Ethereum’s Constantinople fork was supposed to happen this week. It didn’t go ahead, though it’s now scheduled for February 27th. In addition to some minor changes, the larger plan is to move Ethereum from a proof-of-work consensus mechanism to a proof-of-stake model. A PoS ethereum network would, core developers claim, greatly improve scalability challenges, reduce energy consumption, and make the technology much nicer to use.
This is good news for blockchain enterprise applications and end-users. Core developers postponed the ethereum update, however, after cyber security firm ChainSecurity found a vulnerability. Smart contract auditing is essential in any project if you’d like it to be secure and successful. The Ethereum update signals the blockchain’s shift to a PoS consensus mechanism. Buterin and other developers believe that the change will make Ethereum easier to use. The implications would change the dynamics of the project to better serve users — and businesses building blockchain solutions.
Pivot to proof-of-stake
In the current PoW model, consensus across all the network’s nodes makes transactions slow and energy intensive. For end-users, this can be offputting. Our developers and designers have found that blockchain apps — especially ones dealing with money should be fast, responsive, and trustworthy. Of course, there are ways to work around long transaction times. State channels are one way that Espeo blockchain developers have solved this issue in the derivatives trading platform CloseCross. State channels increase the app’s responsiveness while also committing the transactions to the blockchain. However, a PoS ethereum consensus would reduce the need for these additional fixes.
Proof-of-stake differs from the proof-of-work model in a number of ways. In PoW, miners compete with other miners using their computational power to solve complex calculations. In exchange, miners receive cryptocurrency as a reward for creating new blocks. The problem with this model is that miners don’t have to actually own any of the cryptocurrency and so there’s no vested interest. With enough computing power, miners could take control the blockchain. PoW blockchains are also slow and use a lot of electricity. Alex De Vries, a bitcoin specialist at PwC estimates global bitcoin mining uses around 7.6 gigawatt hours or almost the same as Ireland.
An Ethereum update to a PoS mechanism would improve the network and fix lingering performance issues. One of the biggest benefits to end-users would be lower gas costs and faster transactions. Since every node in the network doesn’t have to verify transactions through mining, transactions commit much faster. A PoS Ethereum network would run much more efficiently and would be much more user-friendly. This would be a boon to end-users and blockchain entrepreneurs who may be paying gas on behalf of their users.
51% attack resistance
As I mentioned, in a proof-of-stake model, node operators have to offer up cryptocurrency to run a node. Instead of mining, the age and size of the staked coins help determine the node that completes a hash. This will greatly reduce Ethereum’s energy consumption because there are fewer computers competing to solve the puzzle. Proponents also claim a PoS mechanism prevents nodes from trying to cheat because otherwise, they would lose their stake. In order to gain a majority of the network in a so-called 51% attack, it would be very expensive to lose that stake.
While large PoW networks such as Bitcoin would be very difficult to attack, smaller blockchains are more vulnerable. Ethereum Classic, a spinoff of Ethereum after the 2016 DAO hack recently experienced an attack due to its relatively small size. In a nutshell, if someone is able to collect 51% of the available computing power in a network, they can start to manipulate it and start double spending. It was this same type of vulnerability found in the Constantinople update. PoS consensus flips this model around and encourages the community to act in its best interest.
Ethereum update criticism
Critics argue that PoS goes against the spirit of cryptocurrency and only allows a few key people to control the whole system. The Ethereum update many claim, consolidates power in a few large coin holders. Owning more coins means you have an increasingly powerful position to commit future transactions and profit. More senior miners with large holdings could use their power to influence the network. Lead Blockchain Developer Krzysztof Wędrowicz disagrees. “It would be totally unwise,” he said. “You can do that, but the value of the cryptocurrency would drop and then your stake would be worth nothing. It’s not economically smart.”
Getting this aspect of a PoS model right is essential to keep the trust of the community and remain decentralized. Economic incentives to act in the communities best interest is the strongest driver. While it’s technically possible to take over, there would be little incentive to do it.
One of the biggest advantages of a transition to PoS is that it will allow ethereum transactions to execute much faster and more efficiently. Wędrowicz pointed out that PoS is much more efficient and less energy intensive. “In proof of work,” he said, “you have to use a lot of computing power to hash data. It’s slow and it uses a lot of energy. In PoS, validators have to stake funds and if they provide the wrong block, then they would lose their stake. This changes the dynamic to encourage the mining community to play nicely.”
A Pos Ethereum update is still a ways away. The Constantinople hard fork now scheduled for February 27th intends to move Ethereum toward a proof of stake model. Core developers, as well as the Ethereum community, believe that this will make the network more efficient and easy to use. Businesses hoping to leverage blockchain will also benefit.
Better usability is still the number one stumbling block in the industry. While PoS has its critics, the model moves the incentive away from mining and encourages users to have a vested interest in the stability of the project. Finding a balance between decentralization and usability will drive innovation and encourage more enterprise applications. As gas costs come down, and usability improves, more people will be encouraged to use blockchain technology in their daily lives.