For starters, the Ethereum 2.0 is going to operate as an entirely new chain. The goal is to bring the entirety of Ethereum 1.0 records into Ethereum 2.0 chain during phase two of Ethereum 2.0 roadmap. There have been a couple of major announcements prior to the launch. Firstly, Ethereum 2.0 will feature a sharded architecture. Secondly, you will have heard about the consensus on moving towards Proof of Stake (PoS) over Proof of Work (POW) algorithm.
What exactly is the difference between Proof of Stake (PoS) and Proof of Work (PoW) algorithm?
For a better understanding you have to understand the concept of mining. It is a process of how newly minted coins are released into the network. PoW requires nodes of the network to perform complex math puzzles. It helps verify the legitimacy of tons and tons of transactions. These puzzles are characterized by its complexity and asymmetrical nature, thereby making it tough for you to solve the puzzle and easier for the network to verify it. Miners compete to be the first to solve and claim the mining rewards. They do it in a huge number of attempts via brute force. They get cryptocurrency in the network as mining rewards. Once verified, the transactions are placed in a block, which gets appended to the public blockchain.
The higher the computing power working on the puzzle the more difficult and complex it gets. It compels miners to optimize their abilities and get competent at verifying transactions. The entire model works towards maintaining the integrity of the system which rewards miners who do it well. In order to get control of the network, one needs to control at least 51% percent of it. It is highly unlikely that it may happen anyway in large-sized blockchains like Ethereum or Bitcoin. Nevertheless, you can not discount the possibilities.
So, what exactly is PoS?
It is an algorithm that works similarly to PoW. The processes are a tad bit different between the two. Rather than having a miner to create a new block, PoS choose from the pool of users who have staked a certain amount of cryptocurrency. Thus, there is no puzzle to solve and rewards to be had. Instead, the miners get a portion of the fee from every transaction. Since not many people are competing to solve the blocks, it reduces energy requirements. In addition, the penalty for harming the network is possibly losing the money you stake. The money you stake can easily be over $10,000 for average validation. In order to control the network, one has to own 51% of the total token supply in the chain. Besides being less likely to happen, it may not be a profitable venture at all.
PoW miners have huge energy requirements to solve the puzzles. Verifying one block requires as much electricity needed to run 1.75 households for a day by imposing monitory penalties for bad acts, PoS FURTHER reduces energy usage. Developers adopted this model to reduce energy requirements and curb harmful activities to the network.