Breaking News

Ethereum Switch to Proof of Stake – Overview
Editorial Team

Ethereum, the second largest blockchain, is planning to change the Proof of Work (PoW) Algorithm to Proof of Stake (PoS) Algorithm. Here are some interesting thoughts about this decision:

Byzantine Generals’ Problem
One of the achievements of the founder of Bitcoin is the solution to the problem of the Byzantine Generals’ Problem. Let us say we are in the midst of a fight and the city is encircled. Due to the exhaustion of resources, the generals (let us say, 20 of them) have to choose between the decision to attack or defend. The decision is just and reasonable to put it to an absolute majority vote. But what if a general gives a deliberately wrong decision? How will this confuse the situation?

In the world of blockchains, the generals are the miners. For them, the agreement on military warfare corresponds to an arrangement with a set of rules, a commonly accepted view of the history of events published in the network. Bitcoin uses an algorithm called Proof of Work (PoW) that results in the achievement of this distributed consensus and punishes or even discourages bad actors from acting dishonestly.

Proof of Work (PoW)
In the first phase, the Proof of Work algorithm was used as a means of protecting connections and systems from denial of service (DoS) attacks. It is a piece of data difficult to produce, but easy to verify with the recipient. With the emaciation of sending an email and preventing spam (the primary use of PoW), the effort made to write it and the “careful header selection” to facilitate its recognition by the recipient makes it time for a spammer to send mass, intrusive ads. All e-mails without PoW were easily identified as spam, and they were never opened.

On Bitcoin, Proof of Work is a miner’s responsibility. After the display of a new block of network transactions, validators solve the mathematical problem behind them. The winner begins to write in the history of blockchain and is rewarded with some crypto coins. The time until the solution is found corresponds to about 10 minutes (Bitcoin).

The disadvantages of the PoW use
PoW as a high-level security algorithm is costly, and some like Ethereum founder, Vitalik Buterin, found it wasteful and expensive.

Here are some of the fundamental concerns about its use:

  • As far as the environment is concerned, powerful mining equipment utilizes the vast amount of electricity to do nothing, as millions of hashes generated by miners around the world do not solve anything. This fact is not beneficial to our world.
  • The decentralization idea is downsizing, as the validators’ community becomes more exclusive. As the resolving process of the computational problem is complicated and antagonistic, fewer and fewer people are willing to buy up equipment and manage the tasks. This exclusivity trend tends to undermine the fundamental principle of the blockchain technology – decentralization.
  • The possibility of a 51% attack is threatening, as it cannot be stopped from attacking the blockchain. It will invalidate legitimate transactions and double spend crypto coins.

Ethereum – the second largest blockchain in the world- is planning to switch from PoW to Proof of Stake (PoS).

Proof of Stake (PoS)
The Proof of Stake algorithm, instead of time and electricity, enables miners with most coins (internal sources) to write to a blockchain history. The most a miner invests in the network (the bigger Stake), the less likely is to attack him and the more validating rights he should be given. According to Ethereum developers, if a miner holds the 5% of all eth, he will be able to mine 5% of all the transactions on the blockchain. The selection for building a bock will be pseudo-randomly, weighing the selection towards miners with the highest amount of coins. This process will allow more people to participate in the validating process, without the need of purchasing expensive hardware.

Advantages of Proof of Stake to Ethereum

  • The environmental problem of high-energy consumption will be solved as no mining will take place.
  • No advanced mining hardware will be required, and more people will be involved in the validation process.
  • A 51% attack to the blockchain will be costly. Millions of dollars are needed (due to limited supply and increased demand ether price will be increased drastically) and dangerous people to take that decision.

Besides the possibility of an insane minor, PoS offers a scenario of how malicious activities can be diffused, if they do occur. A hard fork on the network is a solution to a possible chain takeover. The deposits of the attacking miners, no matter how much coins they possess, will be destroyed, while in the long run, no one except the offenders will suffer substantial losses. The honest validators will end up richer as the supply’s crunch due to the fork will make the cost of coins rise even more.