Why is Ethereum moving to Proof of Stake?

Before answering the question of why, I’ll start out by describing what proof-of-stake (PoS) is. Actually wait, before I do that, let’s set the scene by succinctly describing proof-of-work, which is more thoroughly described here.

What is Proof of Work (PoW)?

In the distributed consensus space, the goal of a consensus algorithm is to allow many distributed users to agree on the current state of the blockchain. The most interesting part of consensus algorithm is that participants aren’t required to know or trust any other participants. And of course, there is no central authority.

In general, this problem is pretty hard. It was first solved by the Bitcoin network in 2008 with a PoW algorithm. This basically required participants, or miners, in the network to solve really hard math problems, using their computational power as a “scarce resource”.

Proof of work, well, works. But since its conception many new approaches have been taken, proof of stake (PoS) being one prominent alternative.

Again, you can read here to learn all about PoW.

What is Proof of Stake (PoS)?

This question deserves a post entirely for itself, but I’ll try to describe it succinctly here. Consider the items from the previous section above when reading this section to see why a PoS system would improve on the current one.

Participants in a PoS system validate transactions differently, but still allow the network to reach consensus on the current blockchain state. Several currencies already use PoS. Peercoin was the first one.

In PoW, miners who discover the next block in the chain are given a block reward. In PoS, participants (called forgers) earn the transaction fees from that block. The next forger is chosen deterministically, and from a distribution proportional to that forger’s wealth.

Each participant must “lock” up some amount of ether via a special type of transaction. Only then can you expect that you’ll be chosen at some interval with the task of forging a new block.

There are many flavors of PoS algorithms (e.g. chain-based proof of stakeBFT-style proof of stake), so this is out of the scope of this article. Expect more articles going into further detail about PoS. 🙂

Why does PoS improve on PoW?

  • A PoW system is very expensive to maintain. On the other hand, PoS energy consumption is negligible.
  • As a side effect to the first item, there is a smaller need to issue new coins to motivate participants to stay involved with the network. It may even be feasible to have a negative net issuance, where a certain amount of transaction fees are “burnt” in order to decrease token supply over time.
  • Censorship is another item of concern in PoW systems. For example, in bitcoin, PoW is a zero sum game. If one miner’s block is not included in the final chain, all other miners benefit because their odds of inclusion become higher. In other words, that miners block has been censored from the chain. In PoS, participants benefit the most when all honest blocks are allowed onto the chain.
  • There is less incentive for selfish mining and other types of centralized cartels.

If I forgot anything that you think should be mentioned in this article, feel free to mention in the comments below!

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