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According to Bitcoin’s proof-of-work, this investment is hardware. About every 10 minutes, Bitcoin miners compete to solve a puzzle. The winner adds the next block to the chain and requests new bitcoins in the form of a block reward. But finding the solution is like trying to win the lottery. You have to guess again and again until you get lucky. The more powerful the computer, the more guesses you can make.
Expanding server farms around the world are fully dedicated to it, making trillions of guesses per second. And the larger the mining operation, the greater the cost savings and therefore the greater their market share. This goes against the concept of decentralization. Any system that uses proof-of-work will naturally re-centralize.
In the case of Bitcoin, this has spawned a handful of large companies. network control.
However, since early in Bitcoin history, crypto enthusiasts have sought other consensus mechanisms that can maintain a degree of decentralization and are not wasteful and destructive for the planet as proof of work.
How does proof of stake work?
bet proof, first suggested On July 11, 2011, on an online forum called BitcoinTalk, it became one of the more popular alternatives. In fact, it was supposed to be the mechanism that secured Ethereum from the very beginning. White paper This originally defined the new blockchain in 2013. But, as Buterin noted in 2014, developing such a system was “so trivial that some even think it’s impossibleSo, Ethereum was launched with a proof-of-work model instead and started developing a proof-of-stake algorithm.
Proof of stake removes miners and replaces them with “validators”. Instead of investing in energy-intensive computer farms, you invest in the system’s local coins. To become validators and earn block rewards, you lock (or stake) your tokens in a smart contract, a piece of computer code that runs on the blockchain. When you send the cryptocurrency wallet address of smart contractThe contract holds that currency, like depositing money in a safe.
In the proof-of-stake system where Ethereum is slowly advancing, you put 32 ether, currently worth $100,000, to become a validator. If you do not have such spare coins on hand and there are not many, then a betting service where participants jointly serve as validators.
An algorithm chooses from a pool of validators based on the amount of funds they lock. The more you bet, the better your chances of “winning the lottery”. If you are selected and your block is accepted by a committee of “validators” (a group of validators randomly selected by an algorithm), you will be given freshly minted ether.
Proponents of Ethereum argue that a significant proof of advantage over proof of work is an economic incentive to play by the rules. If a node validates erroneous transactions or blocks, validators face “hack”, which means all their ether is “burned”. (When coins are burned, they are sent to an obsolete wallet address where no one has access to the key, effectively rendering them useless forever.)
Proponents also argue that proof of stake is more secure than proof of work. You would need to have more than half of the computing power on the network to attack the proof-of-work chain. In contrast, you should check more than half of the coins in the system with proof of stake. As with proof of work, this is difficult to achieve but not impossible.
Ethereum’s proof-of-stake system is currently being tested. Sign ChainIt was released on December 1, 2020. So far, 9,500,000 ETH ($37 billion in current value) has been staked there. The plan is to merge it with the main Ethereum chain in the next few months.
Other upgrades will follow. After blockchains converge, Ethereum will introduce fragmentationmethod of splitting the single Ethereum blockchain into 64 separate chains, all of which will be coordinated by the Beacon Chain.
The shard chains will allow for parallel processing so the network can scale and support many more users than it currently does. Many see the inclusion of fragment chains as the official completion of the Ethereum 2.0 upgrade, but it is not scheduled to happen until 2023.
Next, a technique called “aggregations” will speed up transactions by executing transactions off-chain and sending data back to the main Ethereum network.
a risky move
None of this comes without risk. Ethereum’s transition to proof-of-stake is a tremendous undertaking. Thousands of existing smart contracts It operates on the Ethereum chain with billions of dollars in assets at stake.
And while betting may not directly harm the planet as much as warehouses full of computer systems, critics point out that proof-of-stake is no more effective than proof-of-work at maintaining decentralization. Whoever deposits the most money wins the most.
Nor has it been proven at the scale that Proof of staking platforms have. Bitcoin has been around for over a decade. A few other chains like Algorand, Cardano, Tezos also use proof-of-stake, but these are small projects compared to Ethereum. Therefore, new vulnerabilities may arise when the new system is released widely.
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