Ethereum 1.0 VS 2.0: Proof of Stake VS Proof of Work
What is Ethereum?
To keep it short, Ethereum is a decentralized network allowing transactions and interactions with smart contracts. In the entire cryptocurrency world, Ethereum has the second largest marketcap, behind Bitcoin.
Ethereum 1.0, based on proof of work.
When a transaction is executed by A to B on the blockchain, it must be verified and confirmed by a miner to be placed. To do that, miners are competing against each other to solve mathematical problems before confirming and submitting the transaction to the blockchain.
It is like a marathon where hundreds or thousands of people (GPUs) are running to get to the finish line, but there is only ONE winner. In this case, the winner gets to put the verified transaction onto the ledger and receives a reward. Also known as proof of work (PoW) consensus mechanism, this inherently consumes a lot of “unnecessary” but necessary energy.
Enters Ethereum 2.0.
What is ETH 2.0?
Ethereum 2.0 is a set of upgrades to improve the network’s scalability, security, and sustainability. The two major improvements are proof of stake consensus model and sharding capabilities.
Let me explain.
Mining in proof of work requires a lot of capital, setup, special hardware, and electricity. To become a miner, individuals will need dedicated space to run and store GPUs. In order to operate efficiently, GPUs are required to run below temperature thresholds which means efficient cooling systems will need to be in place. As you can imagine, all this required capital limits the number of players that can participate. Problems that may be faced are high electricity costs, lack of capital, warmer climates, and more.
Switching to proof of stake (PoS) consensus means validators will stake and lock their ETH tokens as collateral. The only requirement to become a validator is to stake at least 32 ETH and run software on a computer system (this can be local or remote). No need for cutting-edge technology, any laptop (providing it meets minimum requirements) would do (there are better options, this is just an example of how easy it would be).
More participants will lead to the end goal of cryptocurrency as a whole, which is true decentralization.
Staking coins by locking them for a specific period also limits the number of that coin circulating in the market, increasing the demand, which will increase the price. The higher the price, the more the network is secure from attack. A full attack would require a bad actor to control 51% of the supply. As the price rises this becomes more difficult; hence the security of the network increases.
Now, let’s talk about the second key improvement to scalability: sharding.
The idea behind this is instead of having one blockchain on the mainnet recording all the transactions, Ethereum would also have multiple side chains that run transactions parallel to the main blockchain, capable of doing “its own thing” said Buterin.
The sharding mechanism will allow for more simultaneous transactions while maintaining security and speed on the Eth 2.0 network.
PoS will also reduce energy consumption per transaction tremendously, while also giving a lower barrier of entry for potential investors to participate in the validation of the network. In PoW the barrier of entry is high, costly, and not sustainable. Leaving the network to be controlled by the few.
According to the Ethereum Foundation, the existing PoW system consumes 5.13 gigawatts whereas PoS system consumes 2.62 megawatts on a continuing basis. In other words, PoS would use 99.95% less energy than PoW. When the switch to PoS is made, the Ethereum network will go from using roughly the same amount of energy as a medium-sized country to the same amount of energy as around 2,100 American homes.
sources :
https://blog.ethereum.org/2021/05/18/country-power-no-more/
https://www.theguardian.com/technology/2021/may/19/ethereum-cryptocurrency-to-slash-carbon-emissions
So it’s quite obvious that the crypto space is excited about Ethereum 2.0 arrival! All these upgrades will make Ethereum more scalable, more secure and decentralized, and more sustainable.
As for the end of July 2022, Ethereum locked in the deposit contract for ETH 2.0 has reached a new high above 13 million, over $20 billion worth of value.
