The second-largest cryptocurrency, Ethereum, is preparing to switch to proof-of-stake (PoS). This imminent switch has sparked widespread concerns among crypto experts and analysts, with some critics claiming it is insecure.
For some time now, the second largest blockchain has been testing proof-of-stake on testnets. Testnets are clones of the Ethereum blockchain explicitly created for testing. On April 11, 2022, Ethereum developers completed the first major test of the blockchain move to proof-of-stake on the actual mainnet, known as a “shadow fork.”
Ethereum currently employs a consensus protocol known as Proof-of-Work (PoW). According to the white paper that described the blockchain in 2013, Ethereum planned to secure itself using proof-of-stake (PoS). Still, it was eventually launched using proof-of-work due to the complicated process of developing such a system, as Valik Buterin stated in 2014 that creating such a system is “so non-trivial that some even consider it impossible.”
What exactly is proof-of-work, and what are its drawbacks?
Proof-of-work is a blockchain-based mechanism that ensures the security of cryptocurrencies like Bitcoin, Ethereum, etc. It’s utilized to make online currencies (Cryptocurrencies) function well without a central authority.
Bitcoin was the first to use it. Bitcoin’s creators adopted the PoW to prevent anyone from spending the same currency twice. Although it worked, it had some drawbacks, two of which are high energy usage and promoting centralization by putting a few large companies in control of the network through their vast mining operations and large market share.
To address these issues, Ethereum planned to use the proof-of-stake algorithm to enhance decentralization, reduce energy consumption by 99%, and allow the Ethereum network to scale and improve transaction speed to around 100,000 per second.
What is proof-of-stake, and how does it work?
According to Investopedia, “Proof-of-stake is a cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain. A consensus mechanism is a method for validating entries into a distributed database and keeping the database secure. In the case of cryptocurrency, the database is called a blockchain—so the consensus mechanism secures the blockchain.”
It was first suggested on BitcoinTalk on July 11, 2011, and has since become one of the most popular proof-of-work solutions. In PoS, validators are made to invest in the native currency of Cryptocurrencies utilizing proof-of-stake instead of mining, and it is aimed to replace miners with validators. The use of PoS will result in a significant reduction in the use of energy-intensive computer farms.
Is proof-of-stake more secure and reliable than proof-of-work?
According to some crypto experts and critics, proof-of-stake is unsafe and exclusively relies on trust. Experts voiced their concerns about the lack of a solid attack surface area in the proof-of-stake system. The primary security feature of the proof-of-work system is its attack surface; to attack a proof-of-work system chain, one would need more than half of the computing power of the Ethereum network, which is practically impossible due to the limitations and costs of constructing adequate infrastructure to execute such attacks. In addition to the visible heat signature, which can aid in detecting possible attacks.
An attacker needs to have control of more than half of the coins in a proof-of-stake system to attack, which some say is impossible. Despite this, critics claim that the proof-of-stake system can be attacked because attackers cannot be seen in this system, as opposed to the heat signatures that characterize the PoW, and that only the goodwill of unseeable top stakers can prevent or counter other top stakers from colluding to 51 percent to attack the network.
Critics have pointed out that, contrary to proof-of-stake’s decentralization goal, proof-of-stake is not more efficient than proof-of-work in promoting decentralization because a person’s chance of getting a block is determined by how much money that person can stake. As a result, those who stake the highest money make more money, significantly increasing centralization.
