During the National Day holiday, in addition to watching movies and hiking with my family, I read project white papers at home. I read the white papers of the projects I am most optimistic about several times! I have a new understanding and cognition, so I share it with my friends!
In fact, I have been thinking about a question recently. What will happen if Ethereum, known as the noble chain, does not upgrade the POW proof-of-work model to the POS proof-of-stake model? Who is forcing Ethereum to make the current transformation?
If Ethereum stops changing, will it maintain its current market share? Or will it maintain a relatively high price? With these questions, we use the onion peeling methodology to gradually unravel the underlying cognition behind it.
First, let’s understand the basic concepts of POW and POS, which will help us understand how the industrial chain behind these two concepts that I will analyze later operates and makes profits.
What is POW?
"Pow" is the abbreviation of "Proof of Work", which is a consensus mechanism widely used in cryptocurrencies such as Bitcoin.
Proof of Work is a method of verifying the validity of transactions and adding them to the blockchain by solving complex mathematical problems. Miners solve these problems by using their computer power, and the difficulty of solving the problems is usually high, requiring a lot of computing resources and energy.
Specifically, miners need to find a hash value that satisfies a certain condition. This condition is usually that the hash value starts with a certain number of zeros. Miners need to keep trying different values until they find a hash value that satisfies the condition. After solving the problem, miners can send their proof of work to the network and be verified by other nodes. After verification, miners are rewarded with a certain amount of cryptocurrency as a reward.
The purpose of the Proof of Work mechanism is to ensure the security of the network and prevent malicious actors from attacking the blockchain network. Due to the large amount of computing power and energy consumption required, some people believe that the Proof of Work mechanism has problems in sustainability and efficiency, and promote the search for solutions, such as other consensus mechanisms such as Proof of Stake.
What is POS?
"PoS" is the abbreviation of "Proof of Stake", which is a consensus mechanism that replaces "PoW" (Proof of Work) and is adopted by some blockchain projects.
The Proof of Stake mechanism is a method of determining the next block creator based on the selection rights of the participants based on the amount of assets they hold. Unlike Proof of Work, PoS does not require miners to compete for the right to record accounts by solving complex mathematical problems. Instead, participants are selected to create new blocks and verify transactions based on the number of tokens they own (i.e., stake).
Some assets are available for proof of stake, such as Ethereum's ETH and the earliest EOS. Users who hold these assets can demonstrate their contribution and interest in the network by "staking" them (also known as "locking"). Depending on the amount of stake, the probability of a participant being selected will increase. The greater the option, the higher the probability of being selected.
After clarifying the above two concepts, it is obvious that the Proof of Stake mechanism has very obvious advantages over the Proof of Work mechanism, such as higher energy efficiency, better scalability, and reduced demand for specialized hardware, thereby lowering the threshold for participating in the network.
Next, let's go back to the above question. Why did Ethereum choose to upgrade to the POS proof-of-stake mechanism? To understand why? You must first understand what other public chains are competing in the same track besides the Ethereum public chain, and what advantages do they have over Ethereum! Currently, the more competitive public chains on the market include BSC Binance Chain, TRC Wave Field, SOL, etc. There are dozens of public chains competing. The above public chains have better tps, energy consumption, and scalability than Ethereum, and these public chains are still siphoning the blood of Ethereum ecosystem developers.
The current Ethereum underlying architecture is far from meeting the needs of developers, and it is difficult for WEb3 to achieve large-scale commercial applications! The handling fee is too expensive and the speed is too slow to support the needs of ecosystem developers. This is the underlying logic of Ethereum's choice to upgrade to POS proof of stake to regain the ecosystem today. If Ethereum stops moving forward, its market share will be slowly eroded by competitors. Without developers, the ecosystem is naturally a castle in the air. Today's EOS ecosystem is a precedent to learn from!
Above I have analyzed why Ethereum needs to be upgraded. Now I will analyze the opportunities that will be brought about after the upgrade is completed. After Ethereum switches to POS proof of stake, the entire ecosystem needs to operate collaboratively, and each miner node needs to pledge ETH as the denominator for sharing the work rights and interests.
At this time, the first opportunity for transformation and upgrading has come! It is the LDO pledge agreement. As long as the Ethereum ecosystem continues to iterate and prosper, the more developers there are, the larger the scale of the pledge agreement will be. The positive cycle is opened. At present, the market value of the LDO agreement is 1.4 billion, compared with the market value of Ethereum of more than 500 billion, there is still a lot of room for growth. You can use your imagination to imagine how big the market value will be in the future.
The above is the first opportunity I shared today after the Ethereum upgrade. Since the article is too long and requires too many words, I will share the second opportunity tomorrow, which may give rise to a hundred-fold opportunity.
The above sharing only represents personal opinions and does not constitute investment advice.
The bear market is an opportunity for ordinary people to turn over and cross the class! As long as you stick to the right path, time will give you rich rewards. If you don’t stick to it, you won’t be rich!
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