<aside> 📌 In this article I would like to explain the entire logic of ETH's transition from PoW to PoS. What this transition will give us, how it's possible to earn money and whether it's worth it at all.
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PoW and PoS are the two main consensus mechanisms that cryptocurrencies use to verify new transactions. Decentralization requires multiple computers to participate in the verification process, each consuming energy. PoW and PoS are the two methods by which computers agree on the legitimacy of a transaction.
PoW (Proof of work) is the original blockchain consensus mechanism. A blockchain using PoW consumes a large amount of power as virtual miners around the world compete to solve a complex cryptographic problem to secure the network and win the right to update the blockchain. Winners are rewarded with the currency of the network. In other words, PoW networks reward miners for security. In practical terms, this PoW consensus mechanism encourages miners to invest in expensive computing equipment, which in turn leads to investments in storage space and cooling equipment, as well as consuming huge amounts of energy to power their systems, or rigs.
PoS (Proof of Stake), the predominant consensus mechanism used by some blockchains, is much less energy intensive (99.99% less than PoW).
PoS validators are analogous to PoW miners: validators provide network security in exchange for cryptocurrency rewards. While PoW miners use their intense processing power and energy in the race to confirm transactions and secure the network, PoS "validators" dedicate their own cryptocurrency package to the network.
Unlike PoW, PoS does not require powerful computers and intensive energy consumption, as any user can act as a validator by using a computer to create a node. PoS nodes consume only slightly more power than a laptop. In addition, PoS is faster, more scalable and can handle more transactions per second than PoW.
Let's start by saying that the success of the PoS transition will directly depend on the activity of the network. Below I have provided a little logic that this network will follow:
ETH inflation = block emission - gas fees burnt
Inflation = Block Emission > Gas Fees Burnt
Deflation = Block Emission < Gas Fees Burnt
In this context, the deflation rate of ETH depends on the number of gas fees burned, the amount of gas fees depends on the amount of network usage, and network usage depends on the number of users.
Let's take a look at the worst and best case scenarios of subsequent events: