Ethereum Proof of Stake explained

So you might have heard that Ethereum is considering changing its distributed consensus system to something called proof of stake. Here, we will try to explain what this is as well as how it may affect you.

Ethereum logo 2014.svg

What is Proof of Stake

To truly understand proof-of-stake (PoS) it is easier if we also explain the current system being used by Ethereum, and that is proof of work (Ethereum Mining). So basically when Ethereum is transferred, miners group that up into a ledger called a block chain and to do this they have to solve a puzzle. In creating this blockchain, a lot of computational power is also used. The amount of reward you get for creating a blockchain is a transaction reward. However, this depends on how much work you ie. how fast you can calculate and solve the puzzle.

So this is all going to go away once proof of stake comes along. With proof of stake, you don’t actually solve any puzzles. You remove the puzzle solving element from the system and thus change the way the reward is distributed. So instead of proving how fast you can calculate with hashrate, you need to prove how much Ethereum you own. You do this with something called a master node. When you create a master node, you have to lock up a certain amount of Ethereum to prove that you have it and rewards are distributed according to how much proof of stake you have. One can create multiple master nodes with a lot of Ethereum inside and you’ll earn more through this method.

How does this affect me?

So that’s going to be extremely interesting for everyone. We’ve seen proof of stake currencies before. Dash is one example where 50% of the rewards is done by mining and the other 50% is done by proof of stake. And there is PIVX which is 100% proof of stake. The advantage of proof of stake is huge. One benefit is that you no longer have to do the calculations which mean you save a lot of computational power. Another one is that you actually lock up Ethereum. By locking up Ethereum you effectively create more scarcity which means the price should go up.

So hopefully, it’s going to happen sometime this year. To do so, the people in charge of Ethereum have to make sure the code is ready and stable. And they also have to make sure they have the support of the miners. That’s going to be an interesting thing to see in the coming months because if the miners don’t support this move then what can happen is that it might break up Ethereum again just like last year.

But there are mechanisms to help along this process. Ethereum actually has kind of a ‘time bomb’ that would blow up if the switch is not made. The switch has always been planned and it’s in a sense been hard coded to happen sometime so that’s kind of interesting to see how this will progress.

Miners also do not need to worry they will be without a job. There are other currencies that can be mined with the current hardware. For example, if you use AMD GPUs, you can start mining Zcash which is also extremely profitable right now. So I do see this as being very exciting for everyone.

What is Ripple and XRP

Ripple has grown explosively over the past few weeks. In fact today it grew almost 35%. it is one of the biggest gaining currency of the day and I want to share with you guys what Ripple is.

 

Ripple company logo 2015.png

Protocol vs. Currency

So lets start off with one confusing factors. So I must make a distinction between Ripple the transaction protocol (which is used between banks and other businesses) and the ripple issued currency, XRP. When you see Ripple making gains its actually the XRP, the currency that is issued by Ripple, that is gaining. And this is actually quite different from the network protocol or Ripple protocol. Both share the same name and I’m sure this has definitely confused a lot of investors.

Ripple Protocol

So lets start off with the transaction network known as Ripple. So the Ripple protocol is based on technology that’s similar to blockchain but not completely the same. It doesn’t require any mining and its based on a consensus network instead of being consumer-facing which is what Bitcoin is. Basically, it’s for the everyday person.

Ripple is exclusively used by big institutions such as banks. The whole idea of Ripple is to allow banks to transfer any sort of asset, be it currency, USD, Euro, gold, or any other asset such as airmiles. You can transfer that between other institutions near instantaneously. This rivals systems such as swift. So if you ever bought Bitcoin with bank transfer you will know how painful that is. You have to contact your bank and send the transaction to a swift bank code account and this might take up to two to three days and theres a lot of transaction fees involved for both the sender and the receiver. Ripple is set to revolutionise this by providing near instantaneous, sub-second transactions for institutions such as banks. It’s already been adopted by quite a few big banks and

XRP – Currency of the Ripple Network

So now that I explained what is the Ripple transaction protocol, let’s move on to Ripple XRP. XRP is actually issued by Ripple Labs and is a form of cryptocurrency that can be traded and it’s not “mined”. So there is a finite number of ripples and that amount is actually issued by the company behind Ripple called Ripple Labs. Currently, it is freely tradable on numerous exchanges such as Poloniex.

XRP by itself has no underlying related assets or values eg. Its not tied to USD or gold. Rather, it can be used to act as an intermediate currency in institutions. It has one huge advantage in that transaction costs are very, very low (unlike Bitcoin, which is now reaching 1.5 usd in transaction fees).

Concerns about Ripple

So moving on, XRP is currently only issued out at less than 40% of its total. The remaining amount (minus the 20% retained by the creators of Ripple) is held by Ripple Labs to distribute whenever and however they so wish. This is actually kind of interesting because unlike a lot of decentralized currencies, Ripple Labs plays a huge part in distributing XRP. Ripple Labs is actually a company and this is very different from Bitcoin, where Bitcoin is fully decentralized and doesn’t have a central controlling authority. Ripple Labs is registered in many countries and it could be sued and held under police custody. This is again very different from other technologies.

