One of the leading blockchains Ethereum is testing a new system to approve transactions.
The growing market for NFT (non-fungible tokens) has brought a lot of eyes to Ethereum, the blockchain network where most NFT transactions are conducted. Aside from that, it also brought attention to the massive energy consumption of cryptocurrency mining.
Blockchains are decentralised, meaning it doesn’t have a bank to verify transactions. Ethereum relies on a consensus mechanism called “proof-of-work” to manage a ledger of transactions.
Proof of work requires computing power and electricity. It pits miners against each other in a competition to solve complex mathematical problems. The miner who solves the problem first will update the ledger by adding a new block to the chain, receiving minted coins in return.
Ethereum plans to transition its network to a different consensus mechanism called: “proof-of-stake“. The event will be termed “The Merge”. The move is set to take place in the first half of 2022. Proof-of-stake is expected to use 99% less energy, allowing Ethereum to host 100,000 transactions per second.
Ethereum’s shift to proof-of-stake has been years in the making.
“[We thought] it would take one year to [implement] POS … but it actually [has] taken around six years,” Ethereum Founder Vitalik Buterin said.
Ethereum’s proof-of-stake system is being tested on the Beacon Chain. The goal is to merge it with the Ethereum chain in the coming months.
Once the merge has been completed, other upgrades are set to follow. Ethereum is planning to introduce sharding. It is a process of breaking down the Ethereum blockchain into 64 separate chains which will be coordinated by the Beacon Chain. Parallel Processing will be allowed by shard chains to support more users and for the network to scale. The inclusion of shard chains is seen at the completion of Ethereum 2.0.
How does proof of stake work?
Proof-of-stake was first presented in July 2011 on an online forum called BitcoinTalk. According to the 2013 white paper that described Ethereum, it was supposed to be the mechanism securing the network right from the beginning. But with the complexities of the system, Ethereum launched using a proof-of-work model.
The proof-of-stake system replaces miners with ‘validators’. Investments will be made in the native coins of the system instead of computer farms that require high energy. As a validator, you need to stake your tokens in a smart contract to win block rewards. After sending cryptocurrency to a smart contract’s wallet address, the contract keeps the currency, similar to putting money in a vault.
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