Proof of Stake is a way to verify transactions on a Blockchain through locked up funds. You “bet” a certain amount of the network’s coin as a promise to make sure every transaction coming your way will be true.
You’re about to witness crypto history, the Ethereum Merge is about to happen. After this momentous event, crypto will enter a new era of better scalability and sustainability.
But, why is the Merge such a big deal? You’ve probably heard about Proof of Stake before, but what does it really mean for web3 and crypto?
We discussed Proof of Work before in our “What is Ethereum” guide, so to recap:
<aside> 👷 Proof of Work verifies transactions and keeps the network secure through a minigame of sorts, a competition to see who gets to verify the most transactions. This process is known as Mining, and so far it’s pretty much synonymous with crypto.
</aside>
The problem is, Proof of Work can be very inefficient when it comes to processing power. As only the winners of that competition get the prize, yet every contestant was competing at the same time.
This problem has led many of crypto’s brightest minds to look for a more optimized solution. One in which the network assigns you a transaction and only you can verify it. This can be a bit more tricky to secure than you’d expect: Who gets to assign transactions? How can you make sure they are being verified?
In comes Proof of Stake, an elegant solution in which Validators, “Stake” (i.e lock up) their ETH to be assigned these transactions in a constant stream. If the information the network sends your way isn’t validated, you lose some of that ETH in what’s known as slashing.
It doesn’t matter how much ETH you stake as long as it’s 32ETH or more, you can only set up a single validator node per stake. So if you decide to stake 64, 128 or 256ETH it’s all the same, your stake amount gets broken up into a proportional quantity of nodes, and you’re assigned a set number of transactions for each one.
This allows the network to remain decentralized and not play favorites with the biggest stakers, each node is seen in isolation.
This consensus mechanism is already widely used in several other chains, with only a few of the big players yet to adopt it. The most significant of them being Ethereum. But that’s about to change
There’s a lot of debate going on about whether PoS will be as positive as most people make it up to be.
These naysayers usually cite the biggest problem with Proof of Stake around the fact validators need a 32ETH upfront investment to set up a node. Calling it a threat to decentralization.
In truth, Proof of Stake offers a lot of benefits: