Log In
CoinEx Speaker Series

The Ethereum Merge: Consensus Mechanism Explained: What Would Happen If PoW is Replaced by PoS?

2022-08-29 06:48:06

The most crucial change of the Ethereum Merge is the shift in consensus from Proof of Work (PoW) to Proof of Stake (PoS).

As the core of a blockchain network, consensus represents a set of bookkeeping rules. Guided by these rules, the nodes in the network are able to cast votes and validate and confirm transactions.

What is PoW?

As its name implies, PoW (Proof of Work) is the proof of workloads, and the essential principle of PoW is that whoever works more gets more. PoW describes a system that requires participants to solve a difficult but easily verifiable problem to win the right to update blocks and reach a consensus.

For example, in the case of Bitcoin, SHA256 hashing is performed on the new string obtained via enumeration, and the goal is to identify the hash with the specified number of leading zeros. The more leading zeros there are, the more difficult the problem is. Once a node spots a random number that meets the requirements, it will be able to update the current block and win certain rewards.

Suppose there is a school where the students are asked to check class attendance by themselves because teachers are too busy, and the student who kept the attendance record for a day is rewarded with more credits. Attracted by the credit incentive, all students would like to keep the record. As the school does not want all the students to keep the record, it decided to release a very difficult math problem every day, and only the student who solved it first could keep the attendance record that day. In addition, the student who won the record-keeping right could receive the credit reward as long as he properly keeps the record that day.

This model under which the system (school) releases problems and users (students) solve them to update the block (attendance record) is defined as a PoW mechanism. The harder a participant tries to solve the problem, the more updating rights and rewards he will get.

PoW is simple and easy to understand. Plus, with the fine coding examples of cryptos like Bitcoin, this consensus mechanism is easy to implement. However, to ensure close intervals between the time points at which the problems are solved, a blockchain system often adjusts the difficulty level according to the number of participants. In other words, the more participants there are, the more difficult the problem will be. As the problems become more difficult, people have started to adopt advanced equipment (mining rigs) and consume a large amount of electricity to solve the hash problem, which has also led to an enormous waste of resources.

What is PoS?

The rationale of PoS (Proof of Stake) is similar to the shareholding system in the real world. The more shares one holds, the greater a say he will have, and he will also be more likely to win the block updating right.

PoW to PoS after the Merge

The case of PoS is more intuitive than PoW. Let’s continue with our attendance example. After running the previous system for a while, many credits have been rewarded to students. At this point, the teachers felt that it is too troublesome to release one question a day and decided to determine the record-keeping right via a lottery system where the probability of winning the lottery depends on the number of credits held by the students. Suppose the school has offered 100 credits and Smith received one credit, under this model, there is a 1% possibility that he would win the lottery. If Smith feels that 1% is too low, he could also buy more credits from his classmates in private to increase the likelihood of winning.

We can thus tell that the change in consensus mechanism as the result of the Merge means that staking validators will replace GPU miners as the new block generators of Ethereum, which will significantly reduce the consumption of resources. To participate as a validator, a user must deposit 32 ETH into the deposit contract and run the clients. After that, the user joins an activation queue that limits the rate of new validators joining the network. Once activated, validators receive new blocks from peers on the Ethereum network. The transactions delivered in the block are re-executed, and the block signature is checked to ensure the block is valid. The validator then sends a vote in favor of that block across the network.

The Ethereum Merge: Common Misunderstandings of the ETH Merge that You May Have
How to Send Bitcoins Safely?