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Last year, they successfully pulled off The Merge — a landmark upgrade that moved Ethereum from the energy-intensive proof-of-work system to the far more efficient proof-of-stake model. PoS is already used by some of the biggest chains out there, such as Cardano or Tezos, with Ethereum being on its way to join up with them. Today, it is paying the price for that, but it is also working on developing its own PoS mechanism and switching to it.

Proof-of-stake is a mechanism used to verify blockchain transactions. It differs from proof-of-work significantly, mainly in the fact that it incentivizes honest behavior by rewarding those who put their crypto up as collateral for a chance to earn more. Proof-of-Stake is a consensus mechanism where cryptocurrency validators share the task of validating transactions.

  • The fork may automatically create duplicates of coins, NFTs, smart contracts existing within Ethereum.
  • To activate your own validator, you’ll need to stake 32 ETH; however, you don’t need to stake that much ETH to participate in validation.
  • As you may have noticed, there are many ways to participate in Ethereum staking.
  • In PoS, however, validators’ staked coins also act as an incentive for everyone to behave, or lose their coins as punishment for network disruptions and attempts to cause damage to the system.
  • Resistance to this type of attack is essential for a decentralized blockchain and enables miners and validators to be rewarded equally based on resources put in.

This produces the cryptographic link between the current block and the block that went before. The canonical chain is then determined by a fork-choice rule that selects the set of blocks that have had the most work done to mine them. At the time of writing, staked ETH and staking rewards are yet to be unlocked. Moreover, we are yet to see the implementation of some major new scalability options, such as sharding. Only time will tell exactly how secure the network is under this new consensus mechanism. A proof-of-stake network like Ethereum secures itself via staked cryptocurrency.

Ethereum switches to proof-of-stake consensus after completing The Merge

In his free time, he likes playing games on his Xbox and scrolling through Quora. Finality is the time it takes to protect a transaction on the blockchain. Finality guarantees that a particular block in the blockchain cannot be changed or reversed. The validator selection in Ethereum’s Proof of Stake (PoS) system is based on a validator’s stake in the network. To explain, the greater the stake, the more likely that node will be selected to add the new block to the chain. To better understand this page, we recommend you first read up on consensus mechanisms.

When a staking pool is awarded the work, the reward is split among the pool’s members, with a slightly larger share going to the pool’s owner. Currently, Ethereum processes 15 transactions per second, which in the grand scheme of financial transactions is pretty slow. However, it has been estimated that proof of stake will allow for 100,000 transactions per second, which significantly widens the scope of projects and, frankly, the industries that can build on Ethereum.


Proof of stake also hasn’t been proven on the scale that proof-of-work platforms have. Several other chains use proof of stake—Algorand, Cardano, Tezos—but these are tiny projects compared with Ethereum. So new vulnerabilities could surface once the new system is in wide release. In a blockchain where participants maintain a shared ledger, Bitcoin’s creator needed to find a way to keep people from trying to game the system and spend the same coins twice. Proof of work was a clever kludge—it wasn’t perfect, but it worked well enough.

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. The term ‘consensus mechanism’ is often used colloquially to refer to ‘proof-of-stake’, ‘proof-of-work’ or ‘proof-of-authority’ protocols.

Proof-of-stake is a cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain. A consensus mechanism is a method for validating entries into a distributed database and keeping the database secure. In the case of cryptocurrency, the database is called a blockchain—so the consensus mechanism secures the blockchain.

This task for a while seemed impossible since thousands of existing smart contracts are located on the Ethereum blockchain, and billions of dollars in assets are at stake. Blockchains using PoS use different mechanisms to validate blocks. When it comes to Ethereum, it plans to use shards for transaction submissions (more on that in the “The Beacon Chain” section). Ethereum needs to move to proof of stake so it doesn’t further exacerbate the environmental horrors of Bitcoin. The question is, will its new system fulfill all the promises made for proof of stake?

Of course, different projects have developed their own versions of PoS a long time ago, and many now use it as a go-to solution. PoW is no longer interesting to anyone, so developers usually have a choice of going to PoS or trying to come up with a unique and completely different mechanism. All in all, the shift to Ethereum 2.0 is a huge leap forward for blockchain technology as a whole. The future of blockchain was always seen by some as being incredibly bright, albeit somewhat amorphous in both appearance and timeframe.

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. When new data is added to the network, the majority of nodes must verify and confirm the legitimacy of the new data based on permissions or economic incentives; these are also called consensus mechanisms. When a consensus is reached, a new block is created and attached to the chain. Different proof-of-stake mechanisms may use various methods to reach a consensus.

The 32 Ether deposited as collateral should push validators to behave appropriately. But there are also punishments for validators who are deemed lazy or malicious, including the loss of up to their full deposit. Once Ethereum is fully proof of stake, the network will rely on trusted entities known as validators to verify transactions—effectively eliminating mining on Ethereum for good.

Much of Ethereum’s future success also hinges on its upcoming upgrades. However, many cryptocurrencies have still proven to be incredibly lucrative long-term investments. In case I wasn’t clear yet, I am very excited about this change and the other features introduced in Ethereum 2.0. Sign up for free online courses covering the most important core topics in the crypto universe and earn your on-chain certificate – demonstrating your new knowledge of major Web3 topics. It would be hard to overstate how much industry excitement there has been around this shift. Many hope it can both rehabilitate the reputation of crypto for skeptics and improve the efficiency of Ethereum’s enormous ecosystem of businesses and developers.