Like Bitcoin, Ethereum approved new transactions on the blockchain with a consensus mechanism called proof of work, whereby “miners” race to solve hard math problems with large amounts of computing power and are rewarded for their efforts in crypto. That approach consumes a lot of energy. It also posed scaling challenges for Ethereum: network congestion drove up fees and slowed processing rates, making the network too expensive for smaller transactions and difficult to scale for larger ones.
Proof of Stake, on the other hand, requires “validators” to stake a stake — a cache of ether tokens in this case — for a chance to be chosen to approve transactions and a small reward earn. The more effort a validator puts in, the greater the chance of winning the reward. But all ether will earn interest, turning staking into something like buying stocks or bonds without the computing overhead.
Decentralization—the idea that decision-making and control should be distributed rather than consolidated in a single authority—has always been key to Ethereum’s vision. But that ideal was difficult to achieve with proof of work. Although the mechanism was intended to promote decentralization, in practice individuals or groups with access to significant computing power dominated proof-of-work mining and reaped those benefits.
By reducing the required overhead for participation and reducing fees through efficiency improvements, switching to proof-of-stake could help Ethereum spread transactions across a wider and more diverse set of validators and users. But power dynamics are still a concern. The minimum amount you can put in to become a validator is 32 ether (ETH), which is worth about $51,000 as of Wednesday afternoon, although individuals can join a strike pool together to meet the requirement.