The meteoric ascension of Dogecoin (DOGE) to internet fame wasn’t instantaneous. The altcoin is currently undergoing a second, more lengthy transition, from proof-of-work (PoW) to proof-of-stake (PoS), the latter of which is widely regarded as the more efficient consensus process. Mining computers must solve thousands of equations to validate a blockchain block using the older PoW algorithm. This consumes a great deal of electricity; before the Ethereum blockchain began its transition to PoS, it was expected to consume 73.2 TWh (Terawatt-hours) of power annually, which is enough to power Austria.
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The consensus mechanism is the process by which all nodes on a cryptocurrency’s blockchain reach an agreement on a piece of information necessary to complete a transaction. Proof-of-stake is viewed as a more long-term viable consensus technique. To ensure the safety of the blockchain as they verify transactions, validators in a Proof of Stake (PoS) protocol stake their own assets as collateral. In contrast to Proof-of-Work, this mathematical procedure is quick and easy. Instead, validators get to do their jobs and risk losing their investment if they collude.
Mining scrypt could have catastrophic effects.
Dogecoin announced its intention to switch from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus method in early 2021. Whether or not the latest reports about the possibility of a move are real, they were enough to cause Bitmain to allegedly halt the production of Litecoin (LTC) and Dogecoin (DOGE) miners. The profitability of the top Scrypt miner, Bitmain’s Antminer L7, would drop by roughly 75%, to a stunning $4.83/day at $0.05/kWh. The first casualty would be Scrypt mining. Over 60% of Scrypt mining profits come from DOGE. As miners using older hereof dware try to decide whether to keep their ASICSs on or turn them off, the network difficulty is likely to fluctuate wildly.
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If you cut it off, you’d have to instantly unplug every L3+, LT6, and Mini Doge Pro miner, as well as nearly every other miner that doesn’t use $0.04/kWh electricity. It’s conceivable that DOGE will make the move to PoS at the same time as Ethereum. Full implementation of Proof-of-Stake on Ethereum has been delayed until at least 2022, according to the project’s announcement. Around that period, we can anticipate the release of important Dogecoin-related projects like Libdogecoin and GigaWallet.
Based on a simple ROI calculation using a $5 daily profit, the L7 might cost anywhere from $1,825 (12-month ROI) to $2,737.50 for miners (18-month ROI). The minimum discount here is about 70%. “As you might imagine, embarking on such an endeavor is no easy thing, and we are still just getting started,” the Dogecoin Foundation team stated. We have some powerful allies on board, and interest in contributing to these open-source projects continues to rise. The L7 price would fall even more precipitously than it did during the COVID-19-induced crypto crisis as a result of the drastically reduced profitability.
Effects of Proof-of-Stake
The adverse effects of a proof-of-stake switch by Dogecoin would likewise be felt most keenly by ASIC re-sellers. Many L7 miners are also suppliers, meaning that stores sitting on the stock would be forced to immediately reduce prices by a significant amount. However, given their previous track record of price-gouging clients, such as charging $60,000 for a KD6 that is hardly worth over $1,000 today, it’s unlikely that many people would weep tears for them if they went bankrupt.
The market for Scrypt miners would be flooded by amateurs selling their wares on sites like eBay. Desperate miners would have to stoop to selling the metal for less than it’s worth, creating a situation where the metal would be utilized only as a doorstop or decorative piece.
A new ETH-DOGE bridge will likely appear as a result of Buterin’s assistance to Dogecoin co-creator Billy Markus and the rest of the team as they move to a PoS system. Future developments could see Dogecoin’s applications grow beyond those of a just inflationary meme coin.
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