Hey Ethereum, any news about Casper and PoS? | Medium
There has been a great deal of confusion around Ethereum’s intended transition from PoW (Proof of Work) to PoS (Proof of Stake). In this post, we will clarify Ethereum’s developers’ intentions and what it is they are really working on.
What is Ethereum doing?
Without confusing you any more than is necessary by discussing Ethereum’s old roadmap, we will simply catch you up to speed on Ethereum’s plan moving forward.
Ethereum plans to launch both Casper and sharding on the same “beacon chain,” which is a proof of concept chain that will represent Ethereum’s first step forward after implementing its new technologies. Essentially, there will be a hard fork which will include this new functionality. Both Casper (Ethereum’s improved iteration of PoS) and sharding will help Ethereum scale from a financial and technical perspective.
Let’s explore by getting down to the details…
What is traditional Proof of Stake?
Most people do not even understand what Casper is. Basically, it is a new and improved iteration of PoS.
To understand Casper, it will help to figure out Proof of Stake on a simple level. Here’s the basic process of Proof of Stake:
- Validators put coins in their wallet to stake (simple enough)
- Next, they begin validating blocks. To validate a block, a staker places a bet on it (the amount of coins they are staking)
- If the block a validator bets on is added to the chain, then they are rewarded an amount of coins proportionate to their bet
What are the downsides of Proof of Stake?
Proof of Stake schemes have a couple issues associated with them:
- There is no penalty for acting maliciously
- An advantage of PoW over PoS is that if a miner acts maliciously by attempting a 51% attack, then once the other nodes and miners decide to focus on the honest chain, the attacker will have wasted his computing power. In current PoS models, since all mining is now virtual, a staker can contribute to multiple chains simultaneously and reap benefits from both. Even if one chain is not accepted, they lose nothing.
- There is no true incentive for keeping continuous staking — “uptime.” In many modern PoS systems (especially ones that consider coin age) a user can sync their wallet once a month and gain the staking rewards owed to them with no penalty.
If the above explanations have left you scratching your head, you can relax. We’ll explain.
First, let’s cover malicious miners. In Proof of Work schemes, it is set in the protocol that miners will trust the longer chain if presented with two different chains. The logical reason for this is because the longer chain has a longer history which means more work has been done, thus, it is more secure.
In a PoW scheme, a malicious miner can continue to mine the shorter chain, but ultimately other miners will not accept their proposed blocks and the chain they are mining is useless. This wastes the cost of the bad actor’s hardware and electricity to run the mining rig. In short, malicious action is punished in PoW schemes.
On the other hand PoS mining is effortless. A user needs only to stake their coins in a wallet to contribute. In PoS schemes, blocks are ‘mined’ by having stakers place bets on proposed blocks. Then, stakers receive rewards proportionate to their bet for contributing. This means that a staker can place bets on more than one chain at virtually no extra cost, with no penalty put in place.
Why is Casper an Improvement?
Before we can explain why Casper is an improvement over current PoS schemes, let’s outline Casper’s process:
- Validators put coins in their wallet for staking
- Validators then place bets on the next block
- If the block a validator bets on is added, they receive a proportionate reward
- This is where Casper improves upon traditional PoS: If a validator acts maliciously by trying to validate two versions of the blockchain (one being a fraudulent version), OR a node does not have consistent uptime, then their entire stake is slashed and depleted.
The slashing function is the improvement. The risk of having one’s coins removed entirely makes staking nodes more accountable for their actions. Imagine if a PoW attacker had all of their mining equipment destroyed. This is essentially what slashing does to PoS contributors.
Additionally, Casper has improved “finality” over traditional PoS. Finality is a technical term which means that no history can be changed. In Casper, two thirds of all validators must agree and place maximum bets, so if anyone tries to collude, they will ultimately lose their stake. This part is a bit more complicated. We strongly recommend reading more about it. For now, it is enough to understand that “finality” means that what’s done is done — and cannot be undone.
What are the economic advantages to moving to Casper?
So far, we have explained the technical advantages of Casper and how they add accountability to miners. Casper provides for a more secure environment and adds incentive for stakers to behave by punishing bad actors. Aside from technical advantages, there are also economic advantages.
Once Ethereum implements staking, the requirement to be able to stake will be 32 ETH. While this is not a small amount of money, it’s a significant improvement over the initial roadmap’s plans which had a hybrid PoW/PoS scheme. Under this scheme, the requirement for staking would be 1,500 Ether! There are also efforts in the space working to offer staking pools that will be compatible with Casper.
The main reason Ethereum’s developers ditched the hybrid PoW/PoS is because eventually they will be required to migrate to a PoS only chain, regardless. Migrating twice would essentially double the developers’ work and strain Ethereum’s community. As mentioned before, we won’t burden ourselves by going too much into Ethereum’s history; we just wanted to mention a nice upside to Ethereum’s updated roadmap.
So, Casper’s staking minimum will be 32 Ether. There are many people who have well over 32 ETH. It is our estimate that more people have 32 or more ETH than people who have 32 or more Bitcoin. Ethereum came out at a time when more people were into crypto and could invest in it. Ethereum was also relatively cheap until its price began climbing in mid 2017.
Ethereum’s relatively low staking requirement enables more people financially. We know people who have over 32 EtH but do not mine. Staking provides incentive for those who would normally HODL with no benefit. Now, they can HODL and reap benefits. Additionally, every HODLer of 32 or more ETH represents a potential node for Ethereum’s network, which helps scalability and represents a huge technical advantage.
Of course, inflation must be discussed. It is estimated that inflation will be cut to just 0.5% a year with Casper. This is much less than the current PoW rate of inflation. The less inflation a cryptocurrency has, the more scarce its currency is. The more scarce a currency is, the more valuable it generally is, assuming demand continues to grow.
Lastly, let’s dive in to sharding. We mentioned both Casper and sharding as Ethereum’s developers’ main efforts.
What is Sharding?
Sharding is the other focus of the Ethereum team for the implementation of the beacon chain. In computer science, sharding is a term which means the splitting up of data.
For example, imagine a centralized database for a website that contains users’ last names. If you have 1,000,000 users, then it can take a while to find information for someone whose last name ends in “Y.” Instead, you can divide your last name list into separate tables such as A-D, E-H, all the way down to X-Z. This way, to find someone with the last name starting with “Y,” the system can jump right to letter X and begin. This saves lots of time and computing effort for the system, contributing to more scalability.
Simply put, decentralized networks apply this same logic by grouping nodes and transactions into separate shards. With defined protocol sharding logic, nodes can validate transactions faster by knowing which shard to start with.
In summary (and without getting into the different Casper proposals and historical intentions) this is where Ethereum’s developers’ efforts lie. They plan to implement both Casper and Sharding together (although maybe not at the same time) on the beacon chain.
How will you adjust your Ethereum position given their updated roadmap?
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