Ethereum was originally developed as a Proof of Work (PoW) blockchain, which requires miners like Bitcoin. But in mid-2015, the trouble bomb concept was introduced to force the network to migrate to the more scalable Proof-of-Stake (PoS) consensus algorithm. New Ethereum 2.0 the upgrade promised to bring additional benefits to the network as well as to users.
About 66% of the Ethereum community supports the PoS model, with the belief that the update will have positive impacts on Ethereum price and Ether trading volumes.
However, that doesn’t mean that Ethereum’s transition to PoS doesn’t have some drawbacks. So let’s take a look at some potential pros and cons that the PoS algorithm could have on the Ethereum network.
PoS vs. PoW
Before talking about the pros and cons of PoS, it is good to first understand the distinction between the Pos and PoW consensus algorithms.
In proof of work, crypto miners compete for the privilege of adding the next block to the Ethereum blockchain using sophisticated computer hardware that helps them solve resource-intensive calculations. A miner is only rewarded for adding the next block to the blockchain if they are the first to reach the correct answer. The miner receives a bulk reward as compensation for the hard work.
While PoW has been effective in maintaining the security of the Ethereum network, it also has some major flaws – it is relatively slow and extremely power hungry. Therefore, there is a need to look for another way to achieve consensus in the blockchain network – this is where proof of stake comes in.
While PoS also involves some level of competition between miners (this time they are called validators) over who has the privilege of adding a block to the blockchain, the process is faster and does not require heavy mining. resources. Instead, PoS relies on users ‘throwing in’ their coins to validate transactions on the Ethereum network.
Staking and validators
The concept of staking simply refers to the process of placing your coin as collateral to validate the next block on the Ethereum network. This is similar to what miners do in the PoW algorithm, but here participants are held more accountable for their actions. For example, if you promote invalid trades, you will likely lose some or all of your stake.
Unlike PoW, the process in PoS does not require any real cost – “miners” do not have to pay for their equipment, electricity or maintenance of their facilities. Instead of getting bulk rewards, miners are remunerated through transaction fees paid for using the network.
Validators, on the other hand, are individuals chosen at random to validate transactions after wagering their coins. Although they are chosen at random, users with a higher stake generally have a better chance of being selected.
What are the advantages and disadvantages of points of sale
Benefits
- PoS encourages the scalability and security of the Ethereum network while improving its decentralization.
- PoS is more energy efficient than PoW where miners spend a lot of electricity to do their job.
- Anyone can participate as no costly investment in hardware is required.
- It guarantees more transactions per second – up to 100,000 compared to the 64 transactions per second experienced with PoW.
- Network transactions can be cheaper and faster with reduced gas costs.
- PoS will also increase ETH requests as users get staking rewards and also use ETH in DeFi (decentralized finance) applications.
- The price of Ethereum will likely be stable considering that the coin holder will be profit driven to hold them instead of selling to buy mining equipment.
- No specialist experience is required to participate in staking
The inconvenients
- Once a part is staked, you cannot sell that particular part until the stipulated staking period has elapsed.
- PoS is still new and its security is not as proven as PoW
- The reward for staking is not as much as the reward obtained from mining
- Users who hold a large amount of coins can have a disproportionate influence on the consensus process
What other cryptocurrencies use PoS?
Although Ethereum is only moving to PoS, the concept is not new at all. There are other cryptocurrencies that use different variations of the Proof of Stake Consensus. However, none of the three biggest cryptos – Bitcoin, Ethereum, and XRP are currently using it.
Some cryptocurrencies that use the PoS consensus mechanism include
- EOS (EOS)
- Cardano (ADA)
- Tezos (XTZ)
- Lisk (LSK)
- Cosmos (ATOM)
Final remark
The transition from proof of work to proof of stake has always been part of the Ethereum upgrade process. The upgrade has been underway since December 2020 and the final launch is expected to take place anywhere in 2022. PoS has several advantages over PoW, including being less power hungry and relatively faster.
However, the new consensus mechanism also has some drawbacks. It is still very fresh and lacks any evidence of durability. Regardless, considering both the pros and cons, experts still believe that the switch to the PoS algorithm is one of the best things that can happen to Ethereum – so it’s worth it!
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