SYS-CON MEDIA Authors: Yeshim Deniz, Elizabeth White, Pat Romanski, Liz McMillan, William Schmarzo

Blog Feed Post

Ethereum’s Big Switch Explained: Why the Blockchain is Ditching Proof of Work and Adopting Proof of Stake Instead

Recently, we posted a brief overview of the Ethereum ICO craze. Before that, we had reviewed how blockchains work in general.

Today, we’ll delve deeper into the process of mining.

In this article, we’ll introduce briefly the concepts of Proof of Work (PoW) and Proof of Stake (PoS). We’ll talk about why Ethereum, the second largest blockchain, is planning to switch the former for the later and share some forecasts as to the outcomes this decision might lead to.

Let’s get to it.

Byzantine Generals’ Problem

Among his many breakthrough accomplishments, Satoshi, the mysterious founder of Bitcoin, is praised for coming up with a solution to what’s known as Byzantine Generals’ Problem.

The issue is basically this.

Suppose there’s a war. There’s an army that has a city encircled, but due to exhaustion of resources, the army’s generals are undecided whether it’s smarter to attack or to retreat. Suppose, also, that it’s the 15th century and the commanders, who are all in camps far apart, have no way of communicating effectively save for sending messengers.

How could these generals (let’s say there are 20 of them) reach a consensus?

Obviously, they’ll have to vote. If the majority (at least 51%) decides to move forward with a strategy (of attacking, or of retreating), the whole army will have to get behind their choice. That’s only fair and logical.

But then they’ll face another problem: how to ensure that no general involved in making a decision votes the wrong way on purpose, just to confuse things?

Well, in the world of blockchains, the generals are miners. And choosing a war strategy for them is agreeing on a set of rules, a certain view of the history of digital events that are posted on the network.

The way that Bitcoin enables reaching a distributed consensus and punishes, or rather discourages, bad actors for acting dishonestly is by using the Proof of Work (PoW) algorithm.

What is Proof of Work (PoW)?

What is Proof of Work (PoW)?

Initially, PoW was proposed as means to protect network connections and systems from the denial of service (DoS) attacks. One of its first implementations was hashcash – the technology that is still being used to secure the mining process on Bitcoin and was engineered by Adam Back, one of Bitcoin co-developers.

Essentially, PoW is just a piece data that’s both hard to produce, computing wise, and easy to verify on the receiving end.

The PoW principle was first used to deter spam emails. A person had to solve a puzzle of some kind, i.e put effort, before sending an email, and then they had to attach a solution they’d come up with to the letter’s header so that the recipient could recognize it.

The main gist of the idea was making it difficult and time-consuming for a spammer to send bulk, trashy ads. All the emails without a proof of work were easily identifiable as spam, and, therefore, recipients never opened them.

On Bitcoin, Proof of Work is a miner’s responsibility. Whenever a new block with transactions appears on the network, validators start to compete in solving a mathematical problem (generating Proof of Work) attached to it. The winner, a miner who manages to figure out the cryptographic nonce first, gets to write to the blockchain’s history and is then rewarded by the network with a certain amount of crypto coins.

The blockchain adjusts the difficulty of these mathematical problems so that it takes a miner roughly 10 minutes to find a solution. Hence, we get the universal 10 minute block time on the Bitcoin blockchain.

What are the drawbacks of using Proof of Work?

The fairly high level of security provided by PoW comes with a cost. Some, including Ethereum’s founder Vitalik Buterin, consider the algorithm to be too wasteful and costly.

Here are some of the most typical concerns people have about Proof of Work:

  1. Millions of hashes that are generated by miners around the world do not really solve anything. The immense work and resources put into securing blockchains are not, in any way, useful to society. And after a computational problem is solved, miners proceed to solve the next one, throwing their previous efforts on the floor. From the environmental standpoint, server farms with powerful mining equipment that utilize vast amounts of electricity to do basically nothing, are not beneficial to our world.
  2. The process of resolving computational problems is complex and competitive and those with the most advanced mining hardware have an edge over those who don’t. This creates an arms race among miners, and makes the validators’ community more exclusive (there’s isn’t a whole lot of people willing to buy up equipment and manage substantial amounts of computing power). And exclusivity goes against the idea of decentralization – the key principle behind the blockchain technology.
  3. This leads to the most talked about PoW related concern that is the possibility of a 51% attack. While a mining pool that has a centralized control over the network can still play it fair, nothing would stop it from attacking a blockchain, invalidating legitimate transactions and double spending crypto coins.

