At a high level of abstraction, here's how any blockchain works: Someone on the network proposes a block containing a list of recent transactions. Then other network participants verify that the block follows the network's rules. If a sufficient number of other network participants accept the block, it becomes the "official" next block in the chain. As long as most network participants are honest, users can have confidence that transactions accepted by a majority of the network won't be removed or modified later.

The big challenge for any blockchain project is preventing a malicious party from creating many sock puppet accounts to "stuff the ballot box," outvote the honest participants and thereby tamper with past transactions. Bitcoin's pseudonymous founder Satoshi Nakamoto's big insight—the one that made bitcoin possible—was that this problem could be solved using the principle of "one hash, one vote." On the bitcoin network, whoever has the most computing power—specifically, the capacity to compute SHA-256 hashes—has the most influence over which blocks get added to the blockchain. As long as honest miners have more hash power than malicious miners, users can be confident in the integrity of the blockchain—and hence in the integrity of payments made using the bitcoin network. (Check out our in-depth bitcoin explainer for details on how this works.)

When Vitalik Buterin launched Ethereum in 2015, he used a variant of Nakamoto's scheme. By that point, bitcoin mining was already dominated by specialized silicon optimized for computing huge numbers of SHA-256 hashes, locking ordinary bitcoiners out of the mining game. So Buterin developed a new mining algorithm designed to be "memory-hard"—and therefore difficult to accelerate with custom hardware. As a result, Ethereum mining is still largely performed using off-the-shelf graphics cards, allowing ordinary Ethereum users to participate. //

Buterin has long recognized the environmental downsides of proof-of-work mining. Several years ago, he announced plans to transition Ethereum to proof-of-stake, which has been pioneered by several lesser-known cryptocurrencies.

While proof-of-work mining operates on the principle of "one hash, one vote," proof-of-stake is based on "one coin, one vote." Anyone who wants to participate in Ethereum's validation process must post ether as collateral, a process known as "staking." The more ether someone stakes, the more influence they have over which blocks get added to the Ethereum blockchain.

Every 12 seconds, a pseudorandom number generator selects a subset of stakers to form a committee to decide on the next block. One of them is designated to propose the next block, while the rest, called validators, verify that the new block follows all the rules of the Ethereum network. For example, if the block contains a payment transaction, the validators check that the source address has the required funds, that the transaction has the correct digital signatures, and so forth. If two-thirds of validators approve a block, it becomes part of the official blockchain.

Validators that faithfully follow these rules earn additional ether as a reward for their efforts, with the size of their reward proportional to the ether they've staked. On the other hand, if a validator tries to cheat—for example, by validating two different, incompatible blocks for the same blockchain "slot"—they will face financial penalties. If another validator posts evidence of such a cheating attempt, some of the cheater's collateral will be destroyed ("slashed," in Ethereum jargon), and the whistleblower will get a reward.