Proof-of-Stake is a mechanism to reach consensus on a blockchain. Blockchain is a technology that records transactions that cannot be deleted or modified. It is a decentralized database or ledger that is not under the control of any one person or organization. Since nobody controls the database, consensus mechanisms such as proof-of-stake are required to coordinate the operation of blockchain-based systems.
While bitcoin popularized the technology, blockchain is now part of many different systems and enables interesting applications such as decentralized finance platforms and non-fungible tokens or NFTs.
The first widespread blockchain consensus mechanism was proof-of-work, which allows users to reach consensus by solving complex mathematical problems. In order to solve these problems, users are usually provided with participation in the system. This process, known as mining, requires large amounts of computing power. Proof-of-Stake is an alternative that uses far less energy.
At its core, blockchain technology offers three important properties:
- Decentralized control and operation – the people using the system can jointly decide how to control and operate the system.
- Verifiable State – Anyone using the system can verify the correctness of the system, whereby any user can ensure that the system is currently working as expected and has been working since its inception.
- Resilience to data loss – even if some users lose their copy of system data, whether through negligence or a cyber attack, that data can be recovered by other users in a verifiable manner.
The first property, decentralized governance and operations, is the property that controls how much energy is required to run a blockchain system.
Voting in blockchain systems
Blockchain systems use voting to decentralize governance and operations. While the exact mechanics of how voting and consensus is achieved are different in each blockchain system, high-level blockchain systems allow each user to vote on how the system should work and whether a particular operation — accepting a new block in the chain, for example – should be approved.
Traditionally, voting has required that the identities of those casting ballots be known and verified to ensure that only authorized individuals cast their votes and only do so once. Some blockchain systems allow users to present a digital ID to prove their identity, enabling voting with negligible energy consumption.
However, in most blockchain systems, users are anonymous and do not have a digital ID that can prove their identity. What then prevents an individual from pretending to be many individuals and casting many votes? There are several approaches, but the most commonly used is proof-of-work.
In proof-of-work, users receive votes based on the amount of computing power they have relative to other users. They demonstrate their ownership of this computing power by solving difficult math problems. If a user can solve twice as many problems as another user, they have twice the computing power of other users and get twice the votes.
However, solving these math problems is extremely energy intensive, leading to complaints that proof-of-work is unsustainable.
Proof of Stake
Addressing proof-of-work energy consumption requires a different method of validating users. Proof of stake is one such method. In proof-of-stake, users validate their identity by demonstrating ownership of an asset on the blockchain. For example, for Bitcoin, this would be ownership of Bitcoins and for Ethereum, ownership of Ether.
Although this requires users to temporarily lock their assets on the blockchain for a period of time, it is far more efficient as it requires negligible energy expenditure. The company estimates that moving from proof-of-work to proof-of-stake will reduce Ethereum’s energy consumption by 99.95%.
This improved energy efficiency is why many blockchain systems intend to move from proof-of-work to proof-of-stake. Ethereum plans to make this change in the week of September 15, 2022. This is called a merge. During this merge, operations will shift from voting on using Proof-of-Work to voting on using Proof-of-Stake. After the merger is complete, only the proof-of-stake will be used to vote on transactions.
The hope is that this will make Ethereum sustainable for the foreseeable future.
Scott Ruoti, Assistant Professor of Computer Science, University of Tennessee
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