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What Is Proof of Stake(PoS)? And Why Did Ethereum Transition To It?

 

By Nerly Shammah Oct 05, 2022.

 

 

Proof of stake is a blockchain consensus mechanism meant to enhance the security of the network as transactions are verified based on its defined rule set. Proof of stake is primarily seen as an alternative to proof of work, a consensus mechanism that relies on the expanding of computational power to group and verify transactions.

 

 

Understanding Proof of Stake(PoS)

 

Cryptocurrencies live and operate via a distributed ledger called the blockchain. The blockchain holds all data passed through the network, this includes transactions and messages, encrypted or not encrypted messages, all of it is stored on the blockchain and is readily available to anyone.

 

This is because the data set is uniquely stored, across multiple computers worldwide, thus the inability for the ledger to be attacked and information erased.

 

That said, to actually attain top-level security and ensure that the ledger forever remains untampered with, the blockchain adopts several consensus mechanisms such as proof of work and proof of stake to name a few. These are simply algorithms that network participants need to follow to ensure that all data posted to the chain are secured, the process is usually called mining. 

 

Proof of Stake was proposed as an alternative to proof of work because it requires validators to stake a specific network coin or token to verify transactions on the chain, this is as opposed to proof of work where miners do not need to stake coins, however, miners need to buy and run heavy hardware to expend energy and solve computational problems to verify transactions.

 

Proof of work is considered not energy nor cost-efficient, whereas proof of stake requires 99% less energy to operate.

 

Block Production In Proof of Stake Explained

 

How are blocks or transactions verified on Proof of Stake?

 

Blocks are basically groups of transactions, miners and validators basically pick transactions from the mempool and group them into blocks before posting to the chain, that’s why it is called the blockchain.

 

That said, every blockchain follows a different set of rules on how blocks are produced and added to the chain, this is what is called the consensus mechanism.

 

On proof-of-stake blockchains, blocks are assigned to validators based on a factor of token balance. Typically, for a validator to be chosen to verify transactions, he has to hold a said amount of tokens, the chances of being picked are based on the figures.

 

A validator with more stake has more chances of being picked, similar to a miner with more mining power called hashrate. When a chosen validator groups transactions, other validators have to agree that the data presented is unique, if it doesn’t match the other copies of validators, the block will be refused by the network.

 

Is Proof of Stake Secure?

 

The vast financial system all battle different shortcomings when it comes to the security of the network, with cryptocurrencies and blockchain technology, this is no different case to ensure there aren’t any leaks.

 

The common worry of cryptocurrency blockchains is centralization, more specifically the likelihood of a 51% attack. With proof-of-work blockchains, a 51% attack is costly to initiate, this is because of how decentralized the mining network is already, how costly it is to acquire enough mining rigs to attain more than 50% of the hashrate, and the ability of a network to fork away and leave currencies on the previous chain useless. 

 

With proof of stake, a validator would have to control more than 50% of the token supply to be able to take over the chain, in theory, the consensus mechanism is secure unless the distribution curve of the token or coin is highly centralized.

 

Why Did Ethereum Transition To Proof of Stake?

 

Initially, Ethereum was a cryptocurrency network also based on proof of work. Following the merge that occurred on the 15th of September, 2022, Ethereum transitioned to a proof of stake consensus mechanism.

 

The reason for the transition was to adopt a more energy-efficient consensus algorithm, proof of stake happens to require 99.99% less energy than the proof of work consensus mechanism.