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Comparison on Proof of Work Versus Proof of Stake and
Analysis on Why Ethereum Converted to Proof of Stake
Mingjie Chen1,a,*
1Warren College, University of California San Diego, La Jolla, California, United States, 92093
a. mic018@ucsd.edu
*corresponding author
Abstract: As approaching the era of Ethereum 2.0, the already unique and innovative
cryptocurrency will witness a game-changing upgrade, and in this context, there is a lively
discussion of the Proof of Work (PoW) and Proof of Stake (PoS) consensus mechanism.
Moving from a PoW consensus mechanism to a PoS consensus mechanism is one of the most
anticipated changes in this update. A close comparison of the two most popular consensus
mechanisms, PoW and PoS, provides some strengths and drawbacks to these mechanisms.
This comparison then becomes the building block to identifying the reasons behind
Ethereum's upgrade to Proof of Stake. With the help of the comparison, this paper identifies
a few drawbacks of the PoW consensus mechanism that Ethereum is currently facing. This
paper finds that Ethereum's shift to PoS has indeed reduced the drawbacks of the Proof of
Work consensus mechanism, mainly in terms of energy consumption, transaction cost, and
confirmation speed.
Keywords: proof of work, Proof of Stake, cryptocurrency, Ethereum, consensus mechanism
1. Introduction
Digital currency is a currency system based on mathematical encryption, with Bitcoin being the first
ever digital currency. It uses blockchain technology to accomplish safety between different users.
With the application of blockchain, it can make the entire ledger public to everyone. When discussing
cryptocurrency, the idea of consensus mechanisms comes into play. Generally speaking, the
consensus mechanism is to solve the so-called decentralized trust problem because each node is
untrustworthy. Consensus mechanisms between all nodes ensure the accuracy and security of
recorded information as much as possible. However, no consensus mechanism is perfect; each has its
own advantages and disadvantages, and some consensus mechanisms are born to solve some specific
problems. As Ethereum is upgrading to the PoS consensus mechanism in September 2022, it is
essential to understand why they are converting to PoS from PoW since Bitcoin has kept the PoW
consensus mechanism till now. Whereas Ethereum is the second largest cryptocurrency after Bitcoin
in the world, they are taking this move to upgrade the consensus mechanism. In order to understand
the reason behind Ethereum’s change to Proof of Work, this paper will first have a close comparative
analysis of the two consensus mechanisms being mentioned. Then, comparing the disadvantage of
PoW and the advantage of PoS will lead to some conclusions on why Ethereum is converting to PoS.
By finding the reason behind Ethereum and analyzing whether it is a wise move, other
cryptocurrencies facing the same problem as Ethereum can choose a similar path.
Proceedings of the 2nd International Conference on Business and Policy Studies
DOI: 10.54254/2754-1169/12/20230624
© 2023 The Authors. This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0
(https://creativecommons.org/licenses/by/4.0/).
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2. Consensus Mechanism
2.1. Proof of Work
Proof of Work is a popular type of consensus mechanism in which one node proves to the other node
that they spent computational power achieve solving problems [1]. The idea was invented by Moni
Naor and Cynthia Dwork in 1993, and later used by Bitcoin as their consensus mechanism to prevent
problems such as decentralization. This approach can maintain the ledger security.
Blockchain is an enormous database, and everyone has access to this. If only a few people use this
ledger, they can quickly identify all the transactions and authorize new transactions to be recorded if
all people agree. However, in real life, this ledger is shared with a vast number of people, and we will
not trust strangers to get control of the ledger. This is when PoW gets into play; proof of work ensures
that users are not allowed to pay for funds they do not have the right to use. The proof-of-work
algorithm combines math theory and cryptography to allow everyone to update the blockchain
according to the rules.
