Ethereums big switch to proof of stake, explained

This prevented users from “double spending” their coins and ensured that the Ethereum chain was tremendously difficult to attack or manipulate. These security properties now come from proof-of-stake instead using the consensus mechanism known as Gasper. It is responsible for participating in the consensus-building process of a Proof of Stake blockchain.

Proof of work has been used by the Ethereum mainnet since its genesis, and it underpins older blockchains like Bitcoin. Proof of stake is a type of consensus mechanism that differs from the traditional proof-of-work one. When a validator is down, they cannot participate in the consensus process. Since this is detrimental to the overall functioning of the network, it is penalized by the network via slashing. If an attacker wants to revert a finalized block, they would therefore have to be willing to lose at least one-third of all the ETH that’s been staked.

Attacks

For proof-of-work chains, the longest chain is determined by the chain’s total cumulative proof-of-work difficulty. Ethereum used to use the longest chain rule too; however, now that Ethereum runs on proof-of-stake it adopted an updated fork-choice algorithm that measures the ‘weight’ of the chain. The weight is the accumulated sum of validator votes, weighted by validator staked-ether balances. If the validator’s performance breaks a rule set by the network (e.g. double signing of a transaction) the blockchain will automatically impose a penalty called “slashing”. A recent example is the validator configuration issues that caused 20 slashing events on the Lido protocol.

• These nodes then run efficiently and honestly to avoid losing that collateral.
• This requires an enormous amount of computing power and, thus, electricity.
• Many centralized exchanges provide staking services if you are not yet comfortable holding ETH in your own wallet.
• You may have heard about the Ethereum merger over the past few weeks.
• If there is no disagreement on a proposed choice of film, then a consensus is achieved.

Proof of Stake (PoS) is a type of consensus mechanism that is used to secure blockchain networks. Consensus mechanisms are the backbone of all blockchains, as the underlying rules that determine how a network functions. But the core maintainers can’t make the switch alone, Stolfi says. They need the support of miners, who currently collect 900 new https://www.xcritical.in/ bitcoins per day (worth over $20 million), plus transaction fees for the new blocks they mine. Rewards are given for actions that help the network reach consensus. You’ll get rewards for running software that properly batches transactions into new blocks and checks the work of other validators because that’s what keeps the chain running securely.

Chain-based PoS

These paths target a wide range of users and ultimately are each unique and vary in terms of risks, rewards, and trust assumptions. Some are more decentralized, battle-tested and/or risky than others. We provide some information on popular projects in the space, but always do your own research before sending ETH anywhere. These countries need the power to keep their businesses running and their homes warm.

EthStaker is a community for everyone to discuss and learn about staking on Ethereum. Join tens of thousands of members from around the globe for advice, support, and to talk all things staking. If you don’t feel comfortable holding your own keys, that’s okay. In the meantime, consider checking out our wallets page, where you can get started learning how to take true ownership over your funds.

Proof-of-work and proof-of-stake alone are not consensus protocols, but they are often referred to as such for simplicity. They are actually Sybil resistance mechanisms and block author selectors; they are a way to decide who is the author of the latest block. Ethereum uses a proof-of-stake-based consensus mechanism that derives its crypto-economic security from a set of rewards and penalties applied to capital locked by stakers. This incentive structure encourages individual stakers to operate honest validators, punishes those who don’t, and creates an extremely high cost to attack the network. The term ‘consensus mechanism’ is often used colloquially to refer to ‘proof-of-stake’, ‘proof-of-work’ or ‘proof-of-authority’ protocols.

Better security

This all means a coordinated attack would be very costly for the attacker. There was always a risk that Ethereum miners would create a competing chain and keep the proof-of-work version of Ethereum alive. All the smart contracts, coins, and NFTs that exist on the current chain would be automatically duplicated on the “forked,” or copied, chain. But while there were some efforts to create competing versions of Ethereum, none of these gained traction, and the proof-of-stake version won out. As Ethereum transitions to its new protocol, another risk is that a group of disgruntled miners could decide to create a competing chain.

Therefore, consensus clients require an algorithm to decide which one to favor. The algorithm used in proof-of-stake Ethereum is called LMD-GHOST(opens in a new tab), and it works by identifying the fork that has the greatest weight of attestations in its history. Whereas under proof-of-work, the timing of blocks is determined by the mining difficulty, in proof-of-stake, the tempo is fixed. Time in proof-of-stake Ethereum is divided into slots (12 seconds) and epochs (32 slots).

However, Ethereum switched off proof-of-work in 2022 and started using proof-of-stake instead. In the Ethereum PoS system, the sum of crypto staked by validator nodes (32 ETH) acts as a security deposit. Since the amount can be “slashed” by the network (if a validator fails to behave appropriately) validator nodes have a vested interest in behaving in a way that benefits the blockchain.

On December 1, 2020, Ethereum launched a separate proof-of-stake Beacon chain. On September 15, 2022, the original Ethereum Mainnet merged with the Beacon Chain to exist as one chain. A transaction has “finality” on Ethereum when it’s part of a block that can’t change. But proof-of-work as a process was also a big deterrent to attacking the chain. On Monday evening, Ethereum creator Vitalik Buterin reminded his 4 million Twitter followers that the “merge” is fast approaching—and urged those requiring essential software upgrades to do so ASAP. There is no technical obstacle to making the notoriously energy-hungry cryptocurrency far more efficient—just a social one.

To explain, the greater the stake, the more likely that node will be selected to add the new block to the chain. Major crypto exchanges, including Coinbase Global (COIN.O) and Binance, have said they will pause ether deposits and withdrawals during the merge. Users won’t need to do anything with their funds or digital Ethereum Proof of Stake Mode wallets as part of the upgrade, they say. On the other side of the coin, startups built around miners, who have been cut out of Ethereum’s process, will likely need to pivot or refocus on Bitcoin and other proof-of-work networks. Some die-hard Ethereum 1 proponents plan to stick with proof-of-work Ethereum.

Cardano
ADA
and Solana
SOL
are already using the proof-of-stake method. Many Bitcoin supporters still feel that proof-of-work is more secure and that the blockchain shouldn’t switch over. Ethereum, on the other hand, has been talking about this move for many years now. Another concern with the PoS protocol is that the voting control could be in the hands of a few key players who are able to put up more Ether to stake in the first place.

To become a validator and to win the block rewards, you lock up—or stake—your tokens in a smart contract, a bit of computer code that runs on the blockchain. When you send cryptocurrency to the smart contract’s wallet address, the contract holds that currency, sort of like depositing money in a vault. Sybil resistance measures how a protocol fares against a Sybil attack(opens in a new tab).

Proof-of-work energy-usage

Understanding Ethereum’s Proof of Stake consensus mechanism will help you make informed decisions about interacting with the blockchain. Knowledge is power, and Ledger Academy is here to act as your guide. Unraveling the complex yet powerful consensus mechanism securing the behemoth blockchain that is Ethereum. But Ethereum is a smart-contract platform for decentralized applications, with lots of projects, cryptocurrencies, NFTs, and NFT platforms running on top of it. Something similar happened in 2016, after Ethereum developers rolled back the blockchain to erase a massive hack.

Sophisticated analytics tools mine insights from data, optimizing operational processes across the enterprise. But if it doesn’t, it might be forced into irrelevance by governments and communities that are becoming increasingly intolerant of its energy waste. A new class of crypto investors have bold plans to rebuild society from scratch.