The most awaited update Ethereum 2.0 continues to approach: according to the forecasts of the developers, the update will be completed before the end of 2022. An important part of this update is the transition from Proof-of-Work (PoW) to Proof-of-Stake (POS).
Most people took this transition as a positive step, but some are still scratching their heads over it. In this article, we will look at the advantages and disadvantages of Ethereum's transition to a Proof-of-Stake (PoS) consensus mechanism.
Before moving on to consider the pros and cons, it is necessary to understand the difference between Proof-of-Work (PoW) and Proof-of-Stake (PoS) mechanisms. With the Proof-of-Work consensus mechanism, miners compete for the opportunity to add the next block to the Ethereum network. To do this, they use special computer equipment that solves complex mathematical equations. The first minerThe one who manages to find the correct answer and create a block receives a reward for his work. This process has ensured the security of the Ethereum blockchain since its inception. However, the growth of the ecosystem has revealed some shortcomings. PoW is slower and requires more energy. This has prompted many to call for the implementation of PoS.
Proof-of-Stake also involves some competition between validators. In PoS, miners are replaced by validators. This process is much faster and less labor intensive. Proof-of-Stake is based on the fact that validators stake their coins to confirm transactions on the Ethereum blockchain. Under staking refers to the process of providing one's coins as collateral in order to become a validator. Unlike mining, there is a higher liability in PoS, as any attempt to tamper with the network can cost the validators half or all of their collateral. Validators, who are randomly selected for each block, are rewarded with trading fees paid for using the Ethereum network. To stake on Ethereum, users need to have 32 Ether tokens.
Proof-of-Stake removes entry barriers and promotes decentralization
Mining in PoW is very expensive. A typical user cannot use common devices such as phones and laptops to perform the resource-intensive tasks required to confirm a transaction. To become a miner, you need to purchase expensive devices. Even though miners are compensated for their work, it can take a long time for small miners to turn a profit or break even.
In addition, miners need to invest in electricity as the process is energy intensive, as well as invest in an internet connection to maintain a constant connection to the network. The nature of mining prevents many from contributing to the network. As a result, mining is usually done only by large companies.
Proof-of-Stake is likely to represent a more sustainable alternative to achieve a wider and more decentralized distribution of validators. Users only need to hold Ethereum for collateral. Even if the price of Ethereum, depending on the market, can crowd out people, it is comparatively more profitable to hold the underlying asset, since the increase in value benefits the validator. In addition, multiple holders can pool their funds through staking pools to become validators, participate in transaction processing, and earn rewards.
It is expected that this will increase the decentralization of the network, since the confirmation of transactions will not be handled by a select few who may want to impose their will on the project management.
Proof-of-Stake will improve transactions in Ethereum
Ethereum has come under a lot of fire due to various transaction issues. The network is experiencing congestion, due to which the confirmation of transactions takes longer than usual. Such overloads were popular during the ICO boom, when investors were eager to buy tokens before they sold out. Recently, the events associated with the mining of non-functional tokens are no different from this. Perhaps the biggest concern for many is the cost of transactions. During such episodes of network congestion, users have to pay relatively large sums of money as transaction fees.
The question of whether PoS can completely solve this problem is still open. However, some improvement in the speed and cost of transactions is expected. Proof-of-Stake increases throughput to 100 transactions per second compared to the 000 transactions per second seen with PoW.
By improving the scalability of the network to process large volumes of transactions without costly fees and delays, more applications can be deployed on Ethereum. It is expected that after the transition to PoS, there will be a large-scale adoption in enterprises and an expansion of the range of digital objects that can be stored on the Ethereum blockchain.
PoS makes Ethereum environmentally friendly
Bitcoin and other cryptocurrencies have come under fire due to the energy-intensive nature of Proof-of-Work and how it contributes to environmental pollution. To be fair, there are some attempts to get many people who mine Bitcoin to do so with clean energy.
However, Ethereum will not have to deal with this issue once the transition to PoS occurs. This will ease the transition to Ethereum for ethical consumers and companies that pay particular attention to the impact of technology on the environment.
Ethereum PoS – Disadvantages
The upcoming transition to Proof-of-Stake has some drawbacks. These cons may not be the same as the pros, but they are worth mentioning.
Proof-of-Stake is a younger consensus mechanism and has not been extensively tested compared to Proof-of-Work. EOS (EOS), Tezos (XTZ), Lisk (LSK), Cosmos (ATOM) and Cardano (ADA) used PoS before the adoption of Ethereum. While all of these projects have shown significant activity in the past, none of them have experienced the volumes that Ethereum has. This will be the first large-scale PoS trial in this space.
Secondly, Proof-of-Stake is harder to implement. The path to PoS for Ethereum has taken so long for this very reason. At the time of writing, the Ropsten testnet is about to conduct its own merge to give developers an idea of what the merge on the Ethereum mainnet will look like.
Finally, if you're really picky, you might have a problem with the bail system. When a coin is pledged, usually the pledgee cannot move or exchange the coins until the end of the agreed pledge period. In addition, some argue that people holding a large number of coins can have a huge impact on the consensus process, which negatively affects the decentralization of Ethereum.
With Ethereum 2.0 closer than ever to launch, the debate over whether the upgrade will bring more value to the ecosystem will soon be resolved.