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What Does Proof-of-Stake PoS Mean in Crypto?

By November 13, 2021May 2nd, 2023No Comments

The merger should make it easier to introduce upgrades to the network in the future. However, lower fees haven’t come into effect on the Ethereum network yet. When the network performs optimally and honestly, there is only ever one new block at the head of the chain, and all validators attest to it. However, it is possible for validators to have different views of the head of the chain due to network latency or because a block proposer has equivocated. Therefore, consensus clients require an algorithm to decide which one to favor.

ethereum switch to proof of stake

To be eligible for block rewards after the Ethereum Merge, node validators need to stake 32 ETH into a smart contract as collateral. This Ether will be locked up until a future upgrade to the network enables withdrawals. Proof-of-stake reduces the amount of computational work needed to verify blocks and transactions.

What Does Proof-of-Stake (PoS) Mean in Crypto?

This left FTX stranded, and the exchange announced that it had filed for bankruptcy on 11 November 2022. The Ethereum network has been on a years-long path to switch its energy-hungry proof-of-work blockchain to a more efficient proof-of-stake system, and now its developers are suggesting a date to make the switch. Cryptocurrencies such as ethereum and bitcoin are often criticized for the process of mining to generate new coins. Both currently use a so-called proof-of-work mining model, involving complex math equations that massive numbers of machines race to solve.

ethereum switch to proof of stake

In addition to the environmental benefits, transaction fees would be lower. The battle was won before the Ethereum Foundation, the nonprofit that helps supervise the platform, pushed the red button. Both systems strive to achieve the same goal, but one uses a country’s worth of electricity, while the other simply requires participants to lock up coins. The vast majority of bitcoin mining today is done with five major mining pools. In proof of stake, those with the majority of coins control the blockchain. Cryptocurrencies have no central guardian, like a bank, to oversee their public ledgers—the shared digital record of every transaction on the blockchain.

Why does the SEC care about Ethereum now?

In principle, a small group of people could take the reins and switch Bitcoin to proof of stake. Since it is an open-source project, Bitcoin’s development relies on decisions made by the community, which in theory includes anyone who wants to participate. 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. But Ethereum is a smart-contract platform for decentralized applications, with lots of projects, cryptocurrencies, NFTs, and NFT platforms running on top of it.

You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. Blocks are validated by multiple validators, and when a specific number of validators verify that the block is accurate, it is finalized and closed. Ether’s price got a slight pump following the Merge in hourly metrics, currently trading at around $1,635, according to data from TradingView. The Ethereum Merge has officially taken place, marking the full transition of the network to proof-of-stake .

What Is the Ethereum Merge?

PoS accomplishes this by requiring that validators have some quantity of blockchain tokens, requiring potential attackers to acquire a large fraction of the tokens on the blockchain to mount an attack. After Ethereum’s transition to PoS, miners in the network were replaced by validators. Validators are required to hold a certain amount of Ether in order to participate in creating and checking new blocks on the network. In exchange for their work, validators receive rewards in a form of newly minted ETH.

ethereum switch to proof of stake

ConsenSys develops both of these clients in house alongside open source communities and is testing this combo thoroughly for the Merge. In an attempt to protect its forests and famous wildlife, Virunga has become the first national park to run a Bitcoin mine. But some are wondering what the hell ethereum proof of stake model crypto has to do with conservation. Rebecca Ackermann is a writer, designer, and artist based in San Francisco. She wrote about the promises of crypto and Web3 for MIT Technology Review’s Money Issue earlier this year. The crypto industry is investing heavily in getting more people to buy in.

For users

For example, Tesla backed out of its initial bid to institute Bitcoin as a means of payment, due to the crypto’s carbon footprint. The first event that will occur after the implementation of PoS will be the plummeting of Ethereum’s hash rate to zero, thus representing the end of an era. Any user who has ETH in their possession will be able to become a validator.

  • They pass it to their execution client where the transactions are re-executed locally to ensure the proposed state change is valid.
  • Popular cryptocurrency blockchain Ethereum has completed its long-awaited switch to proof-of-stake.
  • There are concerns now that the SEC could introduce regulations on proof-of-stake cryptocurrencies, which would impact almost the entire crypto space, aside from Bitcoin BTC .
  • Ethereum transaction fees are not expected to change as a result of the Merge.
  • When Ethereum was launched in July 2015, it operated on a PoW algorithm to achieve consensus on adding new blocks to the blockchain.

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. Find out more about the history of Ethereum, Ethereum upgrades, and the merge on the official Ethereum Foundation page. Ethereum users do not need to take any action to upgrade to the PoS chain.

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The transaction can be considered “finalized”, i.e., that it can not be reverted, if it has become part of a chain with a “supermajority link” between two checkpoints. Checkpoints occur at the start of each epoch and to have a supermajority link they must both be attested to by 66% of the total staked ETH on the network. The community can resort to social recovery of an honest chain if a 51% attack were to overcome the crypto-economic defenses.

Proof of stake

Ethereum’s imminent shift to a proof-of-stake system, also called the Merge, will render the GPU obsolete, as users will be able to validate transactions and produce new blocks by staking or locking up Ether. PoS also has a number of advantages over PoW, such as higher energy efficiency, lower entrance barriers, fewer hardware requirements, stronger anti-centralization immunity, and better support for shard chains. For the blockchain to remain secure, it must have a mechanism to prevent a malicious user or group from taking over a majority of validation.


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