Ethereum and Proof of Work: how to save $700 million a year?

2 min reading

Blockchain building requires a large amount of energy, lots of it. Is there any other, cheaper way of blockchain building? Sure there is!

Ethereum block mining

Block mining is an inseparable part of the blockchain building. Correct transactions are packed into individual blocks and sent to the network's nodes. A new block is attached to the end of the blockchain and then it can be mined. There is only one block available for mining, but there are many miners willing to mine it. That's why a miner should choose the block that is not currently being mined. There are two methods of choosing such a block.

What is Proof of Work?

The first method of choice is the Proof of Work (PoW). It's the way of selecting the next block resulting from the work that the miner must perform. How does it work? PoW is based on cryptography, you can imagine it as throwing a special dice. The more electricity we deliver, the higher the number on the dice. During the preparation of the block, each of the miners throws a "dice" and writes down the number in the block. Simply speaking, we can assume that the block with the highest number is selected. You have probably already noticed the problem - the more electricity, the higher the number on the "dice", and the greater the chance that the block will be chosen. If this happens, you'll get around 2 ETH - currently $500.

What is Proof of Stake?

Proof of Stake (PoS) is the second method of blockchain building. Instead of throwing dice, it works like voting. People who want to prepare blocks must register and make a deposit. It means transferring a certain number of coins to the indicated address. The more you deposit, the more votes you have to use. How can you use the votes? Voters propose their versions of the next block, followed by the voting phase. The block, which will be voted by two-thirds of people, is chosen as the next block in the chain. Voting has its own rules, and breaking them will result in the loss of the deposit. How do you know that someone has violated those rules? For indicating proof of this fraud, the applicant gets a 4%deposit from the cheater's account. All Ethereum users become a supervisory committee on the correct operation of PoS.

What's the point of using PoS in Ethereum network?

Ethereum is preparing for the transition from PoW to PoS, the solution code is to be completed in June, then the testing and correction phase will follow. In addition to the obvious benefit of saving $700 million a year - switching to Proof of Stake also has other advantages. One of them is that users, instead of investing in graphics cards, invest funds in the cryptocurrency itself. PoS requires deposits, so the more coins you deposit, the more impact you have on the future blockchain. The transition to PoS allows the use of weaker block mining equipment. You will be able to prepare new blocks even on your phone. This will allow even greater decentralization, and mining will not require a basement filled with graphics cards.