2018 is a big year for Ethereum. Let’s discuss why.
Ethereum works based on Proof of Work (POW) which means that you can mine Ethereum and get rewarded Ethereum for mining.
What is a proof-of-work system?
A proof-of-work (PoW) system is an economic security measure implemented to prevent denial of service attacks and other common service abuses like spamming. It is done by requiring the service requester to do some work, usually requiring processing power from a computer.
The concept was invented by Cynthia Dwork and Moni Naor as presented in a 1993 journal article. The term “Proof of Work” or POW was first coined and formalized in a 1999 paper by Markus Jakobsson and Ari Juels. An early example of the proof-of-work system used to give value to a currency is the shell money of the Solomon Islands.
A very important feature of these systems is that they’re asymmetrical. It means the work must be hard enough (but doable) on the client side but easy to verify at the service provider side. This scheme is also called computational puzzle, CPU cost function, CPU pricing function, or client puzzle. It is far different from a CAPTCHA, which is designed for a human to solve quickly, not a computer. The idea of Proof of space (PoS) also apply the same principle by providing proof of a certain amount of memory or disk space instead of CPU processing power. Proof of bandwidth and Proof of ownership (which aims at proving that specific data are in possession of the client) are among other approaches that have been considered in the context of cryptocurrency.
However, it’s going to switch and it’s going to end, so there will be no more mining for Ethereum.
It is going to get switched to POS which means Proof of Stake.
Proof of stake is when you stake your Ethereum, and get rewarded Ethereum. Proof-of-stake (PoS) is a kind of system by which the cryptocurrency blockchain network’s goal is to achieve distributed consensus. In PoS-based coins, the creator of the next block is chosen via diversified combinations of random selection and wealth (the stake) or age. Proof-of-stake variants of block-selection must have a way of defining the next valid block in any blockchain. Selection by account balance would result in (undesirable) centralization, as the single richest member would have a permanent advantage. Instead, several different methods of selection have been designed.
Proof of Stake currencies are way more energy efficient than Proof of Work systems, which mainly relies on computational power. At a bitcoin mining-farm, energy consumption totaled 240 kWh per bitcoin in 2014 (equivalent to burning 16 US gal or 61 L of gasoline, in terms of carbon footprint). Some have even predicted that Bitcoin will consume half of the world’s electricity several years from now!
Block-generator incentives are also different. Under Proof-of-Work, the generator may not potentially own any of the currency they are mining. The miner’s incentive is only to maximize their own gains. It is undetermined whether this disparity lowers or increases security risks.
In Proof-of-Stake, those “guarding” the coins are always those who own the coins (although several cryptocurrencies do allow or enforce lending the staking power to other nodes).
So what’s going to happen?
The minimum you can stake is 1000ETH, so not many people are going to be able to stake but let’s say you’re a very wealthy guy who have eight hundred Ethereums. What do can do is buy 200 more Ethereums in order for you to reach that 1000ETH requirement. And so you can stake them. The profit is going to be somewhere around 14% per year. So, many people are going to HODL Ethereum. Pools are going to open so if you hold three or four Ethereums, you can join these staking pools and you can actually get rewarded based on how many Ethereums you have. This project is called Casper. This has been in talks since the beginning of 2017 but it’s going to be implemented this year.Think about this common sense: If there’s going to be more people wanting Ethereum because you can steak it. In order for you to get more rewards, all you have to do is just go for more of it. A lot of people are going to buy more. A lot of people are going to hold more and it’s going to be worth it to hold it because you’re getting more of it for keeping it. If you had a few bitcoin, knowing that you’ll get more Bitcoin for holding it, you’re going to hold it. – Just the same idea. In that sense, Ethereum is going to naturally rise in price (but this is not financial advice, just my opinion).