Blockchain is the ledger mentioned above; instead of adding transactions one by one, transactions
are packing them into blocks. After publishing transactions on the network, the user who created the
block then counts the transaction as a candidate block. The transaction is valid only if the candidate
block becomes the confirmed block. The fees for adding blocks are not cheap. Proof of Work requires
miners (users who create blocks) to use their resources to compete for adding the block. In this case,
the resources are computing power(energy), which can be used to hash block data until a solution to
the puzzle is found [2]. Hash block data refers to bringing the data into a hash function to generate a
block hash value. The block hash is unique, and it is an identification of the input data. Miners can
only bring the data into a hash function to verify that the conditions are met. If it does not match, the
data is slightly modified, and a different hash value is obtained. Unfortunately, changing even one
character in the data can produce very different results, so the output is not predictable at all. When
other nodes confirmed the data is correct, the entire network can update their ledgers to incorporate
new blocks.
2.2. Proof of Stake
The Proof-of-Stake algorithm was launched in 2011 to solve the 51% attack problems with Proof-of-
Work [3]. Although the two algorithms share the same goal of achieving blockchain consensus, the
process for achieving the goal is quite different. Participants do not need to provide proofs that require
intensive computation, only that they have staked their tokens. Proof-of-stake algorithms random
selections to select validators from a set of nodes. In proof of work, all new blocks are not being
mined, it is defined as “forge” a new block. Users participating in the process must lock a certain
number of tokens into the network as their stake, this is to prevent adversaries from taking over too
many validations [4]. The size of the stake determines the chance of selecting a node as the next
validator. The greater the stake, the greater the chance.
To ensure that the process is not only biased towards the richest nodes in the network, it
implements several special ways to ensure some randomness. Some commonly used methods are
"Randomized Block Selection" and "Coin Age Selection". In the random block selection method,
validator selection is determined by finding the node with the lowest hash and highest stake
combination. People can always try to predict the next validators due to the publicity of the ledger.
The coin age selection method selects nodes according to the staking duration of the tokens. The coin
age can be calculated by multiplying the number of days that tokens are held as equity multiplied by
the number of pledged tokens [4]. When a node forges a block, its coin age is reset to zero, which
helps prevent nodes with large stakes from dominating the blockchain.
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2.3. Comparing PoW & PoS
Even both methods have the same goal, which is choosing a new owner of the new block, it has
differences between them. Proof-of-stake has advantages over proof-of-work, especially in terms of
scalability and transaction speed. Proof-of-stake tokens are less harmful to the environment than
proof-of-work. In contrast, Proof-of-Stake as relatively new technology has disadvantages in
cybersecurity. The proof-of-work network requires a lot of resources such as mining hardware,
electricity, etc., so the attack cost will be higher. This is especially true for Bitcoin, the largest proof-
of-work blockchain.
Table 1: Comparing proof of work and proof of stake.
Pros for Proof of Work
Pros for Proof of Stake
Network Security
Scalability
Decentralized Method of verifying
Enhancing decentralization
Energy Efficient
Reduced transactions fee
Faster confirmation time
Anyone can Participate
Cons for Proof of Work
Cons for Proof of Stake
Relatively Slow
Relatively new
Extremely energy-intensive
Reward is not as much as mining
3. Case Study: Ethereum Converted to PoS
3.1. What is Ethereum
Ethereum is the second largest cryptocurrency after Bitcoin, which is also a blockchain-based
platform. Bitcoin proves that a currency can be created by a community that anyone can send and
receive through a cryptocurrency wallet, and it also solves the "double spend problem." What
Ethereum proves is that blockchain is more than just a store of value. It can also put ideas, money,
services, and more, into code and execute through smart contracts.
Ether (ETH) is the cryptocurrency Ethereum uses to build and maintain the operation of its
network. It works similarly to Bitcoin, where miners create ETH by creating blocks and solving
puzzles.
3.2. Ethereum’s Proof of Works’ Disadvantages
The Ethereum foundation proposed that they will be changed into a PoS consensus mechanism around
April 2021, and this will most likely be taken place in September [5]. As discussed above, even PoW
consensus mechanism has been dominant in the entire cryptocurrency market, there is no best
consensus mechanism [6].
