What’s proof of stake? The eco-friendly model Ethereum will adopt post-‘merge,’ explained

August 30, 2022, 6:11 PM UTC
Illustration by Fortune

On Monday evening, Ethereum creator Vitalik Buterin reminded his 4 million Twitter followers that the “merge” is fast approaching—and urged those requiring essential software upgrades to do so ASAP.

“Reminder: Even though the merge is coming around Sep. 10–20, the Beacon Chain hard fork is on Sep. 6,” Buterin wrote, retweeting the Ethereum Foundation. “Make sure to update your clients before then!”

As Buterin noted, the merge won’t happen overnight. It will begin with the Bellatrix upgrade on the Beacon Chain, and about a week or so later, the merge will likely activate Sept. 15

That’s because the merge is intricate and complicated: It will shift Ethereum from a proof-of-work consensus model to proof of stake. Currently, the Ethereum mainnet—or the main public network used by everyone—and the Beacon Chain—the Ethereum proof-of-stake chain—exist in parallel. But when both combine post-merge, Ethereum will be fully proof of stake.

But what is proof of stake? And how does it differ from proof of work? There are pros and cons to both, and Fortune has you covered.

Proof of work vs. proof of stake

Proof of stake is a type of consensus mechanism that differs from the traditional proof-of-work one. 

Proof of work has been used by the Ethereum mainnet since its genesis, and it underpins older blockchains like Bitcoin.

The “work” in proof of work comes in the form of mining, where miners expend energy in the form of computing power to add blocks to the blockchain by validating transactions. Though its supporters love proof of work, saying it’s the most secure mechanism, the process is notably bad for the environment—a key factor in prompting Ethereum’s shift to proof of stake.

After all, proof of stake operates a bit differently. 

Once Ethereum is fully proof of stake, the network will rely on trusted entities known as validators to verify transactions—effectively eliminating mining on Ethereum for good. 

To apply to be a validator, one must run proper client software, and deposit—or “stake”—32 Ether (about $49,000 at current prices) on the network. Prospective validators will then be added to an “activation queue that limits the rate of new validators joining the network,” as the Ethereum Foundation explains. Once a validator is “activated,” it’s eligible to review and approve new transactions on the Ethereum network. For securing the network, validators post-merge will earn Ether as reward.

The 32 Ether deposited as collateral should push validators to behave appropriately. But there are also punishments for validators who are deemed lazy or malicious, including the loss of up to their full deposit. Though some are concerned with the process, called “slashing,” and worry about the possibility of post-merge censorship, most within the Ethereum community seem to support the shift to proof of stake, which, as mentioned, is significantly more eco-friendly than proof of work.

“The switch from proof of work to proof of stake [will] reduce overall energy consumption of Ethereum by 99.9% or more,” Ethereum core developer Preston Van Loon recently told Fortune

And that has been a source of excitement for many within the Ethereum community, including Dima Buterin, Vitalik’s father.

“I’m very excited to see these final steps to the Ethereum proof-of-stake switch being completed,” Dima told Fortune in early August. “It’s exciting that the second-biggest blockchain is getting to the point where it can cut its energy usage by about 99.95%.”

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