Ethereum's Switch to Proof-of-Stake Will be 'Substantial' to the Industry, Binance Research Suggests

Binance’s latest research report published on Oct. 28 stated that Ethereum’s upcoming switch to Proof-of-Stake (PoS) from Proof-of-Work (PoW) is expected to take a ‘most substantial’ portion of the crypto market’s attention. 

Governance and rewards 

PoS blockchains allow network participants to earn rewards by staking cryptoassets on-chain. Compared to block rewards being awarded to miners in proportion to their hashpower in PoW blockchains, rewards in PoS are distributed in proportion to users who stake their cryptoassets on the network.  

Participants involved in staking are incentivized to vote for decisions and enhance governance calls for the chain and the ecosystem. This will encourage participants to engage in online discussions, forums, and communicate with other nodes to develop better standards and best practices. 

Although there are physical hardware costs for PoS systems, the costs go nowhere nearly as high as those involved in PoW blockchains.  

Risks 

Staking rewards are usually denominated in a non-fiat pegged cryptocurrency, which means that it could carry potential volatility risks. 

There are also required exposure to governance, where users outside of the large holdings circle may face some risk of being exposed to the whims of larger staking participants. This is due to the fact that large token holders can exert a ‘proportionate amount of power’ in the decision making of the ecosystem.  

Users are also encouraged to check if the chain requires un-bonding period and other loss of liquidity towards the count of a balance being staked to avoid risks.  

Custody may also be a burden in the case of lost private keys as some staking mechanisms require funds to be directly held on the wallets of nodes participating in staking. 

Ethereum 2.0 and Instanbul upgrade 

Vitalik Buterin mentioned in a recent conference that there are a few teams already looking into implementing Phase One of Ethereum 2.0, in parallel with all the work involved in Phase Zero to production quality.  

After the Istanbul network upgrade, which is expected to happen on the testnet this month and on the mainnet a month from now, Buterin suggested that we can expect to see about 4000 transactions per second in the absolute best case.  

The best-case scenario describes where people are just making payments, and everyone is running on a rollup, even in realistic cases, it can reach over 1000 transactions per second.   

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