Proof of Work has been showing an advantage in many aspects, especially in high security.
However, PoW has shown weaknesses in many different aspects that are influential in Ethereum's
future - the well-known energy-intensive issue. Ethereum consumes around 75 TWh of energy per
year; Bitcoin, on the other hand, consumes 152 TWh per year, and 75 TWh is 0.32% of the entire
world's electricity consumption [7]. With this being said, the energy issue is the most significant
related to the drawbacks of the Proof of Work consensus mechanism. This issue is not only caused
by the company which used a proof-of-work algorithm that required thousands of mining hardware
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devices to run continuously to support and secure the network, but also all the miners who are
competing to get the new bitcoin using advanced mining-specialized equipment. There are more little
problems related to Proof of Work consensus mechanism that is crucial to Ethereum, which will be
addressed in the following.
3.3. Benefit of Converting to Proof of Stake
3.3.1. Environmental Issue
Around December 2020, the Beacon chain was launched by Ethereum [8]. This new Chain is
essentially the new Ethereum. The Beacon Chain is a blockchain that uses the proof of stake
consensus mechanism. Validators add blocks to the beacon chain, but these blocks do not contain any
data or transactions. The merger requires transferring data stored on the Ethereum main net to the
beacon chain, making the beacon chain the main blockchain on the Ethereum network.
The proof-of-stake algorithm reduces the resource consumption caused by mathematical
operations to a certain extent, and the performance has also been improved accordingly. At the same
time, proof of stake can also reduce the environmental burden. As cryptocurrencies gain wider
adoption, it has created a considerable carbon footprint. Proof of Stake consensus mechanism
significantly reduces this environmental cost by removing complex computation brought by PoW.
Furthermore, with a successful transition from PoW to PoS, cryptographic puzzles will no longer be
part of its network system. As a result, electricity spending on Ethereum is expected to drop by around
99.95%, according to the Ethereum Foundation [9]. The current global energy system is in turmoil,
and the energy supply crunch has been in severe shortage, which has led to electricity and fuel prices
having soared. This huge step Ethereum takes will help reduce energy consumption a lot since using
0.32% of the world's electricity is creating too much burden on the environment [7].
3.3.2. Low Transaction Cost and Faster Confirmation Speed
Ethereum, with the proof of work consensus mechanism, confirmation speed is around 15 seconds to
5 minutes.[10] Compared to other cryptocurrencies, it is a relatively long time, especially when
Ethereum has to incorporate the smart contract, which requires a faster confirmation speed. In this
case, they are processing much fewer transactions from the requirement of the smart contract system.
Adding to that, each network confirmation requires a certain transaction fee, and it is called a gas fee
in Ethereum. The amount of this fee is determined by auction. The higher the bid, the higher the
request will be confirmed, while the request with the lower bid can only wait for even longer.
Therefore, when the market was relatively hot last year, the gas fee confirmed by a contract was as
high as tens or even hundreds of dollars. Therefore, after converting to PoS consensus mechanism,
the efficiency of network confirmation will be increased, and the cost of using the Ethereum network
will also be reduced.
4. Conclusion
With close analysis of the Proof of Work and Proof of Stake consensus mechanism, these two
mechanisms have significant advantages and drawbacks over the other. Along with the
implementation of this comparison onto the current Ethereum model, it can see that Ethereum's shift
to PoS has indeed reduced the drawbacks of the Proof of Work consensus mechanism, mainly in
terms of energy consumption, transaction cost, and confirmation speed. Therefore, Ethereum's shift
to Proof of Stake is an intelligent move towards a greener future. In the future, after getting enough
data from the after-merged Ethereum, it can be clearer to see if converting to Proof of Stake was a
good move for Ethereum. Especially some in-depth research in the three aspects mentioned above.
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Acknowledgement
I am thankful for all the papers published online for reference. Throughout the research, I have learned
more than what I have written in this paper. There are so many good ideas being published on the
internet, and I am grateful to all the authors that published those papers.
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