The long-awaited “The Merge” is now complete, bringing forth the most recent Ethereum 2.0 version. Transitioning from Proof-of-Work (PoW) to Proof-of-Stake is critical to this upgrade (PoS).
Most people have welcomed this change as a positive development, yet some are still perplexed by it. The pros and downsides of Ethereum switching to a Proof-of-Stake (PoS) consensus method will be discussed in this article.
Understanding the distinction between Proof-of-Work (PoW) and Proof-of-Stake is necessary before we go into the advantages and disadvantages (PoS). Miners compete to add the following block to the Ethereum network using the Proof-of-Work consensus process. They do this using specialized computing equipment that can solve challenging mathematical problems. The first miner who discovers the solution and adds the block is rewarded for their diligent labour. Since its creation, this procedure has protected the Ethereum blockchain. However, the ecosystem’s expansion has revealed several areas for improvement. PoW requires a lot of energy and is slower. This has led many to demand the adoption of PoS.
Additionally, there is considerable rivalry amongst validators in proof-of-stake. Miners are replaced in PoS by validators. The procedure is more straightforward and quicker. To validate transactions on the Ethereum blockchain, Proof-of-Stake relies on validators putting up their funds as collateral. Staking is the process of offering your coins as security so that you may become a validator. Since any effort to interfere with the network might cost the validators half or all of their collateral, PoS is considered to require more responsibility than mining. Every block validator receives rewards from the network for adding a new block. Validators are required to stake 32 ETH to become validators.
PoS Reduces the Barrier to Entry and Increases Decentralization
PoW mining is expensive. The resource-intensive processes required to authenticate a transaction cannot be completed by the typical user using standard devices like phones and computers. You will have to spend a lot of money on equipment to start mining. Despite receiving pay for their efforts, small-scale miners could take a while to profit or break even.
Additionally, miners must have a stable internet connection and power supply since mining consumes a lot of energy. As a result, many people have been unable to contribute to the web due to the nature of mining. This often limits mining to more prominent companies or mining pools.
A more viable method to establish a more diverse and decentralized dispersion of validators may be found in proof-of-stake. Ethereum tokens are all that users need to possess as collateral. Although the price of Ethereum may drive some individuals away depending on the market, it is still preferable to own the underlying asset because a rise in value helps the validator. Additionally, staking pools allow you to pool your money so that you may work as a validator, process transactions, and you can buy and send ethereum rapidly.
Since the transactions’ validation will not be managed by a small group of people who might seek to impose their will on the project’s development, this is intended to strengthen the network’s decentralization.
PoS is More Environment Friendly
Due to the energy-intensive nature of Proof-of-Work and how that contributes to environmental degradation, Bitcoin and other cryptocurrencies have faced harsh criticism. Some efforts are being taken to ensure that many Bitcoin miners use renewable energy.
After switching to PoS, Ethereum no longer needs to deal with this problem. This should make adopting Ethereum simpler for moral consumers and businesses who pay close attention to how technology affects the environment.
PoS Improves Transaction on the Ethereum Blockchain
Several transactional problems have caused Ethereum to draw a lot of criticism. Because of network congestion, transactions are confirmed more slowly than usual. These crowds were quite common during the ICO craze when investors were rushing to invest before tokens sold out. Non-fungible token-minting occasions recently have been no different. The cost of transactions may be the main concern for many. Users must spend enormous amounts of money on transaction fees during network congestion.
PoS may only be able to resolve this issue partially, but that is still an open subject. However, it is anticipated that transaction speed and cost will improve to some extent. Contrary to PoW’s 64 transactions, Proof-of-Stake can handle up to 100,000 more transactions per second.
More apps might be implemented on Ethereum with increased network scalability that can manage more enormous transaction volumes without imposing costly fees and delays. After the transition to PoS, it’s anticipated that widespread enterprise adoption and increased digital assets kept on the Ethereum blockchain could occur.
Cons of the PoS
The transition to Proof-of-Stake has certain drawbacks. Compared to Proof-of-Work, Proof-of-Stake is a more recent consensus technique that has not been subjected to extensive testing. Before Ethereum used PoS, other coins like EOS (EOS), Tezos (XTZ), Lisk (LSK), Cosmos (ATOM), and Cardano (ADA) also used it. These projects have witnessed significant activity, but Ethereum had less. The PoS in space will be tested for the first time on this scale.
Second, Proof-of-Stake is more challenging to put into practice. This explains why Ethereum’s transition to PoS has taken so long. To provide programmers with a preview of how the merging will appear on the Ethereum mainnet, the merge has most recently been done on the Ropsten test network.
Finally, the collateral system could not work for you if you are finicky. When a coin is staked, the staker often cannot transfer or exchange the cash until the predetermined staking time has passed. Furthermore, some contend that individuals possessing vast sums of currencies may substantially impact the consensus process, which would harm Ethereum’s decentralization.
With the official release of Ethereum 2.0, the question of whether the update will benefit the ecosystem more than before will soon be resolved.