Proof-of-Work and Proof-of-Stake
Proof-of-Work (PoW) is a decentralized consensus mechanism in which miners validate, aggregate transactions, and broadcast them to the network of nodes on the Bitcoin blockchain. This requires miners to compete with each other to find a valid cryptographic hash function and that’s why it’s called “Proof-of-Work” – proof that a miner expended energy finding for the cryptographic hash function and gain the right to aggregate and validate transactions.
On the other hand, to reduce energy consumption during Proof-of-Work, with Proof-of-Stake (PoS), users can stake their coins that give them the right to verify transactions and get rewards. Proof-of-Stake was first proposed in 2011 in the BitcoinTalk forum. Vitalik Buterin was inspired by this idea and then built a defense mechanism for the Ethereum blockchain instead of Bitcoin’s PoW, the whitepaper in 2012 wrote. In reality, though, Ethereum was launched with PoW first because building a PoS at that time was not easy at all.
Vitalik, at that time, thought the transition from PoW to PoS would only take a year but in fact, it has lasted for 6 years, and now this journey is coming to an end to open a new chapter in Ethereum’s history called Proof-of-Stake.
The road to The Merge
Ethereum has gone through more than 10 forks and updates since the whitepaper was public in 2013. Many forks and updates have mentioned to the term “difficulty bomb”, referring to the increasing difficulty and time needed to mine Ethereum blocks, thereby miners will have to spend more effort in validating and aggregating transactions. Miner then have an incentive to swap to using the PoS blockchain, but when the PoS blockchain is still not ready to launch, difficulty bomb will become an obstacle for Ethereum users due to high expenses. That’s why in previous updates, developers decided to delay the difficulty bomb in order to complete new features for this blockchain first.
In October 2020, smart contracts that allow staking on the PoS blockchain were deployed on the Mainnet. Users need to stake at least 32 ETH as deposit to become a validator on the ETH 2.0 blockchain (blockchain using PoS, aka Beacon Chain). By the end of November 2020, the ETH 2.0 contract has reached a full stake of 16384, which is eligible for the Beacon Chain to start launching.
On the first day of December 2020, Beacon Chain officially created the first block. However, Beacon Chain with its PoS consensus mechanism and Ethereum’s Mainnet that time still operated independently: Mainnet (execution layer) would be responsible for transaction aggregation and validation, and Beacon Chian (consensus layer) played the role of controlling the consensus mechanism between validators.
From the end of 2002 until now, Ethereum has carried out many updates to reduce gas fees such as:
- Berlin Update: Went live at block 12,244,000. This update reduced gas fees for some Ethereum tasks and introduced some new transaction types.
- London Update: Went live at block 12,965,000. It is a collection of improvement proposals meant to reduce supply and solve the problem of transaction fees. One of the improvement proposals contained in the London upgrade is EIP-1559. Part of the purpose of EIP-1559 is to change the speed and incentivization of Ethereum mining.
By October 2021, the first update for Beacon Chain, Altair, was officially released. It introduced some changes in rewards/penalties rules for validators. Specifically, the proportional slashing multiplier will be raised from one to two, implying that the slashing penalty will now be doubled for validators slashed within 18 days of that validator. In addition, this update has made it possible for users to run nodes by basic devices like phones. There would be no need to connect to the network via a third-party node or service. These users are called “light clients”. With the help of a sync committee (a group of 512 validators, randomly assigned by Ethereum and changed every 27 hours), light clients don’t need to use as much data to validate transactions as before; instead, the sync committee is responsible for signing block headers, and light clients only need to confirm these signatures.
Other two updates late 2021 (Arrow Glacier) and mid-2022 (Gray Glacier) mainly involve delaying difficulty bomb until Beacon Chain is ready to merge with Ethereum’s Mainnet PoW that we call it The Merge.
In June 2022, this merger took place successfully on two Ethereum testnets, Ropsten and Sepolia. By August, The Merge was stably deployed on the Goerli final testnet, and Ethereum is now anticipated to complete the Merge on or around September 15, 2022.
Along with The Merge, Ethereum will the undergo further upgrades, including:
- The Surge: refers to the addition of Ethereum sharding, a scaling solution that will make layer-2 blockchains even more affordable.
- The Verge: allows users to validate blocks on Ethereum or even become validators without owning devices with large storage.
- The Purge: minimizes the amount of data that needs to be stored, especially data on the old PoW blockchain.
- The Splurge: consist of several smaller upgrades and fine-tuning to ensure seamless network operations.
What will happen after The Merge
After The Merge launched, validators still cannot withdraw ETH used to stake on Ethereum until the Shanghai update is deployed. The Shanghai release date has yet to be announced, approximately 6-12 months after The Merge. Ethereum will still continue to carry out many updates after The Merge like Single Secret Leader Election, Proof-of-Custody, etc. After the Shanghai update is implemented, users will have the right to withdraw the amount of ETH deposited and staked on Ethereum to their wallet. All aim to make Ethereum more scalable, more decentralized, and more secure, thereby making crypto projects more accessible to everyone.