To avoid facing these potential issues ever, the creators of Ethereum – the second largest blockchain in the world – are planning to switch from PoW to Proof of Stake (PoS).

What is Proof of Stake?

Proof of Stake takes labor work out of the mining process. Instead of time and electricity – the external resources validators are used to putting into generating PoW – the algorithm enables miners with most coins (internal resources) to write to a blockchain’s history. The underlying principle behind PoS is that the more invested a validator is in the network (the bigger stake they possess), the less likely they are to attack it, and, therefore, the more validating rights they should be given.

The only cryptographic calculations involved in PoS are those establishing if a miner owns a needed amount of cryptocurrency. On Ethereum, according to its developers, a person who has 5% of all ether will be able to mine 5% of all the transactions happening on the blockchain.

The system will decide whose turn it is to commit a block pseudo-randomly, weighing the selection toward miners with the most coins. And it will allow more people to participate in the validating process: there would no longer be a need to purchase expensive hardware to mine.

What benefits can PoS bring to Ethereum?

What is Proof of Work (PoW)?


Essentially, where PoW falls short, PoS is expected to thrive.
Click To Tweet


  • The issue of unnecessary energy wasting will be forgotten about, as no mining, in its traditional form, will take place.
  • No competition in solving computational puzzles will mean no demand for advanced mining hardware. Hence, more people will be encouraged to participate in the validation process.
  • Despite reducing energy costs, by a lot, PoS will make attacks on the blockchain even more expensive. If anyone decides to buy up 51% of ether to try to alter transaction blocks, they’ll have to pay millions of dollars to get the coins (due to limited supply and increased demand ether price will be increased drastically) and then risk losing their money by destabilizing the very blockchain they’ve put their funds in. It’s hard to imagine a sane person doing that.

In conclusion

Besides assuming that a miner won’t risk their money to hack the blockchain, PoS offers a scenario of how malicious activities can be diffused, if they do occur. If a chain takeover happens, Ethereum community can simply hard fork the network and destroy the deposits of the attacking miners’, no matter how much coins, i.e. mining power, they might possess.

It would take some healing, a few days probably before the blockchain gets on tracks again. But, in the long run, no one except the offenders will suffer substantial losses. Conversely, the honest validators will end up richer as the crunch in supply of ether caused by the fork, will make the coins’ cost rise even more.

Want to learn more about Ethereum, Bitcoin and the Blockchain technology in general? Contact our expert for a free consultation.

The post Ethereum’s Big Switch Explained: Why the Blockchain is Ditching Proof of Work and Adopting Proof of Stake Instead appeared first on Perfectial.

Read the original blog entry...

More Stories By Rostyslav Demush

Ross Demush is a digital marketing specialist at custom software development company Perfectial, a leading provider of web & mobile development services, specializing in FinTech, Real Estate, Media & Entertainment & eLearning.

