When you read the name Casper, you may have automatically thought of the funny little ghost that goes by that name.
However, Casper is also the title of a long-awaited update to the Ethereum network that will gradually shift the platform’s consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS).
So what does this update entail, how will it work, how will it influence the Ethereum network? In the following paragraphs we will describe what Casper is and how it works.
Why the Casper algorithm?
As we have anticipated, Casper is an update to the Ethereum Network, also called Ethereum 2.0 or Serenity.
But, before explaining what this protocol consists of, it is necessary to analyze the main problems that the current Ethereum network is facing and that the Casper update tries to solve.
Ethereum, like bitcoin and many other cryptocurrencies, uses a proof of work consensus mechanism. This is an algorithm in which network participants (miners) solve cryptographic puzzles to validate transactions, create new blocks and keep the network safe.
Despite its popularity, this consensus mechanism has some important limitations.
- Scalability: the most important issue currently facing the Ethereum network is scalability. The Ethereum network supports hundreds of decentralized applications and needs to process a high number of transactions per second.
The increased use of the Ethereum network, thanks to the creation of more Dapps and the execution of many transactions, has led to an increase in transaction time and cost. For the network to achieve mass adoption, efforts are needed to massively increase transaction speeds.
- Environmental sustainability: Another problem with PoW systems is that they require a large number of miners with very powerful computer equipment that gives them the possibility of earning rewards. This translates into considerable energy expenditure that could strongly affect environmental sustainability.
- Decentralization: Users who can access faster and more efficient mining equipment are more likely to validate transactions, create new blocks and earn rewards.
This means that the mining of cryptocurrencies employing Proof of Work are usually concentrated among a few groups of miners who, in the case of Ethereum, account for 70% of the hash rate, going against the philosophy of decentralization that characterizes cryptocurrencies.
How does Casper’s proof of participation algorithm work?
As we said in the previous paragraph, thanks to the Casper update, the Ethereum blockchain will switch to the Proof of Stake algorithm.
Next we will see how Casper differs from other proof of participation protocols.
First, in this type of algorithm the miners will be replaced by validators.
Consensus will then be achieved through the vote of the validators. As in any PoS based algorithm, the vote of each validator will depend on the number of Ethers deposited, that is, on his participation.
The mechanism works like this:
- Validators wager a portion of their Ethers;
- Then, they will start validating the blocks to be added to the chain;
- Once they have added a block, they will receive a reward proportional to their bets.
A very interesting feature of Casper, which differentiates it from most other POS protocols, is that it is designed to operate in an untrusted system and to be more tolerant to Byzantine failures.
This means that it uses a process by which malicious validators can be punished. That is, if a validator acts maliciously he/she will be punished immediately and everything at stake will be reduced.
The same happens if validators have very long idle times with their node. Carelessness or laziness will cause them to lose their bet.
FFG and CBC
To date, two implementations of Casper have been developed:
- Friendly Finality Gadget (FFG): it is led by Vitalik Buterin and is the first step in transitioning the Ethereum network from PoW to PoS, using a hybrid PoW/PoS model. The goal is to create a smooth transition to PoS. The first version of the code was released in May 2018.
- Correct by Construction (CBC). CBC Casper is led by Vlad Zamfir and relies on a safety oracle to constantly adjust a partially constructed PoS protocol until the system is completed.
Although the two versions were developed for Ethereum, Casper is a PoS model that can be adopted and implemented in other blockchain networks.
Ethereum 2.0 Phases
According to updated news, Ethereum 2.0 should be released in 3 phases, within 2022.
- Phase 0: In this first phase the Proof of Stake (PoS) mechanism of Ethereum 2.0 is up and running. Upgrading the network from PoW to PoS will make Ethereum scale and run faster and with less computing power .
- Phase 1: Aims to drastically improve scalability, with the introduction of fragmentation, which will allow the validation of parallel transactions for the first time.
- Phase 3: the third and final stage will see the launch of eWASM as the successor to EVM (Ethereum Virtual Machine).
Last December we witnessed the official launch of the first phase of Ethereum 2.0 (phase 0) with the Serenity upgrade that represented the first step towards better scalability and security. This upgrade will reduce congestion and high gas costs on the Ethereum network.
Advantages and disadvantages of Casper
ADVANTAGES OF CASPER: As we advanced, the passage of Casper’s Proof of Work to Proof of Stake consensus mechanism will solve problems related to scalability, increasing the speed of transactions and ensuring the mass adoption of Ethereum; environmental sustainability, since not needing powerful equipment will save energy costs and environmental pollution; decentralization, avoiding the problem of mining being concentrated in the hands of a few and going against decentralization.
Another big advantage of Casper is the improved security level of the blockchain. With proof of participation it is difficult for a 51% attack to take place as, thanks to the validators’ punishment mechanism, it would not be worth trying.
DISADVANTAGES OF CASPER: At first Casper does not promise true decentralization as participation initially requires a minimum deposit of 1,500 ETH, (approximately $3172.47). In addition wealthier validators are chosen more frequently, earning more rewards.
This puts Ethereum’s participation out of reach for the average user, favoring the dominance of the so-called “whales”. According to Vitalik Buterin the minimum requirement will be reduced to 32 ETH once Ethereum reaches 100% PoS after the CBC.
With Casper, validators lock ETH into a smart contract for 3 to 12 months. ETH price volatility will expose validators to significant illiquidity risk, disadvantaging their participation.
