Move from Proof of Work to Proof of Stake
Proof of Work (P.O.W)
Previously, Ethereum miners used their computing power to solve mathematical problems which would verify eth transactions and in turn they would be rewarded with new Ethereum coins. This is what is known as proof of work consensus
Proof of Stake (P.O.S)
In proof-of-stake, validators stake capital in the form of ETH into a smart contract on the Ethereum blockchain. This staked ETH acts as collateral that can be destroyed if the validator acts dishonestly.
The validators are responsible for creating and propagating new blocks as well as checking that new blocks propagated over the network are valid
To participate as a validator, a user has to deposit 32 ETH into the deposit contract and run 3 separate softwares
- Execution client
- Consensus client
- Validator
So what is the MERGE?
The Merge refers to the original Ethereum Mainnet integrating with a separate proof-of-stake blockchain called the Beacon Chain, now existing as one chain. On 15th of Sept 2022 Ethereum mainnet merged with the Beacon Chain at block number 15,537,351, completing the transition from proof of work to proof of stake.
Benefits of the move
Better energy efficiency: “The merge will reduce worldwide electricity consumption by 0.2%” according to drakefjustin
Less ETH issuance: We have heard of ETH being called ultrasound.money. In P.O.W the daily eth issuance was 12,000 ETH when you look at the above link the daily ETH issuance has dropped significantly.
Lower barriers of entry- reduced hardware requirements: Previously, miners had to purchase costly GPU mining rigs, while P.O.S validators only need a small piece of hardware to stake their ETH.
Alternatively one can deposit their ETH into existing validators such as
@LidoFinance Lido Finance and start earning yield on their ETH
