Proof of Stake thanks to Casper: the future of the Ethereum

After years of development, the consensus algorithm of the Ethereum network will now be updated to Proof of Stake.

Ethereum is doing something: Vitalik Buterin, the inventor of the crypto currency, has published an article some time ago which says that soon a hybrid system between Proof of Work and Proof of Stake will be set up. The consensus known in Bitcoin mining as Proof of Work is to be combined with a Proof of Stake system known as Casper. In concrete terms, this means that 1% of the blocks are to be secured via Proof of Stake.

But beware: validators who choose the wrong Bitcoin secret lose money

Parallel to Ethereum developer Vlad Zamfir, Buterin has advanced his version of the Bitcoin secret. According to Karl Floersch, a developer at ConsenSys who also participates in Bitcoin secret, the network with Casper will first decide in favor of the more secure version – not necessarily the more revolutionary one:

“Vitalik has ultimately written a well-functioning version of the Proof of Stake consensus, but it may not be as revolutionary as Vlad’s.”

If that really happens, it would be very exciting: you would have started the first Proof of Stake system on the Ethereum platform. That would of course also mean that the Proof of Stake concept from the laboratory tests would be tested in the real world in a large network. So you can see whether Proof of Stake is better or worse than Proof of Work.

Supporters of this consensus system believe that this will significantly reduce Ethereum’s electricity consumption: Miners consume a lot of electricity, which is then no longer needed.

Critics, on the other hand, stress that it is precisely the constant postponement – and now the only partial implementation of Proof of Stake – that ultimately shows that this consensus system will never be fully implemented.

Buterin, however, sees it as an important first step. According to him, this step should be realized with the third phase of Ethereum development known as Metropolis:

“Proof of Stake will be an important focus of Metropolis. We are currently working on a prototype in Python.”

Proof of Stake – virtual cryptosoft mining on Ethereum

What exactly is cryptosoft? Ultimately, it can be imagined as a kind of “virtualization” of mining. Proof of Work is the classic consensus protocol and the basis of the mining process: Miners search for a block that meets certain conditions according to the difference. In addition to the transactions that are to be combined in the block, a counter called Nonce is varied until a calculated checksum – the hash – has a structure that corresponds to the conditions. These calculations cost money for equipment and electricity.

In the proof of stake process, the stakeholders ultimately invest money in this consensus process. However, the money is not invested in electricity and equipment. In Casper, virtual miners known as Validadors will make their money available to the system: They know that they will lose their money if they do not play by the rules of consensus.

Casper’s first step
Buterin’s plan is to use Proof of Stake as a kind of checkpoint in the first step: Every hundred blocks is checked quasi as a random sample whether the blocks contain correct transactions.

Floersch is currently working on the so-called “Fork Choice Rules” for Pythereum, the Ethereum client in Python. These rules determine how validators choose the correct chain for adding blocks.
Validators look at these different versions of the blockchain and make a decision as to which is the correct one. The amount of ether associated with a blockchain version is an orientation in this choice.

“Thus a consensus and a single chain are found instead of constantly forming a new fork,” says Floersch.
The Smart Contract that regulates this is published by the Casper developers on Ethereum. Via this contract any ether can deposit and participate in the virtual mining process.

As soon as the Pythereum version is finished, the whole thing should be implemented in the Casper Deamon. This package can then be used with any Ethereum client.

Will it work?
Of course, there are also some challenges with the Proof of Stake concept. If all this doesn’t work as planned, it would mean that transactions or whole Smart Contracts won’t be processed correctly.

Others take a critical view of the planned hybrid approach of sharing proof of work and proof of stake.
On the part of IOHK, a company that works a lot on Ethereum Classic, the following are equivalent