Latest Stories
Crosscode Panoptics Automated Enterprise Architecture Software. Application Discovery and Dependency Mapping. Automatically generate a powerful enterprise-wide map of your organization's IT assets down to the code level. Enterprise Impact Assessment. Automatically analyze the impact, to every asset in the enterprise down to the code level. Automated IT Governance Software. Create rules and alerts based on code level insights, including security issues, to automate governance. Enterpr...
Cloud is the motor for innovation and digital transformation. CIOs will run 25% of total application workloads in the cloud by the end of 2018, based on recent Morgan Stanley report. Having the right enterprise cloud strategy in place, often in a multi cloud environment, also helps companies become a more intelligent business. Companies that master this path have something in common: they create a culture of continuous innovation.
Your job is mostly boring. Many of the IT operations tasks you perform on a day-to-day basis are repetitive and dull. Utilizing automation can improve your work life, automating away the drudgery and embracing the passion for technology that got you started in the first place. In this presentation, I'll talk about what automation is, and how to approach implementing it in the context of IT Operations. Ned will discuss keys to success in the long term and include practical real-world examples. Ge...
ClaySys Technologies is one of the leading application platform products in the ‘No-code' or ‘Metadata Driven' software business application development space. The company was founded to create a modern technology platform that addressed the core pain points related to the traditional software application development architecture. The founding team of ClaySys Technologies come from a legacy of creating and developing line of business software applications for large enterprise clients around the ...
CloudEXPO | DevOpsSUMMIT | DXWorldEXPO Silicon Valley 2019 will cover all of these tools, with the most comprehensive program and with 222 rockstar speakers throughout our industry presenting 22 Keynotes and General Sessions, 250 Breakout Sessions along 10 Tracks, as well as our signature Power Panels. Our Expo Floor will bring together the leading global 200 companies throughout the world of Cloud Computing, DevOps, IoT, Smart Cities, FinTech, Digital Transformation, and all they entail.
Eric Taylor, a former hacker, reveals what he's learned about cybersecurity. Taylor's life as a hacker began when he was just 12 years old and playing video games at home. Russian hackers are notorious for their hacking skills, but one American says he hacked a Russian cyber gang at just 15 years old. The government eventually caught up with Taylor and he pleaded guilty to posting the personal information on the internet, among other charges. Eric Taylor, who went by the nickname Cosmo...
Most modern computer languages embed a lot of metadata in their application. We show how this goldmine of data from a runtime environment like production or staging can be used to increase profits. Adi conceptualized the Crosscode platform after spending over 25 years working for large enterprise companies like HP, Cisco, IBM, UHG and personally experiencing the challenges that prevent companies from quickly making changes to their technology, due to the complexity of their enterprise. An accomp...
The benefits of automated cloud deployments for speed, reliability and security are undeniable. The cornerstone of this approach, immutable deployment, promotes the idea of continuously rolling safe, stable images instead of trying to keep up with managing a fixed pool of virtual or physical machines. In this talk, we'll explore the immutable infrastructure pattern and how to use continuous deployment and continuous integration (CI/CD) process to build and manage server images for any platfo...
DevOpsSUMMIT at CloudEXPO, to be held June 25-26, 2019 at the Santa Clara Convention Center in Santa Clara, CA – announces that its Call for Papers is open. Born out of proven success in agile development, cloud computing, and process automation, DevOps is a macro trend you cannot afford to miss. From showcase success stories from early adopters and web-scale businesses, DevOps is expanding to organizations of all sizes, including the world's largest enterprises – and delivering real results. Am...
Nicolas Fierro is CEO of MIMIR Blockchain Solutions. He is a programmer, technologist, and operations dev who has worked with Ethereum and blockchain since 2014. His knowledge in blockchain dates to when he performed dev ops services to the Ethereum Foundation as one the privileged few developers to work with the original core team in Switzerland.
It cannot be overseen or regulated by any one administrator, like a government or bank. Currently, there is no government regulation on them which also means there is no government safeguards over them. Although many are looking at Bitcoin to put money into, it would be wise to proceed with caution. Regular central banks are watching it and deciding whether or not to make them illegal (Criminalize them) and therefore make them worthless and eliminate them as competition. ICOs (Initial Coin Offer...
Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life settlement products to hedge funds and investment banks. After, he co-founded a revenue cycle management company where he learned about Bitcoin and eventually Ethereal. Andrew's role at ConsenSys Enterprise is a mul...
René Bostic is the Technical VP of the IBM Cloud Unit in North America. Enjoying her career with IBM during the modern millennial technological era, she is an expert in cloud computing, DevOps and emerging cloud technologies such as Blockchain. Her strengths and core competencies include a proven record of accomplishments in consensus building at all levels to assess, plan, and implement enterprise and cloud computing solutions. René is a member of the Society of Women Engineers (SWE) and a m...
Sanjeev Sharma Joins November 11-13, 2018 @DevOpsSummit at @CloudEXPO New York Faculty. Sanjeev Sharma is an internationally known DevOps and Cloud Transformation thought leader, technology executive, and author. Sanjeev's industry experience includes tenures as CTO, Technical Sales leader, and Cloud Architect leader. As an IBM Distinguished Engineer, Sanjeev is recognized at the highest levels of IBM's core of technical leaders.
We are in a digital age however when one looks for their dream home, the mortgage process can take as long as 60 days to complete. Not what we expect in a time where processes are known to take place swiftly and seamlessly. Mortgages businesses are facing the heat and are in immediate need of upgrading their operating model to reduce costs, decrease the processing time and enhance the customer experience. Therefore, providers are exploring multiple ways of tapping emerging technologies to solve ...