In the first half of 2022, Ethereum will be switching from its tried and tested Proof Of Work scheme and instead move to the more efficient (but not necessarily more risk-averse) Proof Of Stake. To categorize this as a bold move would be an understatement. Along with its cryptocurrency counterparts such as Bitcoin, Ethereum has been using the POW system to keep its network safe and secure for all users. The users, in conjunction with this, have also been rewarded in return.
How Does POW Work?
There are various ways to buy ETH, but one of the most popular ways to earn new coins is to become a miner in the blockchain. This is essentially a linked chain of all Ethereum transactions, formed into blocks that have strings of code known as ‘hashes’. Each new transaction will form a new block, designed to keep transactions secure, not only in their complexity but in their publicity. Nothing is done behind a door. All transactions are left out in the open, with each block developed by the last block in the chain. Any changes to the blocks will result in a recognizable alteration in the hash, meaning tampering is nigh on impossible, nor can any user of Ethereum double-spend their ETH.
For Ethereum, all new blocks are mined by users, with each of them working to validate the correct hash, which will then transgress into a block of 745 transactions. The user who validates the hash earns themselves ETH, which can then be used for their own transactions, whether it be gaming, apps or investment into one of Ethereum’s DAOs.
What Are The Negatives?
This has been a working formula for cryptocurrency, but there have been negatives. The largest of these comes in its massive energy consumption. With every miner pitted against each other to solve the hash, the result of computer power is enormous. In a 2021 report, it was revealed that a single Bitcoin transaction consumed over $100 of electricity. The same volume of energy could power an American home for six weeks. China and Kazakhstan even went as far as banning crypto miners and shutting off their electricity. There is also physical wastage, with computer servers burning out and ending up in landfills far quicker than usual.
Time For A New Strategy
Thus comes the need for renovation. Whilst the Proof Of Work scheme worked conceptually, it has long been overdue a sustainable haul that can be just as conceptually effective. Enter Proof Of Stake. With this new scheme, users can now deposit their coins into a smart contract, transforming what were once minors into validators. For Ethereum, validators will put up to 32 ETH into the system and, depending on how much they have deposited, will then be chosen by an algorithm to validate the block. This will then be repeated at random for other validators and when they decide that the block is accurate, it will be closed and linked to the next one.
So what changes for Ethereum? For one, the original mining strategy was entirely dependent on energy and computer power. Now, however, mining power will be determined on how many coins a user has and how many ETH they have deposited into the smart contract. This gives users who are aiming to “win the lottery” more of a chance of doing so, as it is now less dependent on hardware and more dependent on the users own purchase of tokens. Similarly, it can have a positive ripple effect on the entire Ethereum community. Without the need for multiple computer calculations, the speed of transactions across the network will be faster and far more efficient.
Most notably, however, the move from Proof Of Work to Proof Of Stake should drastically improve the network’s energy problem. Now that there is no need for excessive hardware to secure a blockchain, the huge amount of power being used through mining is no longer being burned. Energy consumption has long been an open wound in Ethereum’s otherwise user-friendly network, but it says a lot about Ethereum’s enterprise that they have not only bandaged up that wound but parked an entire ambulance on top of it.
So Is This The Future?
It’s not all a win/win situation. While the new system will increase participation in the network through the rise of nodes, a stronger emphasis on decentralisation and greater transaction efficiency, it is still a far-out and risky venture for a network getting comfortable in its tried and tested skin. While POS is environmentally progressive, it has not yet been proven to work on such a large scale. With an emphasis on amounting tokens, there is also the pretence that the system will reward those with the deepest pool of coins with an even deeper pool to swim in. This surely means that Ethereum’s decentralisation could become more centralised over time, as the majority holders will similarly take hold of a majority of the network.
Whether good or bad, it is fair to say that there will be changes aplenty for Ethereum. The question of their success, however, remains to be seen.
