There is no waste of energy as the network of validators work together rather than against each other. In staking, an algorithm chooses from a pool of validators-each validator has staked ETH to ensure that they respond to validator duties appropriately. In contrast, PoS removes this competition. All the energy that went into the computation from other miners is wasted. The winner earns rewards for each block that they add to the blockchain. Miners compete to solve a mathematical puzzle to create the next block. One of the reasons that PoW is an energy guzzler is that it essentially pits miners against each other. Per year, this accumulates to roughly 89.11 TWh (terrawatt-hours), an amount comparable to the annual energy consumption of Belgium. This is more than what it takes to process 100,000 VISA transactions. PoS solves one of the main criticisms of PoW: the fact that it is energy intensive, and is worsening climate change by adding massive amounts of carbon to the environment.Ĭurrently, 1 Ethereum transaction utilizes 178.89 kWh (kilowatt-hours). These rules include ensuring that no fraudulent, or double transactions happen on the network. Staking requires a network of validators to place a security deposit of 32 ETH in special accounts on the network as a guarantee that they will follow and enforce network rules. In this method, people can validate transactions on a blockchain by putting their crypto assets “at stake”. The Proof-of-Stake (PoS) mechanism emerged as an alternative to PoW in 2012. However, all this computation requires heavy investment, as well as a significant amount of electricity. Miners then earn rewards, in the form of new tokens, based on the payment of transaction fees. With the PoW mechanism, miners execute a certain amount of computation, or work, to create the next block. Prior to staking, the way to reach consensus on the legitimacy of a transaction was through the Proof of Work (PoW) mechanism, similar to the Bitcoin blockchain. For Ethereum, it is facilitating the transition from Eth1 to Eth2 (using old-money nomenclature). Staking is a mechanism that validates transactions on a blockchain. This means the selection of your staking provider, or client if you are running your own node, is even more critical than it used to be.īefore we get into the nitty-gritties of why staking is a good way for institutions to earn rewards on their Ethereum holdings, let’s look at what staking is, and why it is important for Web3. From a validator perspective, the key element of this is that the penalties for inactivity and for slashing have now been increased from their original levels: the training wheels are coming off. Last month, the Beacon chain underwent its first upgrade: the Altair fork. The robustness of the network has proved equal to the staking growth so far. These slashing events were mostly due to operational errors or deployment mis-configurations rather than deliberate misbehaviour. Among the 250,000 validators, only 158 have been slashed. In the one year since its launch, the Beacon Chain has largely maintained an above 97% participation rate.
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