Ethereum, originally a Proof of Work-based network, transitioned to a new Proof of Stake (PoS) consensus mechanism in September 2022 in an event known as 'The Merge'.
In PoS, the network is secured not by the resource-intensive work of hundreds of miners, but rather by validators locking, or ‘staking’ large quantities of the network’s native cryptocurrency. This allows validators to participate in the validation process of new blocks, as well as entitling them to receive smaller amounts of the currency in periodic rewards.
The core idea here is that if someone locks up significant funds within the network, then, by extension, they care about the overall health and validity of the network, i.e. their interests are aligned with the collective. An insecure network’s token will lose value, and consequently, the validator’s stake will also lose value. To add to this, validators are also kept in check by a penalty for illegal or malicious behaviour, which takes away a portion of their staked tokens.
PoS is designed to be a lot more energy efficient than PoW, and also broadens the opportunity for the public to participate in mining for the network. Users without the necessary funds to become a validator themselves are able to delegate their tokens to a validator in exchange for a proportion of the rewards earned for securing the network.
