Proof of Stake and finality - how Ethereum agrees on blocks

A blockchain with no boss must settle the main question: who adds the next block and how does everyone agree it is right? That is consensus. Until 2022 Ethereum used miners' work (Proof of Work) for this. With the Merge upgrade the network moved to Proof of Stake (PoS), and energy consumption fell by about 99.95%. The basics are in the article what a blockchain is.

Validators and stake

Instead of miners, blocks are created and checked by validators. To become a validator you must deposit a stake of 32 ETH into a special contract. The stake is a "bet on honesty": for honest work a validator earns rewards, and for cheating or breaking rules it loses part of the deposit.

The main thought: an attack on the network must be costly and lead to the attacker losing money. Doing it unnoticed by the network is impossible.

Slots, epochs and roles

Time is divided into units:

• A slot - 12 seconds. In each slot one randomly chosen validator (the proposer) proposes a block.
• An epoch - 32 slots (about 6.4 minutes).

In each slot a group of other validators (a committee) votes with attestations: confirms that it considers the proposed block valid and which chain it considers the main one. There are hundreds of thousands of validators, randomly spread over committees.

Fork choice and finality

Two functions make up consensus:

1. Choosing the chain "head". If two competing blocks appear (a fork), validators choose the branch with the greatest weight of votes (the LMD-GHOST rule). The network thus converges to one version, but the "tail" of the chain may change.

2. Finalisation (Casper FFG). Once per epoch a checkpoint is fixed. When at least two thirds of the total stake has voted for it, it becomes justified. When the next checkpoint is justified too, the previous becomes finalised. A finalised block cannot be reverted without destroying at least a third of the stake - that is, an enormous amount of money.

In practice finality arrives after about two epochs, around 13 minutes.

What a "confirmation" means in practice

A transaction passes several stages of certainty:

A reorg is the replacement of the last few blocks by another branch. In Ethereum PoS deep reorgs are almost excluded, but 1-2 blocks may be reassembled. Wallets and services let you request a block with the safe or finalized status.

How long to wait? It depends on the amount. For a small deal one or two blocks suffice. For a large one, wait for "finalisation". In deals not only blockchain finality matters but also the deal state: the website shows when the transaction is counted.

Punishments: slashing and the "leak"

• Slashing. For dangerous violations (signing two different blocks in one slot, contradictory votes) a validator is forcibly removed and loses part of the deposit, and the penalty grows if many violators act at once.
• The inactivity leak. If the network cannot finalise for long (many validators offline), the inactive gradually lose stake until the active ones again make up two thirds.
• Small penalties for missed votes.

These mechanisms replace PoW's "cost of electricity" with an economic deposit (cryptocurrencies, Bitcoin and Ethereum).

How validators earn

Sources of income:

• rewards for proposing blocks and voting;
• tips (priority fee) and MEV (the fee market, MEV).

The base fee does not go to the validator: it is burned.

Risks and criticism

• Stake concentration. If a large share of ETH is gathered in a few liquid-staking services, it threatens decentralisation.
• Censorship. Validators or block builders may refuse to include certain transactions.
• Protocol complexity. More parts mean more room for error.
• Long-range attacks. New nodes must obtain a trusted checkpoint.

Nevertheless in practice Ethereum PoS has worked reliably since 2022.

What about other networks

This article describes Ethereum. Layer 2s such as Base inherit Ethereum's finality once data is published, but offer fast preliminary confirmations. Polygon and BNB Chain have their own consensus and finality parameters: before a large deal check the current data in their documentation (choosing a network).

What to read next

Learn how the network scales without losing reliability: rollups under the hood. Or who earns from transaction order and how: MEV and front-running.