Ethereum Crypto Is Bound to Rise After Implementing Its Difficulty Bomb
Ethereum (CCC:ETH-USD) presently uses a proof-of-work (POW) system to validate the hundreds of millions of transactions that it processes daily. But the Ethereum Foundation has been planning to move Ethereum crypto to a proof-of-stake (POS) system. Up until now, there hasn’t been a reasonably firm date for this.
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Cryptoslate magazine reported on Nov. 12 that the cryptocurrency’s “difficulty bomb” will be delayed until June 2022. That effectively sets the date for the upgrade to POS sometime well before June 2022.
The difficulty bomb is a technical software upgrade to the Ethereum blockchain that effectively makes it very difficult to mine Ethereum. That is because it’s a mechanism that, at a predefined block number, the difficulty level of puzzles increases in the proof-of-work mining algorithm.
How the Difficulty Bomb Works
Here is what this means. The difficulty bomb will slow down the mining of Ethereum cryptos. Node operators presently make money “mining” Ethereum crypto by using large numbers of specialized computer servers.
But the mining time will take so long after the difficulty bomb hits, they will find it more economical to turn to POS validation. This is because the difficulty level will rise exponentially in the underlying puzzles in the mining algorithm. They will shut down their mining operations and start staking their Ethereum crypto to earn Ethereum crypto rewards.
As a result, Ethereum crypto transactions will be able to be validated much quicker. This could lead to lower transactions or “gas” fees. That, in turn, will make Ethereum more desirable as a means of payment and for use in smart contracts.
Therefore, as a result, Ethereum crypto can rise higher in value and investors can expect its price to take off well before the transition to POS validation. That implies that it could have another leg up between now and spring 2022.
This is what Ethereum enthusiasts call “the Merge.” That is when node operators using Ethereum 2.0 will “merge” with Ethereum Classic as it is known today.
Where This Leaves Ethereum Crypto
Investors in Ethereum probably find this good news. They want to see lower gas fees, faster transaction times and a higher Eterheum price.
The setting of a definite date for the Difficulty bomb will now encourage hold-out node operators to change. They will begin sliming down their Ethereum mining equipment purchases and start implementing proof-of-stake validation operations.
This also sets up another leg for Ethereum crypto. For example, since the end of Q3 on Sept. 29, the price of ETH tokens has risen from $2,818 to $4,665 today. That is a gain of over 65.5% in the space of just a month and a half.
I suspect a good portion of this gain has to do with the change in the date for the Difficulty bomb being set for June 2022. There may not be any way to prove this, but it stands to reason. The quicker node operators set their operation to run on proof-of-stake, the quicker they leave the heavy costs of mining Ethereum crypto.
Where Ethereum Could End Up
I suspect that the final change to proof-of-stake could lead to a 2 to 3 times rise in ETH tokens. After all, that is what it has done this year. Ethereum ended 2020 at $730.37 per ETH token. So, at today’s price of $4,665 it is now over 6 times the price where it ended last year.
So my estimate that by the time the Difficulty bomb hits in June 2022 Ethereum could be 2 to 3 times higher might actually be conservative. That is if the cryptocurrency follows the same glide path it did this year. In this case, they will be a huge catalyst that could propel Ethereum crypto higher.
On the date of publication, Mark R. Hake did not own any security mentioned in the article, directly or indirectly. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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