Ethereums big switch to proof of stake, explained

Proponents also claim that proof of stake is more secure than proof of work. To attack a proof-of-work chain, you must have more than half the computing power in the network. In contrast, with proof of stake, you must control more than half the coins in the system. As with proof of work, this is difficult but not impossible to achieve.

Researchers developed Casper specifically for Ethereum, and Ethereum is the first and only blockchain to have implemented it. Nodes that propose blocks are only a small number of the total nodes on Ethereum. This category includes mining nodes under proof-of-work (PoW) and validator nodes under proof-of-stake (PoS). This category requires committing economic resources (such as GPU hash power in proof-of-work or staked ETH in proof-of-stake) in exchange for the ability to occasionally propose the next block and earn protocol rewards. This means that 1/32 of their staked ether (up to a maximum of 1 ether) is immediately burned, then a 36 day removal period begins. During this removal period the validator’s stake gradually bleeds away.

Under Proof of Stake (PoS), Ethereum uses “checkpoint” blocks to manage validator votes. The first block of each epoch (a period of 32 slots where the validators propose and attest for blocks and is of 6.4 minutes) is a checkpoint. Something similar happened in 2016, after Ethereum developers rolled back the blockchain to erase a massive hack. Some community members were so upset they kept mining the original chain, resulting in two Ethereums—Ethereum Classic and what we have today. If it happens again, the success (and mining power) behind any competing version of Ethereum will depend on the value of its coin in the open markets.

What Is Proof of Stake (PoS)?

The trade-off here is that centralized providers consolidate large pools of ETH to run large numbers of validators. This can be dangerous for the network and its users as it creates a large centralized target and point of failure, making the network more vulnerable to attack or bugs. It provides full participation rewards, improves the decentralization of the network, and never requires trusting anyone else with your funds. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. As of the date this article was written, the author does not own bitcoin or ether.

proof-of-stake ethereum

The authors of this post(opens in a new tab) describe how an attacker with 7% of the stake can deploy their votes strategically to trick honest validators to build on their fork, reorging out an honest block. This attack was devised assuming ideal latency conditions that are very unlikely. The odds are still very long for the attacker, and the greater stake also means more capital at risk and a stronger economic disincentive. After that same deadline, attestations that arrive from slow validators are down-weighted compared to those that arrived earlier. This strongly favors prompt proposers and validators in determining the head of the chain and substantially reduces the likelihood of a successful balancing or bouncing attack.

What is proof of stake?

Node operators that wish to participate in validating blocks and identifying the head of the chain deposit ether into a smart contract on Ethereum. They are then paid in ether to run validator software that checks the validity of new blocks received over the peer-to-peer network and apply the fork-choice algorithm to identify the head of the chain. The minimum amount you can stake to become a validator is 32 ether (ETH), which was worth about $51,000 as of Wednesday afternoon, although individuals can join together in a staking pool to meet the requirement.

proof-of-stake ethereum

When the data that’s been cleared by the validator is added to the blockchain, they get newly minted crypto as a reward. Decentralization is at the heart of blockchain technology and cryptocurrency. There’s no central gatekeeper to manage a blockchain’s record of transactions and data. Instead, the network relies on an army of participants to validate incoming transactions and add them as new blocks on the chain. The Merge refers to the switchover of Ethereum from proof-of-work to proof-of-stake — two different methods of validating transactions on the blockchain.

Attacking the protocol

Proof of stake does away with miners and replaces them with “validators.” Instead of investing in energy-intensive computer farms, you invest in the native coins of the system. To become a validator and to win the block rewards, you lock up—or stake—your tokens in a smart contract, a bit Ethereum Proof of Stake Mode of computer code that runs on the blockchain. When you send cryptocurrency to the smart contract’s wallet address, the contract holds that currency, sort of like depositing money in a vault. Proof-of-stake reduces the amount of computational work needed to verify blocks and transactions.

This is not yet implemented, but is an active area of research and development(opens in a new tab). A balancing attack specifically targeting the LMD rule(opens in a new tab) was also proposed, which was suggested to be viable in spite of proposer boosting. An attacker sets up two competing chains by equivocating their block proposal and propagating each block to about half the network each, setting up an approximate balance between the forks. Then, the colluding validators equivocate their votes, timing it so that half the network receive their votes for Fork A first and the other half receives their votes for Fork B first. Since the LMD rule discards the second attestation and keeps only the first for each validator, half the network sees votes for A and none for B, the other half sees votes for B and none for A. The authors describe the LMD rule giving the adversary “remarkable power” to mount a balancing attack.

