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A computer scientist explains how proof-of-stake works

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Proof-of-stake is a mechanism to reach consensus on a blockchain. Blockchain is a technology that records transactions that cannot be deleted or changed. It is a decentralized database or ledger that is not under any control of any person or organization. Since no one controls the database, consensus mechanisms, such as proof-of-stake, are needed to coordinate the operation of blockchain-based systems.

While Bitcoin popularized the technology, blockchain is now part of many different systems, enabling interesting applications such as: decentralized finance platforms and non-replaceable tokens, or NFTs.

The first widespread blockchain consensus mechanism was: proof of work, which allows users to reach consensus by solving complex math problems. To solve these problems, users usually get a share of the system. This process, called mining, requires large amounts of computing power. Proof of stake is an alternative that consumes much less energy.

At its core, blockchain technology offers: three important properties:

  1. Decentralized governance and operation – the people who use the system are allowed to collectively decide how to control and operate the system.
  2. Verifiable Status: Anyone using the system can validate the correctness of the system, with each user being able to guarantee that the system is currently working as expected and has been working since its inception.
  3. Resilience to data loss: Even if some users lose their copy of system data, either through negligence or through a cyber attack, that data can be recovered from other users in a verifiable manner.

The first property, decentralized governance and operation, is the property that determines how much energy is needed to run a blockchain system.

Voting in blockchain systems

Blockchain systems use votes to decentralize governance and operation. While the exact mechanisms for how voting and consensus are achieved differ in each blockchain system, at a high level, blockchain systems let each user vote on how the system should workand whether a particular operation, e.g. accepting a new block in the chain, must be approved.

Traditionally, voting requires that the identity of the people casting their vote can be known and verified to ensure that only eligible people vote and do so only once. Some blockchain systems allow users to present a digital ID to prove their identity, enabling voting with negligible power consumption.

However, in most blockchain systems, users are anonymous and have no digital ID to prove their identity. So what prevents an individual from pretending to be many individuals and casting many votes? There are several approaches, but the most common is proof-of-work.

Proof-of-work gives users 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 will have twice as much computing power as other users and get twice as many votes.

However, solving these mathematical problems is extremely energy-intensive, leading to complaints that proof-of-work is not sustainable.

Proof of stake

Addressing proof-of-work energy consumption requires a different way of validating users. Proof-of-stake is one such method. In proof-of-stake, users validate their identity by demonstrating ownership of certain assets on the blockchain. For example, in Bitcoin this would be owned by bitcoins and in Ethereum this would be owned by Ether.

While this requires users to temporarily lock their assets into the blockchain for a period of time, it is much more efficient as it requires negligible power consumption. The company estimates that the transition from proof-of-work to proof-of-stake reduce Ethereum’s energy consumption by 99.95%.

Ethereum’s ‘Merge’

This one improved energy efficiency is why many blockchain systems are planning to move from proof-of-work to proof-of-stake. Ethereum plans to make this change during the week of September 15, 2022. This is known as the Merge. During this merger, operations will shift from proof-of-work voting to proof-of-stake voting. Upon completion of the merger, only proof-of-stakes will be used to vote on transactions.

The hope is that this will make Ethereum sustainable in the near future.

Scott Ruoti is an assistant professor of computer science at the University of Tennessee.

This article was republished from The conversation under a Creative Commons license. Read the original article.

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