With Ethereum’s DevCon 3 starting today in Cancun, Mexico, developers from around the world will be asking questions about the future of Ethereum’s blockchain. One upgrade that will be under the spotlight is the much-anticipated switch from the current Proof of Work consensus algorithm to Proof of Stake (PoS). In development since 2013, the Casper PoS solution by founder Vitalik Buterin and Ethereum developer Vlad Zamfir is almost complete and can see a potential release, as early as the second part of the Metropolis HF, Constantinople.
What is Proof of Stake?
Traditional Proof of Stake (PoS) is a consensus algorithm that allows wealthy participants of a network to validate blocks by staking or locking up their coins. In a Proof-of-Work (PoW) consensus system, the algorithm rewards miners (Block Reward) who solve complex cryptographic puzzles which create new blocks and validate transactions. In a Proof-of-Stake consensus system, the creator of a new block is chosen depending on the amount of coins they have locked up (Stake) and there are no block rewards in this system. Instead, Validators earn the transaction fees. But what happens if the wealthiest validators try to cheat or reverse transactions? Enter Vitalik’s Casper PoS solution.
The Casper Proof-of-Stake Protocol
The key difference between traditional proof-of-stake consensus systems and the Casper PoS is that validators can be punished for not following the rules and trying to validate malicious blocks. Think of it as a bet. If your stake is 1000 ETH, then you’re essentially betting 1000 ETH that the next block to be included, is valid. However, if it is a bad transaction/block then you will lose your stake and be removed from the validators pool. According to Vitalik, anyone can join as a validator, as long as they have enough ETH to deposit/stake into the Casper Smart Contract. When there aren’t enough validators participating in the system, the rewards increase to attract more. However, if there are too many validators, then the rewards drop, which allows for the economic regulation of the number of active validators.
Read: Proof of Stake FAQ on Ethereum Wiki – https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ
Why the switch to PoS?
Ethereum’s switch to a PoS consensus system will bring many benefits to the environment and the security of the Ethereum blockchain. With the PoS system, validators don’t need to run powerful computers/mining rigs to validate blocks. This, in turn, reduces the amount of energy required to validate transactions. It is estimated that by 2020, Bitcoin mining using the PoW consensus will use as much electricity as the entire country of Denmark. That’s a lot of power which can be unsustainable in the future. Another benefit is the added network security in a PoS system. Validators are incentivized to keep the network valid as malicious attacks become more expensive. For example, if a hacker wants to launch a 51% attack, they would need to first purchase 51% of the total number of coins, which in turn the market would react by pushing the price really high, thus making it unprofitable to attack/cheat the network.
With the switch to a Proof of Stake consensus algorithm, the Ethereum network will see much improvement and benefit on it’s journey to mainstream adoption. Scalability has been a major focus in the cryptocurrency and blockchain space and with this new approach to the traditional PoS system for Ethereum, we can see the network accept more blocks and reduce the risk of being attacked or manipulated. Some argue that Proof of Work is more beneficial compared to Proof of Stake, and in some instances, it may be, but we’ll have to revisit that in another article.
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