 

So that’s a little information regarding the Ripple protocol and XRP. I’m sure this may be a little bit confusing for some people and since the technology and the currency share the same name it could be misunderstood. I hope this clarifies a little for you about what Ripple protocol is and what XRP is.

Segwit in Easy to Understand Terms

Now that Segwit has been locked in for Litecoin. it’s about time to take a closer look at what Segwit is and how it improves Litecoin. Here is a very brief introduction of what Segwit – it is please forgive me if it’s a little bit too simplistic but I want to try to summarize it in very easy to understand terms.

Segwit Logo

What is Segwit?

If you consider of Bitcoin miners as accountants that process all the transactions that happen on the network and bundles them up into a ledger called the blockchain. Then the Segwit is a change to the ledger.  Think of it as a tax form.  It’s the act of removing of a signature from the form and placing it into a separate form. That’s all it is. Segregation of witness – the removal the signature on a form and placing it elsewhere. By taking out the signature, you create addition room on the ledger to fit more transactions.

Why Adopt Segwit?

Segwit is vital for the Bitcoin network where transactions are taking a long time because there isn’t enough room on each ledger (block) to place all the transactions. Litecoin doesn’t have this problem. Instead, Segwit was adopted to allow for technologies such as the Lightning Network.

Segwit is a technological upgrade, and I can see why miners will go crazy over this. Especially when miners are the ones who decide to adopt this or not. Consider like an association of tax accounts trying to approve a new form. Accountants don’t like each other already, and the must all agree on a substantial change to a tax form. It turns out for Litecoin it was possible to persuade the miners to agree with each other, whilst for Bitcoin, it’s not yet possible as there is much more drama.

The Post-Segwit World

Now that Segwit is locked in for Litecoin, there are substantial changes in currency price (generally in the upward direction). Of course, must take this with a slight grain of salt. Litecoin prices are susceptible to financial manipulations such as the good old pump and dump.  Litcoin is getting a lot of media attention. This means there will be a lot of new investors that still don’t understand the consequences of Segwit or how Lightning Networks work. Some will overvalue it while others are indifferent. The most important thing is to understand what Segwit is and learn more about the Lightning Network.

Genesis Mining Ethereum – Proof Of Stake

The Ethereum network is set to eventually not need mining anymore. The question then is what happens to Genesis Mining Ethereum Contracts. The contracts currently are set for 2 years, and if Ethereum adopts Proof Of Stake (a system of verifying transactions without mining) there is a worry that the contracts end prematurely. We contacted Genesis mining regarding this issue, and here is the response:

If I buy Ethereum contract today and the Ethereum network goes full proof of stake next year. What happens to my 2-year contract

Thank you for contacting us.
The Ethereum team would like to switch to PoS for sure, however, it is uncertain if PoS is safe enough, and it is technically possible to implement. Therefore, no one knows how long it might take if it happens in the end. PoW and PoS could even be run in parallel for a while. In any case, GPUs are very flexible and can be used to mine various algorithms and coins such as XMR, ETH and ZEC. In case Ethereum actually switches to proof-of-stake, we will do our best to make the most profitable GPU-mined coins available to our customers.
Best regards,
Sandy
Genesis Mining Customer Service

Conclusions

The official response establishes two things. Firstly, it points that that Ethereum will not discard the current mining system immediately. Both systems, Proof of Stake (PoS) and Proof of Work (PoW) will co-exist for a while. This means mining will still be valid and used to secure the network during the transition. More importantly, if eventually, Ethereum doesn’t use Proof of Stake entirely, Genesis Mining would allow contract owners to switch to mining other Coins. This is because the underlying hardware (Graphics processors) can be used to work different algorithms like Monero or ZCash.

Ethereum Mining Profitability

For information about Ethereum mining Profitability and Return on Investment, check out the Ethereum Mining Guide. Genesis mining currently has ether mining contracts on sale.  Remember to use the Promotion code “6bXKwD” to get a 3% off discount coupon!!

DASH Mining is Out of Stock !

The Global DASH mining shortage (X11 Algorithm) has hit Genesis-Mining. Even the smallest DASH mining contracts are out of stock, including the smallest 5 MH/s Plan. This is most likely due to the extreme popularity of the Dash mining plan, as it generates has the highest possible return on investment of all the plans.

Dash Genesis Mining Out of Stock
Dash Contracts are Out of Stock on Genesis Mining

Official Statement

We contacted Genesis Mining customer support for an official statement:

Hi Boxmining,

The X11 – Dash mining contracts have been sold out and we don’t know when we are going to have them in our offer again. Hopefully soon. We’ll keep you informed via our Newsletter. Until the contracts are back we cannot say for sure what the price will be.

Thank you for your understanding.
Marina
Genesis Mining Customer Service
At this time it is uncertain when the contracts will be available and if they will even be priced the same as previously. There may be a possible price hike with new contracts because the price of X11 miners, such as the Baikal Miner QUAD-cube, is going up in price. Even the official Baikal Miner site have higher prices, with the quad miner priced at $3196 USD for 1200 MH/s

Alternatives

Currently, we are updating our Contract compare with the latest possible return on investments for other options such as Monero, Litecoin and Ethereum.