in Ethereum (ETH)
Ethereum Proof of Stake Date
The Ethereum proof of stake date has been set for December 1, 2020.
While the proof of stake Ethereum date was originally set for January 2020, this deadline was missed.
That being said, if you don’t know what Ethereum’s Proof of Stake launch, otherwise known as Ethereum 2.0, is and why it might be significant, read on!
What is Proof of Stake Ethereum
On blockchain networks like Ethereum, there has to be a way to validate transactions in a decentralized manner, without a centralized authority, such as a bank. Currently, Ethereum, along with other popular cryptocurrencies like Bitcoin, use what’s known as Proof of Work (PoW).
In a PoW system, miners, who use various types of computer hardware like computer processors, graphics cards, and specialized mining devices, use their processing power to solve complex mathematical puzzles in a race to verify new network transactions. By being the first to solve a given puzzle, a miner adds new transactions (which together form a “block”) to the record of all transactions (the “blockchain”). For their efforts, they are rewarded in newly minted crypto like ETH.
PoS on the other hand, is another way of validating transactions (“consensus”) that works differently from PoW. Instead of miners, transaction validators, called validators (or other names like “bakers” on Tezos) lock up or stake their crypto as collateral for the right to verify transactions.
Depending on the network, certain factors, such as how many coins are staked and how long the coins have been staked, determine whether or not a validator gets to verify a new block of transactions (as opposed to mining or hashing power in PoW). As with PoW, if you validate a new block of transactions, you’ll get rewarded in new crypto. To disincentivize bad behavior, staked coins (the collateral) are lost if a validator tries to verify bogus transactions or otherwise harm the network.
Proof of Work vs. Proof of Stake Ethereum
So what’s the reason for the big change from Proof of Work to Proof of Stake? After all, isn’t Ethereum already one of the most popular and widely used cryptocurrencies?
One of the main concerns with the PoW model is the amount of energy it costs to power all the hardware around the world that gets used to mine popular crypto assets like Bitcoin and Ethereum. Bitcoin in particular uses as much energy as countries like Austria (the 40th country in the world by energy consumption).
Since Proof of Stake doesn’t require miners to use lots of energy in order to validate transactions, many think that such a system would be better for the environment, since crypto networks will likely only get bigger and use more and more energy.
Ethereum Proof of Stake Casper
Casper is the name of the Ethereum implementation that will turn Ethereum into a PoS blockchain (aka Ethereum 2.0). The transition from ETH 1.0 to 2.0 (also known as the “Serenity” upgrade - a lot of names to keep track of, we know) will take place in 3 separate phases.
Currently, there are 2 Casper implementations that have been introduced to the Ethereum community: Casper Correct-by-Construction (CBC) and Casper Friendly Finality Gadget (FFG). Vitalik Buterin, Co-Founder and Inventor of Ethereum, is leading research on Casper FFG, which is the implementation that will power the 1st phase of Ethereum 2.0.
Ethereum Proof of Stake Mining
Now you might be wondering, if Ethereum is transitioning to Proof of Stake and getting rid of mining, what’s going to happen to all the miners?
It’s very unlikely that those who have amassed mining equipment over the years will just stop mining once PoS rolls out. They will probably take their mining power to a different blockchain, which will increase the overall hashing, or mining, power of other networks.
Or, if they want to remain part of the Ethereum ecosystem, they might sell their mining equipment to amass more ETH and participate in Proof of Stake consensus.
Either way, miners will have time to decide on the best course of action, since the transition to Proof of Stake will not happen overnight. In fact, the current version of Casper proposes to use PoS on every 100th block that gets validated, which means that ETH 2.0 will likely be a hybrid PoW/PoS blockchain until all the PoS kinks are worked out.
Ethereum PoS Minimum Stake
Interested in becoming a validator for ETH 2.0 and want to know what you need? The minimum stake to become a validator in Ethereum 2.0 is 32 Ether, according to Collin Myers, head of global product strategy at ConsenSys, an Ethereum application developer and startup incubator. Myers made the announcement at Devcon 5 (Devcon is an annual Ethereum conference).
Along with knowing what the minimum Ethereum 2.0 stake will be, we also know that the yearly “interest” in staking rewards one will earn for staking on Ethereum will be ~4.6% to 10.3%. While that’s quite a broad range, it’s undeniably higher than the average US savings account interest of 0.09%, as mentioned in our DeFi (decentralized finance) guide - not to mention low or even negative interest in other countries.
If you want a more precise way to calculate potential returns on an Ethereum stake, there is an Ethereum staking rewards calculator called ETH 2.0 Calculator that is set to launch in conjunction with Ethereum 2.0. The model for the calculator is being discussed in a Telegram group called ETH 2.0 Calculator if you’d like to get a clearer preview of what your potential ETH staking rewards might be.
Ethereum Proof of Stake Github
If you want to stay up to date on Ethereum Proof of Stake’s progress, here’s the link to the ETH 2.0 Github.
Ethereum Proof of Stake will radically change the inner workings of the blockchain that popularized the idea of smart contracts and Blockchain 2.0 (blockchain beyond just payments).
Vitalik Buterin sees PoS as critical to Ethereum reaching maturity, even saying the following:
“Ethereum 1.0 is a couple of people’s scrappy attempt to build the world computer; Ethereum 2.0 [with PoS] will actually be the world computer”
Ready for ETH 2.0? Make sure you have an easy to use Ethereum wallet so that you can adapt to the new Proof of Stake consensus mechanism and take part in the decentralized economy.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.