What is Proof-of-Stake?

Ethereum’s Proof-of-Stake(PoS) is the new consensus mechanism used by Ethereum to process transactions and create new blocks on the Ethereum blockchain. Ethereum switched from its previous Proof-of-Work(PoW) architecture to PoS in 2022 because it is more secure and doesn't consume as much energy as its former architecture.

How does it work?

In Ethereum’s PoS, a user who wants to participate as a validator must stake 32 ETH into the deposit contract and run specific pieces of software including; an execution client, a consensus client, and a validator client. Once the user deposits their ETH, they enter an activation queue that controls how fast validators can join the network. Once activated, the validator starts receiving new blocks of transactions from other users. The transactions delivered are double-checked to make sure they are valid, the block’s signature is verified, and a vote is sent in favor of that block. This whole process is necessary for keeping the Ethereum network secure and reliable. If a validator tries to defraud the network, some or even all of their staked ETH can be destroyed.

How Ethereum Transactions are processed:

A user creates a transaction on Ethereum. They use a wallet or a library like ether.js, web3.js, or web3py. The user defines how much gas (transaction fee) they are willing to pay as a tip to encourage the validators to include the transaction in a block. This tip goes to the validators and the base fee is burned.
The transaction goes to an Ethereum execution client for verification. This client checks if the person has enough ETH and the correct credentials. If valid, the client adds it to the pending transactions list (mempool) and also shares it with other nodes.
A node is chosen to propose the next block using RANDAO. This node is made up of different parts like an execution client and a validator, which ensures everything is correct. Other computers in the network also check and agree on these transactions. This way, everyone keeps a shared and accurate record.
For a transaction to be fully confirmed, it's like needing a double-check at specific times called "checkpoints," sort of like scheduled group reviews. These checkpoints make sure that most of the important participants in the system agree on the transactions. It's a way to guarantee that things are settled and everyone is on the same page.

Advantages of Ethereum Proof-of-stake:

Ethereum’s PoS consensus mechanism has several advantages over its previous PoW mechanism. These advantages include:

Reduced energy consumption: Proof-of-stake is significantly more energy efficient than proof-of-work. This is because it does not require miners to solve complex mathematical problems, which are very energy-intensive. As a result, PoS has reduced Ethereum’s energy consumption by over 99.9%.
Increased security: Proof-of-stake is considered to be more secure than Proof-of-work. This is because validators are required to stake their own ETH, which can be destroyed if they act dishonestly. In contrast, Proof-of-work miners do not have a financial stake in the network, which can make them more susceptible to attacks.
Lower barrier of entry: Proof-of-stake reduces the hardware requirements. Users who want to participate as validators do not need powerful hardware to create new blocks.
Lower transaction fees: Proof-of-stake reduces Ethereum's transaction fees. This is because it does not require miners to pay for electricity and hardware, which can drive up transaction fees.
Better decentralization: More individuals can now participate in the network as the proof-of-stake does not require participants to have expensive software. This leads to more nodes securing the network.

Ethereum's transition to a proof-of-stake (PoS) consensus mechanism marks a significant step forward for the network, addressing several key challenges faced under the previous proof-of-work (PoW) system. PoS offers substantial improvements in energy efficiency, security, scalability, decentralization, and transaction fees, paving the way for a more sustainable and robust Ethereum ecosystem.

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