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Bitcoin confirmation time is about 10 mins. Ethereum confirmation time is about 12 sec.

Why does Ethereum POW work fine even though confirmation time is shorter than Bitcoin's?

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Ethereum uses the GHOST (Greedy Heaviest Observed Subtree) protocol to combat the problem generally associated with short block times.

  1. Stale blocks

With lower block times the amount of blocks found will increase and thus more blocks will end up being stale. GHOST combats this by giving blocks that are valid but didn't end up being the head of the chain a small reward as well. These blocks are called "Uncles".

  1. Centralising

If you are a big miner you have a bigger chance of mining a block and thus getting a head start on any new block since you can start mining the next block if the previous block is still propagating the network.

By offering a reward for uncle blocks smaller pools still have a valid incentive to keep mining even if they are not among the larger pools.

You can read more about GHOST in the White Paper.

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