One of the most important changes in the upcoming and highly anticipated Ethereum 2.0 completion will be the transition from proof of work to a proof of stake consensus mechanism. But what does this really mean for the network and also for miners?
Proof of work is a relatively simple concept through which people participate in the network by providing their computing power that solves complex calculations for verifying transactions on the network. This process requires expensive computing equipment that consumes a lot of electricity. Proof of stake takes a different approach that does not involve computing hardware.
The proof of stake mechanism requires the holders of the native cryptocurrency to become validators on the network by staking their crypto assets, allowing them to participate as validators on the network. The network provides a participation incentive by allowing them to earn a share of transaction fees. It also discourages validators from misbehaving by slashing part of their staked tokens or crypto assets.
Ethereum holders can stake their ETH to participate as validators on the network. You will need 32 ETH to participate as a validator on the network. This means one will need more than $80,000 (Current ETH price = $~2,500) to participate as a validator and not many people can afford the amount needed to stake such a huge amount of ETH. Fortunately, staking pools provide an easier approach where ETH holders can stake smaller amounts.
Security is a vital part of the consensus mechanism when dealing with decentralized ledgers. In this case, the proof of stake approach is ideal to avoid 51% percent attacks because the attackers would need to own 51% of all ETH in circulation to successfully execute an attack. This makes it far more difficult to carry out such an attack.
The Ethereum 2.0 proof of stake will also eliminate the need for expensive and energy-intensive computing hardware, thus making the network more efficient. The consensus mechanism will also introduce sharding which introduces a higher level of scalability. Sharding is the splitting of a database into multiple segments where each segment contains a part of the whole data set. The approach means each Ethereum node will only run one shard thus storing a small amount of data. Nodes will be easier to run thanks to this approach and as such, there will be more participants on the network, thus more decentralization.
The proof of stake system will be coordinated by a beacon chain which will randomly assign different shards to validators. This is an essential process for the network’s security because it prevents stakers from collaborating to control a shard.
Sharding will initially facilitate extra data. Scalability on the network will be enabled through layer 2 scaling rollups which facilitate off-chain bundling of transactions. It is expected that the transaction throughput can reach 1,000 transactions per second by leveraging rollups and data sharding. This is a huge upgrade from the current 15 transactions per second.
The transition from the proof of work to the proof of stake system in Ethereum 2.0 will take place through a process called Docking. The old Ethereum blockchain will exist as one of the shards on the Ethereum 2.0 network. The process is important because it will enable access to Ethereum’s full history while also facilitating a hassle-free transition for ETH holders.
Docking will also enable smart contracts on Ethereum’s new proof of stake system. Miners on the old Ethereum network can participate in Ethereum 2.0 through staking and use their mining equipment on other blockchains such as Ethereum Classic.
Sydney has 20+ years commercial experience and has spent the last 10 years working in the online marketing arena and was the CMO for a large FX brokerage.
Get the latest Crypto & Blockchain News in your inbox.