The new law also requires New York to study crypto mining’s impact on the state’s efforts to reduce its greenhouse-gas emissions. Proof of stake is a type of consensus mechanism that differs from the traditional proof-of-work one. Finally, it is critical that the Ethereum community remains open and welcoming to all participants. A community with gatekeepers and exclusivity is one especially vulnerable to social attack because it is easy to build “us and them” narratives.

  • Meanwhile, any bad actor wishing to gain control over the network would need to own more than 51% of the coins staked at that time.
  • Ethereum switched on its proof-of-stake mechanism in 2022 because it is more secure, less energy-intensive, and better for implementing new scaling solutions compared to the previous proof-of-work architecture.
  • Under Proof of Stake (PoS), Ethereum uses “checkpoint” blocks to manage validator votes.
  • The Ethereum Foundation has claimed that the transition reduced Ethereum’s energy consumption by 99.95%.
  • The question is, will its new system fulfill all the promises made for proof of stake?

With the government in China cracking down on crypto mining, the U.S. has become a hub for miners. The White House administration has gone as far as to float the idea of exploring possible options to limit energy-intensive mining, like bitcoin, if the process doesn’t become greener. They need the support of miners, who currently collect 900 new bitcoins per day (worth over $20 million), plus transaction fees for the new blocks they mine.

The Ethereum protocol would destroy these assets in the 33% or 51% attack scenarios and by social consensus in the 66% attack scenario. This is critical because these epoch boundary blocks become the checkpoints that Casper FFG uses to finalize portions of the chain. The attacker simply withholds their block until enough honest validators use their FFG votes in favor of the previous epoch-boundary block as the current finalization target. They attest to their block and the remaining honest validators do too creating forks with different target checkpoints. If they timed it just right, they will prevent finality because there will not be a 2/3 supermajority attesting to either fork. The smaller the stake, the more precise the timing needs to be because the attacker controls fewer attestations directly, and the lower the odds of the attacker controlling the validator proposing a given epoch-boundary block.

However, it takes years to implement successfully, and the community would need to agree to the change. To activate your own validator, you’ll need to stake 32 ETH; however, you don’t need to stake that much ETH to participate in validation. You can join validation pools using “liquid staking” which uses an ERC-20 token that represents your ETH. “This is where a great deal of innovation is happening today, and indeed a challenge that blockchains will have to overcome if they are ever to become widely used on a global scale,” he says. Solana, Terra and Cardano are among the biggest cryptocurrencies that use proof of stake. Ethereum, the second-largest crypto by market capitalization after Bitcoin, is in the midst of a transition from proof of work to proof of stake.

The more ETH someone has to stake, the more validators they can run, and the more rewards they can accrue. The rewards scale linearly with the amount of staked ETH, and everyone gets the same percentage return. Proof-of-work enriches the rich more than proof-of-stake because richer miners that buy hardware at scale benefit from economies of scale, meaning the relationship between wealth and reward is non-linear.

proof-of-stake ethereum

In the proof-of-stake system Ethereum is slowly moving to, you put up 32 ether—currently worth $100,000—to become a validator. If you don’t have that kind of spare change on hand, and not many people do, you can join a staking service where participants serve as validators jointly. Proof-of-stake is designed to reduce network congestion and address environmental sustainability concerns surrounding the proof-of-work (PoW) protocol. Proof-of-work is a competitive approach to verifying transactions, which naturally encourages people to look for ways to gain an advantage, especially since monetary value is involved. “Proof of stake is not as extensively vetted as proof of work, which has secured billion-dollar blockchains for over a decade now,” said Sechet.

What makes these attacks especially dangerous is that in many cases very little capital or technical know-how is required. For example, if censorship or finality reversion were achieved by a malicious majority stakeholder, undermining the social layer might make it more difficult to coordinate a community response out-of-band. The nothing-at-stake problem is a conceptual issue with some proof-of-stake mechanisms where there are only rewards and no penalties. If there is nothing at stake, a pragmatic validator is equally happy to attest to any, or even multiple, forks of the blockchain, as this increases their rewards.