This process would aim to finalize the merger of the Proof of Work and Proof of Stake systems. As part of this conference, the lead developer of Ethereum, Tim Beiko, said that the merger between the two systems will take place on September 19 this year. Always specify that this is an indicative date because obstacles may appear throughout the process and slow down the event. This sets a precedent where Phase 1 of the ETH 2.0 program was scheduled for the second quarter of 2021, but has been postponed to the first quarter of this year. However, this was great news for the crypto ecosystem and the main reason for the rally we have seen.
What are we talking about when we talk about Proof of Work and Proof of Stake?
Both systems refer to how cryptocurrency miners work and how transactions are performed within the blockchain, which have their different effects on software and hardware.
This proof of work (PoW) is the mechanism used to regulate the creation of blocks within the blockchain. It has its advantages in that it decentralizes block creation through an algorithm, allowing miners to compete for the reward. When using this system, you need to have hardware equipment that can solve complex mathematical calculations, which are called mining platforms. However, this system has its flaws, it is not very efficient as miners will eventually have to invest a lot of time and money in equipment and huge amounts of energy to achieve profitability. Today, some companies have a lot of computing power and control more than half of the validation nodes. This puts the network in serious danger because in the event of a failure or attack, more than half of the nodes would be compromised, which would negatively impact the entire network.
For this reason, the Ethereum founders planned to switch to a new consensus mechanism called Ethereum Proof of stake. This replaces the block mining process used previously uff, Using validation to maintain network stability. This is possible thanks to the mechanism in which you can stop Assignment (we understand that staking freezes certain assets for x periods of time with the aim of obtaining already defined returns) having the right to create a new block and depending on the participation, one of the users will be elected validator. Once the participant has validated a block of transactions, other contributors can verify or confirm that the block is indeed valid. After obtaining a sufficient number of certifications, the network adds a new block and the rewards are distributed in the network’s local currency, ETH, on a prorated basis by each validator.
Returning to the markets, this surge was one of the factors that caused the general sentiment among cryptocurrency investors to stop being at levels of extreme fear. To complete this we use the following website which defines the index Index of fear and greed or in Spanish Fear and Greed Index (https://alternative.me/crypto/fear-and-greed-index/). The higher the score on a scale of 1 to 100, the less fear is as an overall sentiment of the cryptocurrency market. To arrive at this value, information is collected on the following topics: volatility, social media, market dynamics / volume, polls, bitcoin dominance over other currencies and trends.
Today this index is at 31, which represents moderate anxiety, while a week ago, the same index was at 15, which represents extreme anxiety. In the graph below we see a comparison of the evolution of this index over the last year:
Bitcoin and Ethereum are the two iconic cryptocurrencies in the ecosystem. And its ups and downs will always have a big impact on cryptocurrency investor sentiment. This moment is no exception, the mentioned event was one of the factors behind this surge of most cryptocurrencies.
Crypto and financial analyst at N&W Professional Traders.