Grounding is one of the more misunderstood parts of residential wiring, partly because the word is used for two different things that serve different purposes.
The first is the grounding electrode system, the connection between the electrical system and the earth itself. This is the ground rod driven outside, or the connection to a metal water pipe, or in newer construction a conductor cast into the foundation. Its job is mostly about stabilising voltage relative to earth and providing a path for lightning and utility-side faults. It is not, contrary to common belief, the thing that clears a short circuit inside the house.
The second is equipment grounding, the bare or green conductor that runs with each circuit and connects the metal parts of devices, boxes and appliances back to the panel. This is the one that matters for shock protection.
Here is what it actually does. If a hot conductor inside an appliance touches the metal case, the case becomes energised. Without an equipment ground, that case stays energised, quietly, waiting for someone to touch it while also touching something grounded. With an equipment ground, the fault current has a low resistance path straight back to the source, which produces a very large current, which trips the breaker immediately.
So the ground conductor is not there to carry current away in normal operation. It is there to make a fault big enough and fast enough that the protective device notices.
Bonding is the related idea of connecting metal parts together so they all sit at the same potential. Metal water pipe, gas pipe, structural steel, and the electrical system are bonded so that a fault cannot create a voltage difference between two things a person might touch at once.
This is why two-prong outlets in older homes are a genuine limitation rather than an inconvenience. There is no equipment grounding conductor, so there is no fast fault path. Where rewiring is not practical, ground fault protection is an accepted alternative because it detects the escaping current directly rather than relying on a ground path.
What is not acceptable is connecting the ground terminal to the neutral at the outlet to make a tester show a correct result. It looks right and behaves dangerously.
More on this topic: source
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