Ethereum is undergoing significant transformations. The removal of “miners,” who track and validate transactions on the world’s most widely used blockchain network, is perhaps the most significant. Miners are at the heart of the proof-of-work system, which was pioneered by Bitcoin and adopted by Ethereum, the platform that supports Ether, the world’s second-most valued cryptocurrency behind Bitcoin. Proof of work is increasingly being criticized for its negative environmental impact: Bitcoin miners currently consume as much energy as Chile. Proof of stake, which Ethereum hopes to phase in 2022, will be more environmentally friendly and faster. The switch, according to supporters, will demonstrate another distinction between Ethereum and Bitcoin: a willingness to change.
What is the purpose of the ‘proof of’ systems?
Blockchain, a new technology that serves the old-fashioned function of maintaining a record of time-ordered transactions, is required for cryptocurrency to work. The ledger is shared on computers all across the world, which distinguishes it from pen and paper records. In a world without actual money, Blockchain must perform another task: ensuring that no one may spend a cryptocurrency token more than once by manipulating the digital ledger. Blockchains work without the need for a central guardian of the ledger, such as a bank: To build, validate, and safeguard a blockchain’s sequential record, both proof of work and proof of stake systems rely on group action.
How does that happen?
Today, transactions in the Bitcoin and Ethereum major networks are organized in “blocks” that are published to a public “chain,” but only after “proof of work” verification. When Bitcoin’s software compresses the data in a block, it creates a puzzle that can only be solved by possibly millions of trial-and-error calculations. Miners compete to be the first to come up with a solution, and if other miners agree it works, they are awarded with free money.
What are the disadvantages of proof of work?
Mining was also cheap when Bitcoin was worth pennies. However, as the currency’s value increased, a kind of arms race developed, with miners pouring resources into the contest to earn fresh coins. When there’s more competition, Bitcoin’s software raises the computational difficulty.
As a result of the sky-high electricity consumption, activists have called for Bitcoin to be banned. It’s also resulted in a growing dominance of large, centralized mining farms, which has created a new risk for a decentralized system. A blockchain might theoretically be modified by a party with a majority of mining power.
What is the definition of stake proof?
The theory behind Ethereum’s proof of stake method is that if you provide a group of people a set of carrot-and-stick incentives to collaborate, their blockchain can be protected more easily. Validators will be able to put up, or stake, 32 Ether (1 Ether traded at about $4,300 in late November), while individuals with fewer Ether will be able to become validators together. Validators are chosen to order transactions into a new block on the Ethereum blockchain.
If a block is accepted by a committee of attestors, the validator receives Ether. However, anyone who tries to cheat the system risks losing their staked coins. The proof of stake mechanism for Ethereum is already being tested on a distinct blockchain called the Beacon Chain from the proof of work system, with $38 billion worth of Ether invested there so far. In 2022, the two blockchains are scheduled to combine.
What are the advantages of the system?
Switching to proof of stake is believed to reduce Ethereum’s energy consumption, which is estimated to be 45,000 gigawatt-hours per year, or slightly more than New Zealand’s, by 99.9%. In terms of carbon emissions, it would be similar to any other internet company that uses energy to run a network of computers, rather than a venture that resembles a collection of massive digital factories.
The switch to proof of stake is expected to boost the network’s speed. This is critical for Ethereum, which already serves as a platform for a wide variety of financial and commercial activities.
What are its weak points?
Proof of stake hasn’t been through as much testing as proof of work, which has been evaluated for more than a decade. As a result, additional vulnerabilities could be discovered. Its supporters believe the risk is worth the rewards in terms of environmental benefits, transaction speed, and including a larger group of users in the process.