Ethereum Developers Examine Proof of Work (PoW) as ETH 2.0 Approaches

As the Ethereum ecosystem prepares for the launch of Ethereum 2.0 –  a new phase that will see the adoption of the Proof-of-Stake (PoS) algorithm – the blockchain’s developers conducted a review on the Ethereum network performance under the Proof-of-Work (PoW) consensus mechanism. 

Even though PoW has been useful for some blockchain networks like Bitcoin due to its high-security level, the model has not been able to handle a more sophisticated system like Ethereum that goes beyond the transfer of wealth. 

According to the report titled “The Ethereum Mining Proof Of Work” published recently, Ethereum developers critically examined the PoW algorithm and how several on-chain and off-chain factors have influenced miners interaction with the network from 2015 till date. 

The on-chain factors which include block rewards, hash rate, network security, and difficulty, mostly have an impact on mining pools while off-chain factors such as electricity tariff, cryptocurrency prices, among others affect individual miners.

Three major issues have been associated with the PoW model, such as accessibility, scalability, and centralization. 

These problems have seen individual miners come together to establish mining pools as the cost of carrying out these tasks individually could be very expensive. 

Notably, the majority of miners on the network are mining pools, a process of miners pooling their resources together to execute crypto mining operations, and the rewards are split and paid via miners’ addresses according to work contributed.  Per the report, more than 90% of all block production on Ethereum for the past two years were mined by known 56 mining pools.

Despite establishing several mining pools, certain notable events like the June 2016 DAO hack, the Byzantium upgrade in October 2017, the all-time increase of ETH price to $1400 in January 2018, and others have continued to influence miners’ participation in mining operations. 

For instance, between mid-2015 to January 2018, the number of Ethereum miners decreased from 875 to less than 100, while the number of payout addresses increased significantly. 

The decrease in the number of miners could result from the emergence of mining pools as the off-chain factors forced miners to pool their resources together. 

However, the PoW algorithm’s problems would soon be a thing of the past, with the launch of Ethereum 2.0 Phase 1.5 when the PoW and PoS chain eventually merge, and the network is fully running on a PoS consensus mechanism. 

Meanwhile, Coinfomania reported that Ethereum developers had made significant efforts toward the launch of Ethereum 2.0 with the release of the first multi-client testnet for the new version. 

See Also: What Will Ethereum 2.0 Mean for DeFi?