rises or falls, the other does it in parallel, but it is unclear whether both cryptocurrencies will continue. There are such ways. similar after this procedure. For Alonso, “Ethereum is independent from the rest of the industry, or its behavior determines, at least in part, the behavior of the entire industry,” making this platform more important than ever. Some claim even more than Bitcoin.