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Paper Type
Complete
Description
Cryptocurrencies, such as Bitcoin and Ethereum, are digital currencies operating on a peer-to-peer network. Cryptocurrencies rely on consensus algorithms for transaction validation and network security. Ethereum recently replaced its proof-of-work (PoW) consensus algorithm with a proof-of-stake (PoS) algorithm on September 15, 2022. This research aims to study the following research question: Does changing from PoW to PoS consensus increase price and transaction volume? To answer this question, we implemented synthetic control methods to compare the pre- and post-treatment trends of the price and volume of Ethereum against a synthetic counterfactual. The result of our analysis suggests that Ethereum shifting from PoW to PoS had a positive effect on its price and a non-significant negative effect on transaction volume. Price increasing relative to the synthetic counterfactual is promising for convincing other PoW blockchains that a switch to PoS may lead to increased investment opportunities while decreasing the environmental impact.
Paper Number
1254
Recommended Citation
Ampel, Benjamin, "The Effect of Consensus Algorithm on Ethereum Price and Volume" (2023). AMCIS 2023 Proceedings. 7.
https://aisel.aisnet.org/amcis2023/conf_theme/conf_theme/7
The Effect of Consensus Algorithm on Ethereum Price and Volume
Cryptocurrencies, such as Bitcoin and Ethereum, are digital currencies operating on a peer-to-peer network. Cryptocurrencies rely on consensus algorithms for transaction validation and network security. Ethereum recently replaced its proof-of-work (PoW) consensus algorithm with a proof-of-stake (PoS) algorithm on September 15, 2022. This research aims to study the following research question: Does changing from PoW to PoS consensus increase price and transaction volume? To answer this question, we implemented synthetic control methods to compare the pre- and post-treatment trends of the price and volume of Ethereum against a synthetic counterfactual. The result of our analysis suggests that Ethereum shifting from PoW to PoS had a positive effect on its price and a non-significant negative effect on transaction volume. Price increasing relative to the synthetic counterfactual is promising for convincing other PoW blockchains that a switch to PoS may lead to increased investment opportunities while decreasing the environmental impact.
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Conference Theme