The company’s stablecoin USDC currently ranks as the second-largest stablecoin, with a market capitalization of $54.2 billion. The firm has outlined plans to upgrade Ethereum, aiming to enhance the network’s scalability and security by transitioning from its current proof-of-work (PoW) consensus mechanism to a more efficient proof-of-stake (PoS) model.
Circle’s latest announcement follows growing expectations that the upcoming merge will likely result in an Ethereum fork. This proposed split would preserve the PoW mechanism, which relies on mining-intensive processes to validate transactions. Post-merge, miners will transition to validators who are chosen based on their stake in the blockchain, thus committing a certain amount of cryptocurrency as collateral.
Understanding PoS vs. PoW
CoinDesk provides an excellent explanation here: proof-of-stake and proof-of-work are both consensus mechanisms that ensure transaction integrity by incentivizing honest behavior. PoW involves extensive computing power for validation, whereas PoS selects validators based on their stake in the network.
With Ethereum switching to a PoS model, miners will lose relevance due to the shift away from energy-intensive mining processes. Some influential miners have initiated opposition through a proposed fork that would introduce ETHPOW as an alternative cryptocurrency. BitMEX has responded by launching futures contracts for trading ETHPOW.
Circle’s Stance and Future Outlook
Circle is committed to the upgrade, supporting the transition to PoS. Company representatives have stated that they will not speculate on potential forks post-mainnet merge. Consequently, USDC will remain a part of the updated Ethereum blockchain, continuing its support for this move.
The Merge, a significant first step in a series of five planned upgrades for the network, is expected to increase transaction speeds by around 10%. According to Citigroup’s research, these improvements are more about laying groundwork for future enhancements like Surge, which aims to achieve up to 100,000 transactions per second (TPS).