Ethereum’s Switch to PoS Will Affect the Whole Industry

October 29, 2019, by Marko Vidrih on ALTCOIN MAGAZINE

The Binance exchange has conducted a study of cryptocurrencies based on the Proof-of-Stake (PoS) consensus method. According to its results, the capitalization of coins on PoS will double after the switch of Ethereum to this method.

The report notes that the market capitalization of the 10 largest cryptocurrencies based on PoS, taking into account the future accession of Ethereum, is $25.8 billion. This is about 10% of the total market capitalization. Moreover, if we exclude the contribution of Ethereum, which is the only planning to switch to PoS consensus, it turns out that the capitalization of such cryptocurrencies is $11.2 billion, of which $6.4 billion is used for staking.

Image source: Binance Research

Unlike the Proof-of-Work (PoW) method, in networks built using PoS, blockchain nodes confirm blocks without investing computing power. The PoS algorithm selects block validators depending on the number of coins on the node’s wallet. That is, they are blocked on the account, and the node receives a reward for confirming the block.

Among cryptocurrencies traded on Binance, Algorand, Tezos and Cosmos coins show the largest percentage of staking — more than 70% of the coins in circulation are used for staking. In projects such as Tron and Qtum, less than 25% of coins are staked on wallets to confirm blocks.

Researchers noted that PoS-based cryptocurrencies are suitable for passive investment, however, an investor needs to determine the profitability to risk ratio, as some projects have a lack of liquidity. In addition, the periods of staking assets in the wallet differ.

Earlier, Ethereum co-founder Vitalik Buterin said that after switching to Proof-of-Stake (PoS), the Ethereum network will become more secure than the Bitcoin blockchain, and the cost of the attack will be too high. The switch to a new algorithm in the Ethereum network is expected in January next year.

Author: Marko Vidrih