Network consensus is one of the most important aspects of running a decentralized blockchain. Bitcoin utilizes the Proof-of-Work (PoW) consensus mechanism, and so does Ethereum – but not for long. Binance Research believes Ethereum’s move toward Proof-of-Stake (PoS) is a sign of its growing popularity with a new network, and this trend is not expected to halt anytime soon, October 29, 2019.
Aligning Incentives to the Network
Ethereum is on the cusp of a colossal change to the way its network functions; a new consensus mechanism brings a wide variety of benefits, and accordingly, freshly observed trade-offs as well.
Research on staking and the various economic implications appear to have been the toughest part of shifting to PoS. Though despite acknowledging the magnitude of the challenges that lie ahead, the ETH 2.0 team is confident of a smooth rollout.
With PoS, network participants can become validators by locking up a certain portion of their coins in exchange for a return, or a yield on their assets.
In this way, staking mimics an investment in a fixed income security i.e. a bond – You put in a certain amount of capital and you earn a predetermined yield on that capital. However, the risks of staking are also quite heavy.
The Future of Staking
Based on the trajectory of the current trend, Binance estimates a huge increase in new protocols that implement PoS over other consensus mechanisms.
DASH uses a PoS-like system, whilst Cardano and Ethereum are in the process of transitioning, others like EOS and TRON utilize Delegated-Proof-of-Stake, but this has been proven to reduce the scope of decentralization.
More protocols may look to implement an Ethereum-esque Proof-of-Stake system simply because it allows for increased efficiency, but it doesn’t cartelize the validation process.
However, this entire thesis put forth hinges on the fact that Ethereum is able to successfully implement Proof of Stake and thrive. To call this trend data-backed would be incorrect, but it certainly shows the intent of decentralized protocols to also be sustainable.
Sourced from crypto.news.
Written by Ashwath Balakrishnan on 2019-10-29 17:00:49.