What is Ethereum Proof of Stake?
The Ethereum Proof of Stake merge happened on September 15, 2022, and replaced the former Proof of Work concept. But what does that mean? Why did Ethereum switch to Proof of Stake? And how does the switch affect you? We’ll answer these questions and tell you what you need to know about the Ethereum Merge here.
What Is Ethereum Proof of Stake?
Proof of Stake (or PoS) is a consensus mechanism for processing and validating transactions on a cryptocurrency’s blockchain. Forbes explains that PoS allows individuals to stake their crypto on the blockchain, enabling them to create their own validator nodes.
(A validator is a type of user or organization that uses specialized software to verify the integrity of the blockchain and transactions.)
These validator nodes are randomly selected to check transactions for accuracy. Once transactions are verified, the validator will add this block of information to the blockchain in return for crypto rewards.
What Is Proof of Work?
Another blockchain consensus mechanism is Proof of Work (PoW). It relies significantly on computing power or electricity to verify transactions and add them to the blockchain. Proof of Work is used in cryptocurrency mining, which uses a computational device (such as a graphics card) to validate transactions.
The more computational power you have, the more transactions you can verify, potentially increasing your crypto rewards. Because it uses a lot of computing power, however, PoW consumes far more energy than PoS.
Proof of Stake vs. Proof of Work
PoS and PoW are similar in that both verify transactions (albeit through different algorithms) and add this data to the Ethereum blockchain. They each have their pros and cons too. For example, PoS is far more energy efficient than PoW. However, PoS is less efficient than PoW when verifying transactions, which results in higher fees and slower transaction speeds.
Why Ethereum Switched from Proof of Work to Proof of Stake
Because cryptocurrency is viewed as a significant consumer of energy, and due to mounting pressures from government entities, the developers of Ethereum decided to make the blockchain more environmentally friendly by switching from Proof of Work to a Proof of Stake consensus. The Ethereum Foundation claims the switch will reduce Ethereum’s energy consumption by as much as 99.95%.
Additionally, Ethereum switched to Proof of Stake for enhanced security. Proof of Stake reduces centralization risk, which means that one entity or individual cannot control the entire Ethereum network.
For example, Proof of Stake deters malicious actors from committing a 51% style attack, a threat where one person (or group) manages to gain control of more than 50% of the miners in a PoW system, which would allow them to alter the blockchain for their gain (block, reroute, or reverse transactions).
In a PoS system, a malicious actor would need to own more than 50% of all staked cryptocurrency, which would be costly and difficult to achieve.
So, Now What?
With the Ethereum Merge already in effect, what should ETH holders know? Here are some common questions you might be asking yourself concerning the Ethereum Merge.
Do I Need to Do Anything with My Ethereum?
No. If you own Ethereum, you don’t need to do anything with your tokens. You don’t need to switch them out for a new one. Anyone claiming you need to switch your Ethereum for a new one is a scammer.
Can I Still Mine Ethereum?
No. Mining Ethereum is no longer possible. Don’t waste your money on buying new or used Ethereum mining rigs expecting to earn passive crypto rewards.
You can still earn ETH rewards by becoming a validator by depositing 32 ETH to the Ethereum network. However, if you’re like most people, you probably can’t afford 32 ETH. If you fall under this category, you can earn rewards on your Ethereum by joining a staking pool with others, which is an easy way to meet that 32 ETH requirement.
Alternatively, you can use staking services offered by many online crypto exchanges or apps such as Giddy that connect you to passive income-earning opportunities. Both options enable individuals to earn interest without needing to have vast amounts of Ethereum.
Are Ethereum Gas Fees Cheaper?
No. Fees are dependent on demand. And before its deployment, the Ethereum Merge was not expected nor intended to reduce fees.
Are Transactions Faster?
Transaction speeds are about the same as before the merge. Ethereum switched to Proof of Stake to improve its energy consumption, not its transaction speeds. This does not mean Ethereum won’t see improvements or upgrades in the future that could make transactions faster and cheaper, but these upgrades have yet to be announced.
Ethereum switched to Proof of Stake from Proof of Work to reduce its energy consumption and enhance the security of the blockchain. While speed and cheaper gas fees were not Ethereum’s focus, those updates will likely and eventually come in the future.
As for what you need to do now, there isn’t anything—not unless you are interested in earning rewards on your Ethereum. For that, we invite you to check out our Giddy mobile app, where you own your keys and you’re able to put your crypto to work earning passive interest.
The Giddy self-custody wallet currently supports the Polygon network, an L2 scaling solution for Ethereum. Native Ethereum support is coming soon!