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It appears that Ethereum will start out with PoW and switch to PoS later. If I remember correctly, the block interval is planned to be fairly short in Ethereum. How does Ethereum manage to achieve consensus?

  • Check out Epicenter Bitcoin podcast EB105. Discusses moving to POS. Not sure answers your question but was interesting POS hybrid discussion. – Dustin Butler Dec 23 '15 at 19:15
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Ethereum achieves consensus using Proof-of-Work. This was true in the initial "Olympic" testnet (0.9), in the first "Frontier" release (1.0) and in the second "Homestead" release (1.1).

The upcoming "Metropolis" release (1.2) will also keep the consensus to be achieved by Proof-of-Work. The used algorithm is called Ethash, and it was created specifically for Ethereum.

It's hard to speculate about how the roadmap after that will be, but it is announced that at some point a release called "Serenity" will introduce a hardfork which updates the network to find consensus by utilizing Proof-of-Stake.

The Proof-of-Stake algorithm is still being developed by Vlad Zamfir and is called Casper. which is a security-deposit based economic consensus protocol. This means that nodes, so called bonded validators, have to place a security deposit, an action called bonding, in order to serve the consensus by producing blocks.

In Casper style proof of stake anyone can participate in block production by posting a bond. After posting a bond you have an opportunity to bet on which block will be included next. The incentives are such that you make money by betting with the eventual consensus and lose money by betting against the consensus. Any cryptographically provable misbehavior results in the forfeit of the bond.

At the bottom line of this post, it's worth to note that the Ethereum network is poised with a difficulty bomb which increases the difficulty exponential after a certain time of mining and it will hit around the beginning of 2017. This will make the network basicly stop mining if no hardfork to Proof-of-Stake or any other solution will be scheduled before.

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