The integrity of transactions in the crypto industry relies on two validation mechanisms.
As ethereum blockchain works through the final stages of its upgrade, people will hear the term “proof of stake” more often.
Creating an Alternative
The term is often used in comparison with “proof of work” and some crypto novices may wonder what they mean.
Eth 2.0 is an upgrade to the ethereum blockchain intended to increase ethereum’s capacity for transactions, reduce fees and make the network more sustainable.
Proof of work, the older of the two, uses a competitive validation method to confirm transactions and add new blocks to the blockchain. It requires a great deal of energy, which has raised environmental concerns.
Proof of stake, which was created as an alternative to proof of work, is a cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain.
A blockchain validator is responsible for verifying transactions on a blockchain.
Once transactions are verified, they are added to the distributed ledger.
In proof of work systems, validators are also known as miners who solve computational math problems to win the right to verify transactions. They earn bitcoin rewards for the work.
In proof of stake, validators are given rewards as long as they stake the network’s token — ether (ETH)– and correctly participate in the network.
Proof of stake is also considered to be less risky as far as the potential for an attack on the network, since it only allows the validators to choose a block if they have provided a security deposit.
‘The Impending Future’
Alex Lemberg, CEO of Nimbus Platform, said proof of stake “is the impending future for participation and the risks/rewards debate certainly our way the absurd draw on resources.”
He discussed slashing, a penalty for bad behavior and dishonest validations.
“Fundamentally proof of stake will, in my opinion, make attacks considerably more punitive and provide for easier identification of the attackers,” he said. “The automated method of slashing which segregates and burns the tokens of attackers will certainly make attackers think twice before initiating.”
In addition, Lemberg said, the overall costs associated with attacking the network will be considerably higher than within proof of work.
“If I had to take a guess at this point, a legitimate attack on ETH would require roughly $20 Billion in ETH to really make viable, with the risk of losing it all due to Slashing,” he said.
Lemberg added that whether it is proof of stake or what may eventually be an alternative method for participation, “the only thing that is an absolute is that we get off of the antiquated system of proof of work.”
