Now that you know what Proof-of-Stake is, you’re probably wondering when we’ll see it implemented on Ethereum. This will all occur through Casper Protocol, an upgrade to Ethereum that brings with it a new consensus mechanism powered by Proof-of-Stake.
Casper is a unique system in that it solves the ‘nothing at stake’ problem that plagues most Proof-of-Stake networks. This issue arises because, in most systems, validators aren’t punished for validating more than one history. The network has no way of knowing if validators stock piled assets on other chains just for insurance. Casper solves this by forcing validators to lock up some amount of tokens in a bond, which they can only retrieve by acting honestly.
Casper also introduces a new consensus rule where validators are effectively betting on the future state of the blockchain. When a validator proposes a block, they are placing a bet on whether or not it’s legitimate. If the block gets appended, the validator gets a reward proportional to their bet. If they act maliciously, they lose their entire stake.
The Two Faces of Casper
Casper research and implementation has been split up into two separate phases: Casper FFG and Casper CBC.
Casper the Friendly Finality Gadget, or Casper FFG for short, is a hybrid POW/POS consensus mechanism in which validators will intermittently verify the work of the miners. Casper FFG will be implemented first as it’s not as big of shift from the existing Proof-of-Work system. This will make the overall transition to Proof-of-Stake much easier on the network. Specifically, Casper FFG dictates that validators will verify the miners’ work every 50 blocks.
Casper CBC uses the correct-by-construction protocol, a way to design systems that are partially defined. It’s a bit complex, but this protocol construction pretty much attempts to define a set of properties to the best of our abilities, and then leave the option open to change parameters if an attack vector is found. Casper CBC is actively being worked on by researcher Vlad Zamfir, but is still a ways away from implementation.
Benefits of Casper
Casper implementations, and Proof-of-Stake more generally, promise to bring Ethereum many needed benefits. For one, Casper should help Ethereum become more decentralized, especially as it pertains to hashrate concentration. Today, in both Bitcoin and Ethereum, about 4 miners control 50% of hash power in both networks. This makes the chances of a 51% attack much higher.
Proof-of-Stake also helps diminish the negative environmental effects that Proof-of-Work systems have created. Proof-of-Stake requires far less electricity because the only real energy usage is validators keeping their computers running, much less computationally expensive than constantly solving hashing algorithms.
Vitalik Buterin would argue that Casper makes Ethereum more secure than if it used Proof-of-Work consensus. Since validators have their wealth stored and staked in the underlying network asset, their incentives are much more aligned with increasing the value of those assets. It would be economically irrational for them to attack the network and devalue their holdings instantly.
Lastly, Casper will help with Ethereum’s scaling roadmap. Specifically, Proof-of-Stake makes sharding much easier to implement. It can be done on a Proof-of-Work blockchain, but it would be considerably more complex and leave many more attack vectors open.