Ethereum was conceived as a revolutionary step forward in blockchain technology. In a whitepaper released in 2013, its creator, Vitalik Buterin, described a platform that would go far beyond the financial applications of Bitcoin. Ethereum's proposed innovation was its ability to execute smart contracts—self-automated computer programs that operate without human intervention. After a successful crowdfunding campaign, the network officially went live in 2015, marking the beginning of an open-source platform that has become a leading blockchain for innovation and development.
To secure its network and validate transactions, Ethereum (and many other modern blockchains) uses a consensus mechanism called Proof of Stake (PoS). This is a more energy-efficient alternative to Bitcoin's Proof of Work system. After moving to PoS , Ethereum energy consumtion dropped with 99%. This upgrade has it's own limitations too. We will explain more about this techonogies in the next pages.
The core idea behind PoS is that those with a more significant investment in the network are more likely to act honestly. In PoS, network participants, called validators, "stake" their own cryptocurrency as collateral. By locking up their assets, they earn the right to validate new transactions and add them to the blockchain. In return for their honest work, they receive staking rewards. However, if they act maliciously or fail to do their job correctly, their staked assets can be automatically penalized or destroyed in a process known as "slashing".
For most users, becoming a full validator is difficult, as it can require a large amount of cryptocurrency (for example, 32 ETH for Ethereum) and technical expertise. This is where staking pools come in.
Services like Lido and Stakefish offer a democratized approach. They allow many different users to pool their smaller amounts of crypto together. This collective pool is then used to run a validator node, and the rewards are distributed proportionally to everyone who contributed. This not only lowers the financial barrier for individual investors but also helps to further decentralize and secure the network.
While PoS is a powerful system, it is not without its own unique security challenges. Two key challenges are: