Ethereum intends now shift to ‘proof-of-stake‘ within the upcoming days. While making its next move to POS will expectedly reduce the energy consumed by around 99%. There are however repeated claims that cryptocurrency uses an excessive amount of energy and is thus inefficient and environmentally unfriendly. Some reports notice that mining cryptocurrency uses additional energy even more than the gold mining.. Some researchers also notice that mining is overall unhealthy for the atmosphere.
Ethereum [ETH] started with the goal of transforming into a world computer, with the blockchain being the primary to introduce smart contracts, and in conjunction with it a thriving developer community. The value of Ether peaked around $1400 USD earlier in 2018, and presently is ‘trading‘ below $150 USD benchmark.
Similar to Bitcoin [BTC], Ethereum [ETC] uses Proof-Of-Work as its core working mechanism so as to secure the blockchain. However, Ethereum founder Vitalik Buterin stressed the importance of the energy spent so as to secure the Ethereum blockchain. Even if one wouldn’t look after the ecological problems revealed by primarily PoW [Proof Of Work] based blockchains, there are real people that are still deprived of basic needs as electricity.
This is majorly due to the very fact that in PoW based blockchains, miners race to cryptographically secure transactions. This imply miners to equip themselves with a grip in terms of computational capability, which ends up in burning countless million dollars price of electricity and mining-related prices.
In line with Vitalik, PoW relies on the idea of enormous quantities of electricity and mining hardware strictly supporting the premise that it generates rewards in the form of mined cryptocurrencies. This simply implies that the additional mining power is directly proportional to revenue.
PoW essentially operates on a logic of enormous power incentivized into existence by large rewards.
PoW [Proof-Of-Stake] applies a totally different philosophy towards securing the network
Proof of stake breaks this symmetry by relying not on rewards for security, but however rather penalties.
Ethereum’s Existing PoW Vs Ethereum’s Upcoming POS
With Proof-Of-Work, miners race to work on the similar set of transactions. However, Proof-Of-Stake at random picks validators to process and secure transactions.
In a Proof-Of-Stake System, validators are the equivalent of miners. Secondly, the first concern within a POS system is to confirm that the validators are honest at all the times. This is often tackled by requiring validators to place up a stake denominated in ether as collateral.
The “one-sentence philosophy” of PoW is therefore not “security comes from burning energy”, but rather “security comes from shooting up economic value-at-loss”
The bigger a validator’s stake, the bigger are the probabilities at being picked to validate transactions. More significantly, validators caught cheating have their stake to lose. This uneven distinction between the potential rewards vs. the risks of cheating force a validator to stay honest all the times.
One of the foremost interesting things with regard to PoS is the undeniable fact that given validators don’t spend too much amount of energy [compared to PoW] to secure the network, the reward might also be considerably lower. As per Casper Github wiki:
Because of the shortage of high electricity consumption, there’s not any much requirement to issue as many new coins so as to inspire participants to keep participating within the network.
Current Progress Of Ethereum POS
Ethereum [ETH] having its 1st mover advantage has undoubtedly created strides of progress in terms of building out the primary world computer of sorts. However, we currently have several protocols being designed on top of Ethereum, like MakerDAO, that is a decentralized stablecoin and has barred up nearly 1% of Ethereum supply. Aside from this, theres a burgeoning DeFi[Decentralized Finance] community comprising of project like Compound, dYdX, CDx
However, there are also some other groups competing to make POS compliant chains like EOS, Cardano, Dfinity and Cosmos along with others. It’s yet to be seen whether or not Ethereum [ETH] can maintain its 1st position as smart contract platform, whereas overcoming the energy consumption issue, and most significantly – scaling.