December 1, 2020 was a milestone day for Blockchain technology . The zero phase genesis block of the Ethereum update will be generated, which will change some of its characteristics : Proof-of-Stake instead of Proof-of-Work , shardings instead of a single database and other news to allow more processing of transactions and ensure increased storage capacity .
However, Smart Contracts will continue with their characteristics, making it possible to process even more transactions, tokenize more and reduce costs, thus benefiting network users.
In this zero phase, what will be implemented will be the change of Proof-of-Stake consensus algorithm , or we could call Proof of Deposit.
What is Proof-of-Stake ?
According to Consensys , Proof of Stake is a different type of consensus mechanism that blockchains can use to agree on a single true record of data history.
While in Proof of Work , Proof of Work or simply PoW miners spend energy (electricity) to create mining blocks, in PoS validators commit their deposit to top up (or "validate") the blocks.
Validators are network participants that execute nodes (called validator nodes that in practice with servers with client software that implements the rules defined by the Ethereum protocol) to propose and certify blocks on a PoS blockchain .
This process is carried out by placing the cryptocurrency as a guarantee on the network (in the case of Ethereum 2.0 they are ethers) and making themselves available to be selected at random to propose a block.
Other validators then “attest” that they saw the block . When a sufficient number of certificates for the block is collected, the block will be added to the blockchain . Validators receive rewards for successfully proposing blocks (just as they do in PoW) and for making statements about the blocks they have seen.
Cryptoeconomic incentives for PoS are designed to create more attractive rewards for appropriate behavior and more severe penalties for malicious behavior.
The main crypto-economic incentive comes down to the requirement that validators have their own cryptocurrency - that is, money - on the network. Instead of considering the secondary cost of electricity to operate a PoW node, validators in PoS chains are forced to directly deposit a significant amount of money into the network .
If a validator tries to attack or compromise the blockchain when trying to propose a new historical data set, a different penalty mechanism comes into play: a substantial part of the deposited and collateralized amount will be reduced (possibly even the total deposited amount) and they will be ejected from the network.
The result is a huge financial risk of an unsuccessful attack by a validator. To make an analogy with PoW, it would be as if a miner who failed in an attack on a PoW blockchain was forced to burn his entire mining platform instead of just consuming the cost of electricity he spent on a failed attack. In addition, this architecture puts network security directly in the hands of those who maintain the network and maintain their native cryptocurrency in the protocol itself.
PoS Features
The Proof of Stake addresses three crucial issues for a Blockchain , follow:
Centralization
With the reduction of barriers to entry and the elimination of concerns about minimizing electricity costs, PoS networks are significantly more decentralized at the node level than PoW networks . Participating in a Blockchain requires only X amount of cryptocurrency, an Internet connection and a computer.
This opens the door to participation and revenue generation for a much larger group of people. In addition, the scale costs are much lower in the PoS format than in PoW.
In PoW systems, the more hash power a miner controls, the greater the% of rewards he could receive. In PoS, a validator's% return remains constant whether it manages 1 node or 1,000.
Scalability
Proof of deposit alone does not improve scalability. However, PoS architectures allow for the implementation of a scalability solution known as sharding without reducing security .
Sharding is a database scaling mechanism in which a blockchain is partitioned into several shard chains , each of which is capable of processing blocks. This prevents the entire blockchain from having to process each block simultaneously and instead allows multiple blocks (and, in other words, more data sets) to be processed at once.
With Ethereum 2.0, for example, fragmentation will partition the blockchain into 64 separate shard chains, meaning that the network will process transactions at least 64x the transaction speed of the original PoW chain.
Accessibility
The blockchains of Proof-of-Stake not require validators worry about the initial costs of hardware or pay attention to electricity rates just like the miners in PoW chains. It is therefore a significantly lower entry barrier for an individual to run a validating node in a PoS chain than to run a mining node in a PoW chain.
There is, however, a notable barrier to accessible PoS entry. Validators must bet a minimum amount of encryption to run a complete validator node. For Ethereum 2.0, for example, this value is 32 ETH (R $ 90,560.00 at the time of writing).
For many, this is a significant amount of money and an impediment to active participation. Just as the chains have PoW mining pools, however, there will be pools of staking that add funds of participants who can not or will not participate in 32 ETH. The pool will place a bet on your behalf and they will receive rewards as a percentage of your bet.
In PoW networks, fragmentation would help with scalability, but would have an impact on network security . Splitting a PoW network into shard chains means that each chain would require less hashing power to be compromised.
PoS chains, however, “know” who the network validators are (more specifically, there is an address attached to each deposit and, therefore, to each validator node).
By means of a proven random algorithm, therefore, PoS chains can guarantee that the validators chosen to validate blocks in different chains are random , effectively statistically eliminating the chance that a control validator will be staking enough to compromise the data in a block. While PoW requires security swapping for scalability, PoS networks can achieve both through fragmentation.
Ethereum 2.0
On November 24, 2020, the minimum amount of deposits in the Smart Contract that will manage the validators was reached, thus reaching the number of validators required for the new version of Ethereum .
Another important mark was also reached: version 1.0 of Prysm, one of the software for client servers that will in fact be the pillars of this new stage of Ethereum.
Few investors and users are aware of the existence of this software. However, they are the ones who process the transactions, store this information in a database and share this information via the Internet with other client software. They do this following the specifications because Ethereum, in itself, is just a protocol, a set of rules.
The Blockchain are actually this software running joint and coordinated manner.
And just as in the current version, Ethereum 2.0 is open. Anyone can become a validator and receive a financial return for providing this service to Ethereum. Mariano Conti is an example of an individual who decided to bet on this new business.
The Tokenization assets will be even more successful in this new version of Ethereum when all phases are implemented.
That way, even if you are just starting your negotiations or are already an expert in Blockchain, know these professionals, understand about Ethereum and stay tuned for news. With information, you can decide where to allocate your time and resources.
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