- The miners are called validators.
- Validators need to stake 32 ETH to validate transactions.
This is a consensus mechanism that is used by Ethereum for its functioning. Consensus mechanisms are used for adding the transaction information to the blockchain. The consensus mechanism also secures the blockchain and prevents double entry of transactions. This mechanism heavily depends on the working of the blockchain therefore a good consensus mechanism is important for both proper working and security. In this article let’s know about the Proof-of-Stake consensum mechanism which is used by ethereum, how it works and why ethereum shifted from proof-of-work to Proof-of-stake.
What is Proof-of-Stake
Proof–of-Stake is an advanced mechanism compared to the proof of work, Because proof of work utilises a lot of energy consumption to process a single transaction and most of the time this energy is wasted. Hence, the proof-of-stake mechanism was introduced in 2012 by a cryptocurrency called the Peercoin. Later due to its high efficiency and advantages many other cryptocurrencies like Cardano, Algorand and Ethereum adopted it.
Working of Proof-of-Stake Mechanism
This consensus mechanism does not require hefty machines to function; even a user with a normal computing power can mine the ethereum. But this does not make the work easy because instead of investing too much on computational power validators need to stake their coins.
Different blockchains have different rules regarding staking of coins. For example, Ethereum validators need to stake 32 ETH in order to add the transactions to the blockchain. A block is then validated by many validators present on the network. Once the validators finalise the block it is accepted that the block is accurate, the actual validator is rewarded.
Difference between Proof-of-Work and Proof-of-Stake
Proof-of-Stake
The block creators in this mechanism are called the validators. This is because they validate the transactions and then add them into the blockchain. Each transaction is verified by different validators and then added to the blockchain. That’s why the people who add transactions to the blockchain are called validators.
Proof-of-Work
The people who add transactions are called miners. They add the block by solving complex mathematical equations and guessing the correct hash code. They put in a lot of hard work for this and hence, they are called Miners.
Investment
To become a validator on the Ethereum blockchain participants must be well equipped with initial capital because becoming a validator on the Ethereum network requires a lot of investment. For example, to validate ethereum users need to stake at least 32 ETH and the current value of 32 ETH is $59243.52. Which is not a small amount. And even after such large investments, only the investors with the maximum investment get the chance to validate the block. But thankfully, users can get their investment back.
Whereas bitcoin mining is very risky because for even being eligible to mine a bitcoin miners first need to invest on heavy and complex machinery. After acquiring all this machinery they then need to spend a lot of energy mining it. According to a recent survey, mining a single block of bitcoin requires almost 9 years of typical household electricity. Which is very dangerous for the environment. The special part is that this money is non refundable like the Etheruem.
Rewards
In Proof-of-Stake, validators receive transaction fees as a reward, whereas in the proof-of-work consensus mechanism miners receive new Bitcoin as a reward.
Conclusion
Proof-of-Stake is an efficient and eco-friendly consensus mechanism adopted by Ethereum and other cryptocurrencies. Unlike Proof-of-Work, validators secure the blockchain by staking coins, eliminating the need for energy-intensive mining. While validators require significant investment, they receive transaction fees as rewards. This shift to Proof-of-Stake represents a greener and more scalable approach to blockchain consensus.
