The importance of Proof Stake
The current state of many coins is that they are using proof of work to conduct the mining process. Both Bitcoin and Ethereum are currently using proof of work to process transactions and mine coins. As transactions happen throughout the network, people use their computers to conduct computations that verify the ongoing transactions.
As with many things, there are benefits and cons.
In the proof of work mechanism, the cons are that of energy usage, fifty-one percent attacks and more. In the aspect of energy usage, many are stating that it uses excessive amounts of energy and that something else must be done to process and verify transactions on the Bitcoin network.
Fifty-one percent attacks
In regards to fifty-one percent attacks, an individual has a mining rig or has several mining rigs to conduct the act of mining. If you and your peers collaborate and pool your many mining rigs, you then have vastly greater computational power. With this hashing power, you can form, what is called, a mining pool and you can have control a significant portion of the network, potentially leading to a fifty-one percent attack. In the fifty-one percent attack, you and your group would have 51% of the hashing power.
In the fifty-one percent attack, there could be a fork in the network, this would be devastating because of the fact, that the original chain would then lose its functionality and all future transactions would have to take place on the new chain.
The reason that this is so is because if there are “two different versions of a truth, the Bitcoin network will choose the longest chain.”
Being able to possess 51% of the hashing power allows for a quicker mining rate than others on the platform and can also lead to double spending, block transactions, and much more, which greatly disrupts the immutable blockchain.
This fork leads to a convoluted version of the truth and has a large chance of minimizing the value of Bitcoin.
The proof of Stake mechanism
In proof of stake, miners have to show that they have a substantial stake in Ethereum to mine more coins. Individuals show the network the amount of Ether in their possession, and when mining entities step into the mining pool, the individual with the larger amount of Ether at stake will be able to be chosen to mine and verify transactions. Individuals would have to stake their coins, essentially lock them up, disincentivizing them from malicious attacks. Proof of stake would allow for a built-in mechanism against the notion of dominance in the network. When you stake or lock up your Ether, if you do something that system deems malicious, you would lose your Ether.
In proof of stake, you relinquish your role as a miner and turn into a validator; you state your opinion of which blocks you think will be added to the blockchain, if you are correct, you will be able to gain coins. Playing the role of validation requires minimal expenditures in the energy department thus minimizing concerns in the cost of energy. In this system, according to Vitalik, one individual would have to lock up a minimum of one thousand Ether (this may change over time).
Proof of stake allows for speed of processing because there won’t be as much time needed to be used to mine the block because now blocks are being validated.
Proof of stake then accounts for various aspects that are plaguing the current Ethereum blockchain, solving speed and security at the same time, potentially helping Ethereum to become a caterer to various use cases without being clogged.