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                                        From PoW to PoS: Ethereum Plans to Reduce Energy Consumption

From PoW to PoS: Ethereum Plans to Reduce Energy Consumption

29 Jun 2021
Reading Time: 7 minutes

Ethereum is moving from proof-of-work (PoW) to a consensus mechanism called proof-of-stake (PoS) in its efforts to become more scalable, secure, and sustainable. The swift to PoS entails a big technical challenge and several teams all over the community are working on various Ethereum 2.0 upgrades. Before we deep dive into how this change will enable Ethereum to reduce its energy consumption, let’s take a closer look at PoW and PoS. 

Similar to Bitcoin crypto, Ethereum currently uses PoW, a consensus protocol that allows the decentralized Ethereum network to come to a consensus regarding the state of all the information recorded on its blockchains, such as account balances and the order of transactions. With PoW, users are prevented from "double spending" their coins. It also keeps the Ethereum chain secure from attacks. 

PoS, on the other hand, is a consensus protocol used by blockchain networks to reach a distributed consensus. This mechanism requires users to stake their ETH to become a validator in the network. Validators are responsible for maintaining system efficiency, participating in voting, and forming new blocks within the blockchain. 

The main difference between PoW and PoS is that PoW requires massive amounts of energy, with miners needing to sell their coins to ultimately foot the bill; while Ethereum proof of stake mining is based on the percentage of coins held by a miner. According to Ethereum’s website, the transition to PoS will involve three phases. The first phase is already live, and the last phase is due sometime in 2022.

Why is Ethereum Switching?

There are several factors that influenced Ethereum’s switch from PoW to PoS. The primary reason is high Ethereum energy consumption. The total electricity consumption for Ethereum mining is estimated at 4.2 TWh. This amount of energy can provide electricity to Cyprus, and if the mining industry maintains this level of energy consumption without implementing more sustainable practices, this will pose a grave threat to the environment. At the same time, the cost of electricity also increases year after year which reduces the profit of miners which, consequently, decreases the profitability of coin mining.

PoS: A More Environmentally Sustainable Option

Proof of work blockchains require computers to run non-stop 24 hours a day, 7 days a week, whereas, with proof of stake, Ethereum will only need computers to run for milliseconds at a time. This would lead to a significant reduction in energy consumption and the overall footprint related to the mining process by approximately 99 percent. 

It is important to note, though, that the overall  consumption of PoS cryptocurrency is not zero, as it requires a peer-to-peer computer network to verify transactions and secure the system.

The Impact of Change on ETH Mining

One of the questions being raised with regards to the switch from PoW to PoS is what Ethereum will be worth after the final phase of transition. There are speculations that the upgrade could lead to an increase in its price. Fees are reduced and the barrier to entry is relaxed, Ethereum’s DeFi network will have the potential to grow significantly and Ethereum's price will increase with it. 

It is anticipated that with proof of stake cryptocurrency, Ethereum and DeFi would become more affordable to the average person, as a result of lower costs to make transactions. People who currently have no access to the modern banking system that exists today would also benefit from this switch – third-world citizens, refugees, and the nearly 2 billion individuals who do not have access to modern financial products such as bank or investment accounts. Ethereum's decentralized financial ecosystem will allow these individuals to have access to financial accounts, loans, investment opportunities, and more.

Proof of Stake vs Proof of Work: Which is More Secure?

Now, let’s compare ETH vs BTC in relation to their protocols of choice. Let’s start with the current protocol in place - proof of work. PoW is said to be secure because it is computationally infeasible to attack the network. Computational work on cryptographic challenges is the primary basis for trust. With PoW, miners are not able to lie about a transaction because this mechanism securely sequences Bitcoin’s transaction history and increases the difficulty of altering data over time. 

With regards to PoS, there has been some skepticism about the level of security that this protocol can offer. By having fewer miners, the network may become more vulnerable to a 51% attack. A 51% attack is when a miner or mining pool controls 51% of the computational power of the network and creates fraudulent blocks of transactions for themselves while invalidating the transactions of others within the network.

However, proof of stake has safety features in place to prevent attacks. One such safety measure is penalties for blockchain attackers. Some protocols using PoS include penalties for blockchain attackers stripping them of all their stakes. Another penalty is in the form of loss in the value of the cryptocurrency involved, which in turn translates to a loss in the net worth of the attacker. Another safety feature is cost. It is almost impossible for a single entity to purchase a 51% stake in one go as the demand for the coin is bound to increase the price. And as staking can now take place on crypto wallets, be sure to check the safest ETH wallets before using any application or hardware.

 Final Thoughts

The switch from proof of work to proof of stake will not be easy. There are definitely going to be challenges but measures are in place to ensure that the network is safe from attacks. This protocol, if executed successfully, can offer so many benefits, especially with regard to the environment.

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