A hard fork of the Ethereum blockchain has been proposed and is currently under development. This hard fork will change the consensus algorithm from the Proof-of-Work (PoW) based Ethash protocol to a Proof-of-Stake (PoS) based protocol referred to as as Casper. Even though the Casper test net went live in early January (the status can be viewed here), we’re not really sure when the hard fork will actually occur. In a recent interview on the Unchained Podcast, Vitalik Buterin also indicated that a sharding mechanism may replace the need for Casper.

The Larger The Stake, The Greater The Reward

Either way, this doesn’t seem to deter eager investors as the price of ETH has increased by 87.53% within this past month alone. This bull run can be attributed to the fact that PoS eliminates the need for miners and instead relies on validators, or minters, to come to a consensus on which block will come next.

In order to become an inaugural staker within the new PoS-based Ethereum network, a minimum balance of approximately 1,000 ETH needs to be staked within a special wallet. The weight of each validator’s vote is influenced by the amount of ETH they have staked and rewards for the consensus process are issued via dividends.

But What Exactly Is Casper?

Casper isn’t actually a single protocol, but a conglomeration of two research projects, which can be loosely defined as the following:

  • Casper the Friendly Finality Gadget (FFG)
    Vitalik’s hybrid PoW/PoS algorithm which still includes PoW mining beneath a PoS protocol that requires a “time-out” after every 50th block so finality can be determined by the validators. The purpose of this project is meant to help ease the Ethereum network into full-blown PoS.
  • Casper the Friendly GHOST: Correct-by-Construction (CBC)
    Essentially, Vlad Zamfir’s CBC protocol starts with a protocol that is partially defined and then dynamically determined by an Ideal Adversary, also known as the estimate safety oracle. This oracle is tasked with raising exceptions of a fault or identifying faults that could potentially arise in the future as it continually develops the PoS protocol until it’s completed. Again, this is a very loose definition of a concept deserving its own separate article.

Cool… So What’s The Point?

If you’ve been involved in the crypto space for a bit, you’ve undoubtedly encountered talk of the multiple issues the community is currently attempting to address. The primary issue is scalability. In order to ensure that the Ethereum blockchain is really capable of handling true mainstream adoption, it has to be able to efficiently and accurately process millions of transactions in seconds.

I Sharded In My Basketball Shorts

One way Casper proposes to address this issue is through the concept of sharding. Since a traditional blockchain can’t process more transactions than a single node, sharding divides the network into smaller subsets of stakers which are only responsible for validating a specific portion of the blockchain. In theory, the parallel processing power of these shards provides a network that can easily meet the demands of scalability and provide an exponentially faster rate of processing transactions as the number of nodes within the network increases.

Decentralization

Casper could also help further decentralize the cryptocurrency space by negating economies of scale. Right now, China is responsible for over 70% of the hashing power within the Bitcoin blockchain. That’s crazy! Electricity out there is so cheap that they can afford to run factories full of ASIC miners which are generating billions of dollars in revenue. That means that they’re creating and controlling a huge majority of valuable cryptocurrencies.

The entire point of blockchain technology is to provide decentralization, so what’s the deal here? How can any aspiring chainhead expect to reasonably compete with that using a humble GPU? By providing a greater incentive to hold your coins rather than selling them immediately, Casper would allow anyone with a stake to participate and make miners redundant.

Energy Costs

Needless to say, PoW demands a massive amount of energy. I don’t think anyone really knows the precise amount of energy that’s being consumed by Bitcoin mining on a yearly basis, but it’s been likened to that of a small country. I read somewhere that the annual global mining cost is something $1.4 billion, but I don’t know how they come up with these figures and I doubt they’re really accurate.

Based on my own experience mining, it really isn’t very efficient and kicked my computers ass. After a few weeks of mining, my GPU sounded like someone shaking up a tin can full of rocks while my electricity bill spiked harder than VEN last week. After one month of mining with a GTX 1070, I walked away with 0.1 BTC, which barely covered the bills at the time.

Since PoS eliminates the need for miners, there will no longer be any need to consume such massive amounts of electricity. Proving stake is a far less resource intensive process.

Conclusion

Surely, this is an ambitious project and there are a lot of issues that could arise with a PoS coin, but I have faith in Vitalik and the Ethereum Foundation, who have so far done pretty great things, in my opinion. I hope you have a better understanding for the basic concepts of Casper and how it will affect the Ethereum ecosystem. This has been a general overview and we’ll be expanding on some of these concepts in greater detail in the future.