What does the Proof of Stake protocol mean for Ethereum? And how will it work?

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One of the most anticipated events for the Ethereum community is the switch from the Proof of Work (PoW) protocol to the Proof-of-Stake (PoS) protocol.

In a recent interview, Vitalik Buterin, the creator of Ethereum, revealed that the Proof-of-Stake Protocol for Ethereum is 75% complete, so we can probably expect it to launch in late 2017.

But wait. What exactly is the Proof of Stake protocol? How does it work? And what does it mean for Ethereum?

Let’s dive right into it.

 

What does Proof-of-Stake mean?

In the contrary to Proof of Work, Proof-of-Stake does not need miners to verify transactions. Instead, transactions are verified by the actual coins that the users of Ethereum own (the “stake”).

By switching to the PoS protocol, Ethereum will be much more decentralized than it is currently because it makes miners “obsolete”. Right now, most of the mining power is concentrated in the hands of a couple miners. And as the time goes on, they would keep increasing their total share in the network, which shatters the whole idea of a decentralized world.

Once the Proof-of-Stake protocol is activated, everybody who owns an ETH coin helps to verify the network’s transactions. The more coins an individual owns, the higher is the probability that his stake will be used to mine a block. You can also interpret this as if the Ethereum network was paying you dividends on your Ether coins. The more you have, the higher the yearly returns. Sounds good right?

 

Why is Proof-of-Stake important for Ethereum?

Ethereum and its token Ether are two of the most secure infrastructures built so far. And by implementing the Proof-of-Stake protocol, it will be even safer. This is extremely important for when one-day Ethereum is adopted all around the world as a daily form of payment.

Nowadays, the most feared event for any blockchain-based cryptocurrency is a 51 percent attack. In case you don’t know exactly what this means, a 51% attack is a sabotage on the block chain where one or a group of miners control more than 50% of the network, hence the name. When this happens, the attackers can double spend their own coins and decide which transactions are carried out.

Once the Proof-of-Stake protocol is active on Ethereum, a 51% attack is no reason to be worried anymore. Because then, the attacker would need more than half of all available Ether tokens, which at the time of writing this post would be worth around 12 Billion USD.

 

What is Casper?

Casper is the name Vitalik Buterin and Vlad Zamfir assigned to the project of switching Ethereum’s protocol to Proof-of-Stake. Insiders also refer to it as the “Friendly Ghost” because it is an adaptation of the GHOST protocol (Greedy Heaviest-Observed Sub-Tree).

So it’s basically just another way of referring to Proof-of-Stake in the context of Ethereum.

 

What does Proof-of-Stake mean for investors?

A switch of PoW to PoS is amazing news for investors!

If Vitalik Buterin keeps his word, and the new protocol is integrated to Ethereum by the end of 2017 or early 2018, the core technology will be a lot less vulnerable to attackers. This makes Ethereum more interesting for large corporations and Governments.

Therefore, a huge price jump should be expected if the PoS protocol is successfully integrated.

 

That’s all! 

What do you think will happen a successful switch to the PoS protocol will affect the Ethereum price?

Please share your thoughts in the comment section below!

 

And as always,

 

Stay awesome.

 

 

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1 Comment

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