The firm’s stablecoin USDC is currently the second largest stablecoin, commanding a market capitalization of USD 54.2 billion. The long-planned upgrade to Ethereum aims to improve the network’s scalability and security by switching to a proof of stake consensus mechanism, rather than a proof of work one (PoW).
Circle’s announcement comes amid growing speculation that the merge event will also lead to another Ethereum fork that would keep the mining-intensive PoW consensus mechanism alive and well. Following the merge, miners will be swapped for so-called validators in which users stake 32 Ethereum to validate transactions on the network.
CoinDesk does a great job at explaining the difference between PoW and PoS: proof-of-stake and proof-of-work are known as consensus mechanisms. Both, in different ways, help ensure users are honest with transactions, through incentivizing good actors and making it extremely difficult and expensive for bad actors. This reduces fraud such as double spending.
In proof-of-work, verifying cryptocurrency transactions is done through mining. This implies vast, decentralized networks of computers around the world that verify and secure blockchains – the virtual ledgers that document cryptocurrency transactions. The process is a lengthy one and requires vast amounts of resources to complete.
In proof of stake, validators (the alternative to miners) are chosen based on a set of rules depending on the ‘stake’ they have in the blockchain, meaning how much of that token they commit to locking up to have a chance to be chosen as a validator. In either case, the cryptocurrencies are designed to be decentralized and distributed, which means that transactions are visible to and verified by computers worldwide. The difference is the computing power needed, with PoS having a clear advantage on that field.
Ethereum, being a PoW blockchain, will make the switch, meaning that any groups with a hefty amount of Ethereum mining hardware would thus be made obsolete. As a result, part of the miners has started a movement trying to boycott this switch, through what is called a ‘fork’ in the validation process.
Influential Chinese Ethereum miner Chandler Guo has primarily led this charge. The suggested fork would even come with a new cryptocurrency called ETHPOW. BitMEX has also just launched a futures contract that would allow speculators to leverage trade ETHPOW.
As for Circle, the firm is staying the course, embracing the change. As representatives confirmed, they don’t intend to speculate on the possibility of forks post Ethereum Mainnet merge. USDC will thus remain as an Ethereum asset existing on the new version of the Blockchain, supporting the move.
Investors have also taken notice of the Merge and have started to invest heavier in the blockchain. Some of them following the market trends, but others with long-term intent. The Merge, the first of five planned upgrades for the network, may increase transaction speeds by only 10% by reducing block times, according to the Citigroup’s research. The upgrade, however, lays the path for the ‘Surge,’ which is the next planned upgrade for the network and promises to bring 100.000 transactions-per-second (TPS) capability to the blockchain.
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