The recent switch from proof-of-stake on Ethereum has really taken a toll on the cryptocurrency economy. Ever since Ethereum went proof-of-stake, the economy has taken a toll on it. Ethereum is down 16.75 percent in the last month, with a loss of around $260 from the original price. Bitcoin has also had a similar effect, with it being down 3.19 percent in the last month, with a loss of around $633 from the original price. Other coins such as Monero and Litecoin have been down around 10-12 percent in the last month, with Monero being down 9.86 percent, and Litecoin being down 12.05 percent. The cryptocurrency economy is not the only thing that has been down recently, however. GPU prices, items used to mine cryptocurrency, have been down recently. Prior to the proof-of-stake on Ethereum,  GPU prices were over 200% their retail price, and a lot of bots and scalpers were used to obtain said GPUs. This would mean the average consumer would have to buy from a reselling scalper, upping the price by 200%, or would have to be extremely quick in buying GPUs once they were in stock. You may be wondering, how exactly did proof-of-stake have an effect on the cryptocurrency economy and GPU prices, and what is proof-of-stake to begin with? Let’s dig into that.

So, what is proof-of-stake? Well, proof-of-stake is a cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain. In simpler terms, proof-of-stake reduces the amount of computational work needed to verify blocks and transactions. In the past, blocks and transactions would use proof-of-work, which was a mechanism that used a competitive rewards-based system. In proof-of-work, block creators (GPUs) were called miners. Miners work to solve for the hash, a cryptographic number, to verify transactions. In return for solving the hash, they were rewarded with a coin. The new GPUs would be faster and better at solving cryptographic numbers to be the first to get the coins, whilst other dedicated miners (non-GPUs) were also faster and better at solving these puzzles for the hash. For example, application-specific integrated circuit (ASIC) miners, very powerful computers designed with the sole purpose of mining a particular cryptocurrency algorithm, are created to further optimize computing power towards solving these proof-of-work problems. Essentially with proof-of-work, you would be thrown into a pool with other miners. These miners would all attempt to solve puzzles to get coins, and the better your GPU was, the faster you could solve these puzzles and get the coins. However, with proof-of-stake, everyone is at an even playing field, expensive GPU or not. With proof-of-stake, you pledge your coins to be used for verifying transactions. Your coins are locked up while you stake them, but you can unstake them if you want to trade them. Then, validators are selected randomly to confirm transactions and validate block information. This system randomizes who gets to collect fees rather than using a competitive rewards-based mechanism like proof-of-work. When a block of transactions is ready to be processed, the cryptocurrency’s proof-of-stake protocol will choose a validator node to review the block. The validator checks if the transactions in the block are accurate. If so, they add the block to the blockchain and receive crypto rewards for their contribution. However, if a validator proposes adding a block with inaccurate information, they lose some of their staked holdings as a penalty. To become a validator, a coin owner must “stake” a specific amount of coins. For instance, Ethereum requires 32 ETH to be staked before a user can become a validator. 

What are the positives of proof-of-stake? Well, proof-of-stake is designed to reduce network congestion and environmental sustainability concerns surrounding the proof-of-work protocol. Proof-of-work is a competitive approach to verifying transactions, which naturally encourages people to look for ways to gain an advantage, especially since monetary value is involved. This makes obtaining crypto much easier for users who do not have the money to afford a very expensive GPU to mine cryptocurrency on, or a dedicated miner. By joining a mining pool in proof-of-stake, it is randomized on who gets crypto words. The proof-of-stake mechanism seeks to solve these problems by effectively substituting staking for computational power, whereby an individual’s mining ability is randomized by the network. This means there should be a drastic reduction in energy consumption since miners can no longer rely on massive farms of single-purpose hardware to gain an advantage. This is drastic, since in 2020, the US, where 35.4% of Bitcoin mining takes place, created .85 pounds of carbon dioxide per kWh. This results in nearly 40 billion pounds of carbon dioxide produced by US Bitcoin mining alone. It is also much more secure, as a threat for cryptocurrency fans, the 51% attack is a concern when proof-of-stake is used, but there is doubt it will occur. Under proof-of-work, a 51% attack is when an entity controls more than 50% of the miners in a network and uses that majority to alter the blockchain. In proof-of-stake, a group or individual would have to own 51% of the staked cryptocurrency. Most other security features of proof-of-stake are not advertised, as this might create an opportunity to circumvent security measures. However, most proof-of-stake systems have extra security features in place that add to the inherent security behind blockchains and proof-of-stake mechanisms.

With all the positives being said, what are the negatives of proof-of-stake? Well, with the recent merge of proof-of-stake, all expensive GPUs bought, such as RTX 3090s and high end AMD GPUs, are useless and have to be sold at a loss. Unless you plan on using the GPUs for something other than mining, the GPUs are unable to be profitable, and you would be operating at a loss. In fact, due to the low demand from miners, expensive GPU prices have dropped by 37% in the past month. Not only that, but ethereum is unable to be profitable as well. With the merge to proof-of-stake, the decline in crypto markets has made even mining Ethereum unprofitable for many miners. However, after Ethereum moves to proof-of-stake, GPU miners will no longer be able to mine Ethereum. With the price decline, the increase in energy costs, and the merge date drawing closer, the hashrate of the Ethereum network has dropped dramatically. A reduction in hashrate causes the mining difficulty to decline, thus making GPUs more efficient. Yet, the 10% decrease has done nothing to cover the other factors driving the profitability of Ethereum mining to fall.

What does this mean for the crypto as a whole? Well, the crypto market may be slowly crashing down as we know it. With certain cryptocurrencies unable to be profitable, it would mean a decline in interest for mining and obtaining cryptocurrency. At some point, you have to feel for the people who mass bought GPUs just to sell them at a loss. Proof-of-stake may be better for the environment and more secure, but overall, cryptocurrency is not as profitable as it used to be, and it is slowly declining each day. Sure, cryptocurrency is more accessible to average users, but if you are using a lot of energy just to not make a profit, what is the point? Cryptocurrency is also decentralized, subjecting it to attacks and making the price very volatile. Overall, cryptocurrency was already at a decline, and this proof-of-stake merge just put the nail in the coffin for cryptocurrency as a whole, and it will be hard to make a profit anymore.