Ethereum goes Proof-of-Stake

May 31st, 2022

Ethereum is a distributed state machine. Think of it as a virtual computer distributed across thousands of nodes around the world.

Now Ethereum is gearing up for arguably the biggest event in crypto history – #TheMerge – reducing its energy consumption by 99.95%.

But how? ⚡

Until now, “miners” have utilized an energy-intensive Proof-of-Work (#PoW) consensus protocol to add blocks of transactions to the Ethereum #blockchain and thus earn rewards. Ethereum's PoW consumes 73.2 TWh annually, the energy equivalent of a medium-sized country like Austria. 🤯

This is what a crypto mining farm looks like.

The Ethereum Foundation claims “The Merge” will usher in a new era for Bitcoin's biggest rival.

Ethereum's network is set to merge with the “Beacon Chain”, running an energy-efficient Proof-of-Stake (#PoS) consensus protocol. So why Proof-of-Stake?

The Path to the Merge: Illustration by @trent_vanepps

With #PoS, miners become obsolete and get replaced by so-called “validators”. In contrast to a wasteful “mining rig”, you can run a validator node on a lightweight @Raspberry_Pi or @OdroidH.

To run a validator node, you will need to “#stake” at least 32 ETH.

At the time of writing, this equals an investment of $63,000. 💰

A Raspberry Pi can be set up to serve as a validator node for Ethereum. Photo by @PraveenTcom

By requiring #validators to stake their precious $ETH, the consensus protocol incentivizes good behavior.

Compliant validators get ETH-denominated rewards for running the network and lose a portion of their stake for being offline or their entire stake for deliberate collusion. 🚨

The migration to #PoS is an enormous but crucial undertaking.

With billions of 💵 at stake, the developers need to ensure backward-compatibility and an incentive structure promoting security, partly based on game theory.

At the same time, Ethereum needs to be able to accommodate future updates like #sharding.

Sharding is a future update promising to drastically reduce the time and fees needed to finalize transactions on the blockchain. It’s the next big change coming to the network after the merge is tried and tested.