Ethereums big switch to proof of stake, explained

Ethereum’s proof-of-stake system is already being tested on the Beacon Chain, launched 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. Its creator wanted to do away with the control that third parties, often big banks or states, exerted over financial systems. Of course, Ethereum’s move to proof of stake has been six months away for years now. “[We thought] it would take one year to [implement] POS … but it actually [has] taken around six years,” Ethereum’s founder, Vitalik Buterin, told Fortune in May 2021.

Those considering solo staking should have at least 32 ETH and a dedicated computer connected to the internet ~24/7. Some technical know-how is helpful, but easy-to-use tools now exist to help simplify this process. Sign up to receive the latest emerging tech stories in your inbox, every weekday.

  • Ethereum uses a proof-of-stake-based consensus mechanism that derives its crypto-economic security from a set of rewards and penalties applied to capital locked by stakers.
  • The validator selection in Ethereum’s Proof of Stake (PoS) system is based on a validator’s stake in the network.
  • Proponents also claim that proof of stake is more secure than proof of work.
  • However, the supply of new ETH tokens will reduce so much that demand might exceed supply, thereby pushing prices up.
  • The proof-of-work and proof-of-stake consensus mechanisms validate transactions on a crypto network.
  • This will keep Ethereum secure for everyone and earn you new ETH in the process.

But the fees burned due to EIP-1559 will be shared equally to the stakers pools, even though the Beacon Chain didn’t select them. To exploit a PoW network, a hacker will control 51% of computing power, which is impossible. But in a PoS chain, a hacker will need 51% of the total crypto on the network.

Unlike proof-of-work, validators don’t need to use significant amounts of computational power because they’re selected at random and aren’t competing. They don’t need to mine blocks, they just need to create blocks when chosen and validate proposed blocks when they’re not. You can think of attesting as saying “this block looks good to me”. Validators get rewards for proposing new blocks and for attesting to ones they’ve seen. The amount of ETH slashed depends on how many validators are also being slashed at around the same time. They receive minor attestation penalties every day because they are present on the network but not submitting votes.


This is important because the chain’s length helps the network follow the correct fork of the blockchain. The more “work” done, the longer the chain, and the higher the block number, the more certain the network can be of the current state of things. The Ethereum network began by using a consensus mechanism that involved Proof-of-work (PoW).

how Ethereum Proof of Stake Model works

This could lead to centralization instead of decentralization, as more tokens will be in the hands of validators. Merging both ETH1 and the Beacon Chain will transition the network to a secure, efficient, and eco-friendly proof of stake mechanism. After the merge, the PoW mechanism will get shelved entirely, and the validators will produce new blocks through the Beacon Chain PoS model. Proof of work comes with enormous computing power and adequate mining hardware requirement for energy-intensive validation.

Better security

Proof of stake is a type of consensus mechanism that differs from the traditional proof-of-work one. Validators will replace miners and will be required to lock 32 ETH on the Ethereum network to qualify. Participants on the Ethereum network will earn staking rewards. As for the impact on ETH price, the community is optimistic that a reduction in issuance of new ETH will affect prices as demand will exceed supply.

This all means a coordinated attack would be very costly for the attacker. A transaction has “finality” in distributed networks when it is part of a block that can’t change without a large amount of ETH getting burned. On proof-of-stake Ethereum, this is managed using “checkpoint” blocks.

When a validator is down, they cannot participate in the consensus process. 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.

Casper Network is a layer-1 blockchain that utilizes the innovative Highway consensus protocol to achieve dynamic and expressive finality in its transactions. It aims to provide a secure and flexible platform for various blockchain applications, including DeFi, NFTs, and more. Casper Network is a promising project that has carved a unique path in the blockchain space. Its roots in Ethereum’s research, combined with an innovative consensus mechanism, set it apart.

Explainer: Understanding Ethereum’s major ‘proof of stake’ upgrade

Users won’t need to do anything with their funds or digital wallets as part of the upgrade, they say. To complicate things further, transactions rejected on the temporary fork may not have been included in the accepted chain. So finality refers to the time you should wait before considering a transaction irreversible. Under the previous proof-of-work Ethereum, the more blocks were mined on top of a specific block N, the higher confidence that the transactions in N were successful and would not be reverted.

how Ethereum Proof of Stake Model works

When you’re ready, come back and level up your staking game by trying one of the self-custody pooled staking services offered. Many centralized exchanges provide staking services if you are not yet comfortable holding ETH in your own wallet. They can be a fallback to allow you to earn some yield on your ETH holdings with minimal oversight or effort. Many of these options include what is known as ‘liquid staking’ which involves an ERC-20 liquidity token that represents your staked ETH. This method of staking requires a certain level of trust in the provider.

Even after a transaction is confirmed as part of the most recent block, it doesn’t mean it can’t be changed or undone. For a short period that follows, a transaction may be vulnerable to attacks from bad actors who try to exploit weak points in the blockchain. Proof of stake (PoS) is the underlying mechanism for Ethereum’s consensus algorithm. Once a new shard block proposal has enough eth proof of stake attestations, a “crosslink” is created which confirms the inclusion of the block, and your transaction, in the beacon chain. If a validator isn’t chosen to propose a new shard block, they’ll have to attest to another validator’s proposal and confirm that everything looks as it should. It’s the attestation that is recorded in the beacon chain, rather than the transaction itself.

Casper Network uses a proof-of-stake mechanism akin to many layer-1 networks and uniquely incorporates a consensus mechanism known as CBC Casper. This approach has drawn notable attention, even earning an endorsement from Ethereum’s co-founder, Vitalik Buterin. It involves miners adding blocks to the chain by solving mathematical problems. However, there are plans to move to the proof of stake (PoS) system soon.

Whereas under proof-of-work, the timing of blocks is determined by the mining difficulty, in proof-of-stake, the tempo is fixed. Time in proof-of-stake Ethereum is divided into slots (12 seconds) and epochs (32 slots). One validator is randomly selected to be a block proposer in every slot. This validator is responsible for creating a new block and sending it out to other nodes on the network.

The network is kept secure by the fact that you’d need 51% of the network’s computing power to defraud the chain. This would require such huge investments in equipment and energy; you’re likely to spend more than you’d gain. While Ethereum developers say the “proof-of-stake” model has safeguards to ward off hackers, others say criminals could attack the blockchain under the new system. There are different ways transactions on the blockchain — the software that underpins most crypto — can be verified. In the “proof-of-work” system currently used by Ethereum, new transactions are checked by crypto miners. Once generated, this was incredibly easy for other miners and clients to verify.

Leave a Reply

Your email address will not be published. Required fields are marked *