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Exploring ETH 2.0 (Part 2)

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Unlike in a centralized system where a few people of influence can conspire to twist the truth, if a miner behaves dishonestly, their block will be rejected and this dishonest actor will have wasted time and incurred hefty electricity costs in the process.


This is what makes PoW so secure: The combined computational power required for an individual to compromise a well-established Proof of Work blockchain like Bitcoin or Ethereum is too cost-prohibitive. Maybe if an attacker could leapfrog into the future and procure a monster, quantum computer and then magically backtrack in a time warp to rewrite the blockchain’s history, it would be possible, but not likely this day-in-age.


Advantages of Proof of Work
Over time, PoW blockchains have proven to be a resilient, secure, and trustworthy consensus mechanism, but they face some pretty big challenges—namely accessibility, centralization, and scalability.


Accessibility:
The barriers to entry to becoming a PoW miner are high due to energy costs and the necessary hardware it takes to run this energy hog of a mining rig. These costs can prove to be a stumbling block for many people who would otherwise desire to participate.


Centralization:
The concentration of PoW miners is going in two directions:


Mining Pools
Larger conglomerates can squash individual miners and prevent them from participating in the maintenance of the network. Thus, as mining becomes too costly for individuals, they are forced to either drop out or collectivize by buying hash power from a mining pool that operates as a single entity.


Geographic Location
Conglomerates tend to gravitate to areas with low electricity costs and cold climates to reduce the costs of manually cooling their mining hardware.


This means that an individual miner living in Palm Springs with hot, desert temperatures and exorbitant, California energy costs, will have about as much chance competing against a mining conglomerate from Siberia as a one-legged man in an ass-kicking contest. Case in point, half the blocks on Ethereum 1.0 are already being mined by just two mining pools and that percentage is likely to grow as individual miners continue to collectivize.


Scalability
In the present Ethereum PoW chain, block sizes are limited by a gas limit cap and are mined sequentially. That means that after a block has reached its maximum number of transactions, the pending transactions that can’t fit will have to wait and hitch a ride on the next block.

The Proof of Stake (PoS) Consensus Mechanism
In ETH 2.0, PoS will be introduced, bringing with it many improvements such as, stronger economic incentives, greater energy efficiency, and lower barriers to entry (which means less centralization).




Like PoW, PoS is a consensus mechanism. It’s just a different kind that blockchains can use to come to an agreement on a single version of truth.


To accomplish this, miners and electricity from the PoW system will be replaced by validators and staked ETH on the PoS chain. Miners consume energy to mine blocks in PoW, but in PoS, the validators commit to having their stake (deposit) locked up to validate blocks into existence.


Stronger Economic Incentives
To participate, validators will need to stake 32 ETH into the official Ethereum 2.0 deposit contract for each validator node they desire to run. Each time a block is set to be proposed, up to 64 random committees of 128 validator nodes will be selected from the entire pool of validators to attest the block. This reduces the likelihood of a successful attack happening to odds less than one-in-a-trillion. Basically, it’s a hell of a lot easier to just play by the rules and get paid rather than try to cheat the system.


But there will always be some knuckleheads who will try. And if you decide to be one of those would-be attackers, there is a special “negative” crypto-economic incentive awaiting you: Some, or all of your staked ETH, will be slashed and you will be ejected from the network quicker than a card-counter from a Las Vegas casino. And no, you won’t have mobster characters like Robert Dinero or Joe Pesci working you over in a back alley, but you might receive some nasty tweets from Vitalik (Vitalik Buterin, the face, and co-founder of Ethereum)—so don’t even think about it.





Vitalik Buterin


Some believe these incentives against malicious behavior are greater than those found in PoW. Not only because of the tremendous financial risk but because 32 staked ETH are more tangible than say, the secondary cost of electricity a PoW attacker might expend. A future electricity bill could be abstracted away in the mind of a would-be attacker but watching one’s stake of hard-won ETH slashed from 32 to 0 would bring crocodile tears to anyone’s eyes and might work as a stronger deterrent.


A milder economic deterrent will also be at play to keep the network running smoothly. Validators who spend too much time offline and don’t maintain their fair share of computational responsibilities can have their block reward decreased. Validators have to be online and available to be randomly selected to propose a block. However, these penalties are relatively mild in comparison to what malicious attackers get.


As far as positive crypto-economic incentives go, as mentioned before, validators have to be online and running the Ethereum 2.0 client software. They can then be randomly selected to propose and attest to blocks on the blockchain. When a block has been proposed and a sufficient number of validators have attested to the block, the block is added to the Ethereum 2.0 blockchain. Validators are rewarded in ETH for both successfully proposing and attesting blocks in direct proportion to how much they have staked.



End of part 2

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