How Proof-of-Stake is working?.
Proof of staking is a method of maintaining integrity in a blockchain and ensures that users of a cryptocurrency cannot mint coins they have not earned.
Proof of Stake is a method of maintaining the integrity of a cryptocurrency and preventing users from minting additional coins they did not earn. While a different method called proof-of-work is currently used by Bitcoin and Ethereum, the two largest cryptocurrencies by market cap, Ethereum plans to switch to proof-of-stake to make the platform more scalable and reduce network power consumption.
- Proof-of-work and proof-of-stake are what are known as “consensus mechanisms,” a method of maintaining the integrity of a blockchain. Consensus is what solves the "double spending" problem of digital currency. If there was a way for cryptocurrency user to spend their coins more than once, it would undermine the entire system. The currency would be worthless.
- This is a tricky issue, especially with online currencies with no central authority like a bank or government, knowing how much money everyone has, how they spend it, and who they pay for.
- The Bitcoin network was the first to solve this problem with proof of work. While there has been some controversy over this, Proof-of-Stake has emerged as a possible alternative that some researchers believe is both more energy-efficient and safer.
Why is proof of work/stake necessary?
Avoiding double-spending centrally is not that difficult when a single organization keeps a ledger of all transactions. When Alice sends 1 dollar to Bob, the central accounting manager receives 1 dollar from Alice and gives 1 dollar to Bob. PayPal does exactly that.
But cryptocurrencies are different. The goal is not to have a leader or organization controlling the system that makes this record-keeping difficult.
Instead of a single leader, thousands of users all over the world are using Bitcoin software. These "nodes" ensure compliance with network rules. This sprawling infrastructure must be interconnected for all software to be compatible. Otherwise, these nodes will be disconnected islands.
It turns out that getting these users from all over the world to agree with each other is not easy, so decentralized money has long been beyond the reach of researchers. Until Bitcoin arrives. Proof of Work is the innovative algorithm developed by Bitcoin creator Satoshi Nakamoto, which is the first to bring leaderless decentralized money to life.
Proof of Work VS. Proof of Stake
Some argue that proof of work has issues. As bitcoin mining has become more intense, some groups have become stronger than the bitcoin creator expected. And Bitcoin currently consumes at least as much energy as all of Switzerland. (Others argue that it's not so bad because the current financial system also consumes a lot of energy.)
- In a nutshell, these Proof of X schemes helps validate which transactions have been added to the blockchain through blocks populated with the most recent transactions. The winner receives a prize.
- Proof-of-work and Proof-of-Stake each select a "winner" - the entity that will create the next block - differently.
- With proof of work, miners are participants. If they have more electrically powered computing power, they are more likely to add additional blocks to the blockchain.
- As a proof of stake, miners are more likely to earn additional blocks if they have more coins – ether in the case of Ethereum. In other words, proof of stake is based on "proof" of users' "participation".
- Critics argue that it has yet to be proven that proof-of-stake can eliminate these problems. But fans think that might be the way to go.
Is Proof of Stake better than Proof of Work?
Not necessarily. Proof of Stake has drawn more than a few criticisms. One reason is that Ethereum developers are quick to praise the benefits of proof-of-stake, but it hasn't been proven to work yet because it doesn't exist yet.
However, if proof-of-stake is effective with little or no hassle, it may be a greener alternative that can achieve the same goals as proof-of-work, but in a more efficient way.
Is the proof of stake safe?
As the answer to the question above points out, the jury is still undecided on whether the proof of stake is safe.
Critics argue that the system risks leading to an oligopoly. While blockchains should not have responsible leaders, critics fear that proof of stake could unwittingly bring blockchains back into central control, as users with the most ether have the most power over the system.
Proof of Stake is a long-overdue addition to Ethereum. Vitalik Buterin, the creator of Ethereum, suggested this in a whitepaper back in 2013.
When will Proof of Stake come to Ethereum?
And when exactly it will be implemented is not yet clear. As we mentioned earlier, proof-of-stake needs to be implemented gradually as part of Ethereum 2.0, a series of upgrades to restructure Ethereum.