It’s happening — the Ethereum Merge is here!
The Ethereum network is switching from Proof-of-Work (PoW) to a Proof-of-Stake (PoS) protocol.
Generally speaking, the speed and efficiency of blockchains are limited by two factors: block size and block processing speed. Both are determined by the protocol which a given blockchain utilizes to process transactions in a decentralized and secure manner. Currently, two main protocols are being utilized for processing blocks (transactions): (1) Proof-of-Work (PoW, originating in BTC); and (2) Proof-of-Stake (PoS, originating with Peercoin).
PoW sacrifices throughput (transactions per second or TPS) for improved security and privacy by having all nodes in the network compete for compensation (a mined coin) by being the first to validate a set of transactions.
PoS increases TPS at the cost of network resilience to bad-faith actors by not requiring all nodes to mine each new block. Rather, it randomly assigns each new block to any one of the nodes that holds a staked (“locked”) interest in the native cryptocurrency.
Which is better? We would say it depends on the use case. Namely, we view these two protocols not as being in direct competition, but rather as complements which address different market segments with varying customer needs.
PoW allows for a level of anonymity and transaction security that allows it to be a store of value and serve as a means of private payments. PoS, on the other hand, facilitates higher network speed and efficiency (at the cost of anonymity and censorship resistance) enabling the deployment of more functionality which allows for the network to be used as an increasingly sophisticated development platform.
What are your thoughts on the PoW vs. PoS debate?