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Ethereum 2.0: Switching to Proof-of-Stake (PoS)


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Ethereum 2.0: Switching to Proof-of-Stake (PoS)

Jul 15, 2022 | DailyFX
Nick Cawley, Strategist

PROOF-OF-WORK VS. PROOF-OF-STAKE

Ethereum is the second-largest cryptocurrency by market capitalization – behind Bitcoin – and currently runs on a proof-of-work consensus protocol like Bitcoin. This energy-intensive means of validation allows the decentralized Ethereum network to come together and authenticate complex mathematical transactions that are then added as blocks to the Ethereum blockchain. Miners compete against each other to solve these mathematical problems to create a new block. Miners who are successful in creating a new block are given rewards via the creation of new Ethereum (ETH) coins. Due to the competitive process of trying to be the first miner to solve a transaction and get the new ETH coins, huge amounts of computational power are used to be first across the line. The Ethereum Foundation believes that to maintain security and decentralization of the Ethereum network, proof-of-work uses the energy equivalent of a medium-sized country like Austria on an annual basis.

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