Ethereum Casper Protocol

In this article we take a close look at the Ethereum Casper Protocol release. How will this new consensus mechanism work with Ethereum and how will it change things going forward?

While most of us can agree that Bitcoin is the “head honcho” when it comes to cryptocurrencies, Ethereum is a worthy competitor. It has long held the #2 spot on CoinMarketCap and has a network that is open-source and decentralized. This basically means that they are run by a network of users and servers distributed throughout the world. Ethereum enables the construction and operation of smart contracts and distributed applications (DApps). Running these creations can be done without any manipulation fraud, control, or interference from a third party.

If you are someone who has an interest in Ethereum, or cryptocurrency as a whole, then you must be aware of ‘proof-of-stake’ (PoS). For those who are unaware, this is a concept that functions as an alternative to ‘proof-of-work’ (PoW). It states that a person can mine or validate block transactions in accordance to how many coins they hold. Think of this way: the more Bitcoin or altcoin that a miner owns, the more mining power they have.

All in all, it is essentially less risky concerning the potential for miners to attack the network. This is because it structures compensation in such a way that renders an attack less advantageous for the miner.

To put simply, you cannot avoid this term when it comes to Ethereum. For that matter, you also cannot avoid the topic of the Ethereum Casper protocol, for it’s a subject of much excitement within the platform’s community. But why is that? What’s so intriguing and special about this term that shares the name of a cartoon ghost?

Proof-of-work

Before we get more into Ethereum Casper, we must first go further into both the PoS and the PoW systems. What was mentioned earlier was only the tip of the iceberg of these prominent concepts. There is so much more to cover that ties into Casper.

Proof-of-work describes a system that requires a feasible amount of effort. With this, they can try and deter frivolous or malicious uses of computing power. Such power includes sending spam emails or launching denial-of-service attacks. For context, these are cyber-attacks where the perpetrator seeks to make a machine or network resource unavailable to its users. It will do this by disrupting the services of a host that connects to the Internet.

A majority of cryptocurrencies – including Bitcoin – run on a PoW system. As a process, PoW’s operation consists of the following steps to it:

  • The miners solve cryptographic puzzles in order to ‘mine’ a block, thus adding it to the blockchain.
  • In order for this process to be successful, it requires an immense amount of energy. On top of that, it needs extensive computational usage. The design of the puzzles makes it difficult and demanding on the system.
  • Whenever a miner solves the puzzle, they are able to present their block to the network for verification.
  • The process of verifying whether or not the block has a place on the chain is incredibly simple.

In essence, this is what the PoW system is. The act of solving the puzzle is quite difficult. However, determining whether the solution is actually correct or not is exceedingly simple. This is the system that Bitcoin has been using and so has Ethereum (up until now, anyway). With all of this in mind, there are some fundamental shortcomings with the system.

PoW issues

For as useful and impactful as proof-of-work is, it is still riddled with notable issues that are difficult to ignore.

  1. First and foremost, PoW as a whole is an extremely inefficient procedure. This is largely due to the sheer amount of energy and power that it needs in order to function.
  2. Certain people and organizations have a much better chance of mining than others. These particular groups are those that are able to afford application-specific integrated circuit ASICs that are faster and more powerful.
  3. The outcome of all of this is Bitcoin not being as decentralized as it wants to be or claims to be. In fact, 65% of the hash rate is subject to a divide among a total of five mining pools alone.
  4. In a hypothetical sense, these big mining pools can join together to launch a 51% attack on the Bitcoin network.

These problems are prevalent and evidently, hold the system back from being wholly successful. If they want to improve, they will need a protocol whose design is specifically for tackling these problems. So, in order to solve them, Ethereum looks to proof-of-stake as a possible solution.

Proof-of-stake

As you may recall, the creation of the proof-of-stake was mainly to be an alternative to the PoW. At its core, its intent is to take on intrinsic issues in its counterpart system. The primary intent of PoS is to make the entire mining process virtual. What’s more, it will replace miners with validators.

The following steps illustrate how the process will work:

  1. First, the validators have the task of needing to lock up a portion of their coins as stake.
  2. Next, they will commence the validation of the blocks. This means that when they discover a block that they think can go onto the chain, they will verify it. They will do this by placing a bet on it.
  3. Should the block end up joining the chain, then the validators will receive a reward that’s equal to their bets.

Ethereum developers always have this goal that they would eventually move on to PoS. No matter what, that was always their intent. However, before they could go through with this, there was something else they had to do. That is to call attention to one of the biggest flaws of PoS as a whole.

To explain this particular flaw, imagine that there is a main blue chain and a red chain. Moreover, the red chain essentially branches out from the main blue one. In this case, there is nothing to stop a malicious miner from committing nasty acts. What exactly is there to stop them from mining on the red blocks and eventually force a hard fork?

A solution for this can come in the form of PoW; the very system that PoS aims to fix.

Risk mitigation

Suppose that a malicious miner has intentions to mine on the red chain. Even if they focus all of their hash power on it, it will do them no good progression-wise. They will not get any other miners to join them on the new chain. Everyone else will proceed to mine on the blue chain. The reason for this being that it is comparatively more lucrative and risk-free to mine on the longer chain.

Now, at this point, you may remember that PoW is extremely expensive in terms of resources. Why would a miner go through the trouble of wasting so many resources on a potentially weak block? What’s more, a block that faces rejection by the network? Thus, chain splits are avoidable in a PoW system. The beauty here is that the attackers would end up throwing away a ton of money.

With that in mind, things start to look a little different as soon as you bring in PoS. When it comes to being a validator, you can simply put your money in both chains: the red and the blue. Furthermore, you can do so without having to worry about any kind of repercussions. It doesn’t matter what happens because you will always win and you will have nothing to lose. This is regardless of how malicious your actions will be.

That premise is what is commonly referred to as the “Nothing at Stake” problem. It’s also one of the main issues that Ethereum needed to address. What they ultimately need is a protocol that could implement PoS, as well as alleviate the “Nothing at Stake” problem.

Ethereum Casper Protocol

The entrance of the ideal PoS – Ethereum Casper Protocol

The Ethereum Casper Protocol is the PoS protocol that Ethereum is going forward with. It is what will fully convert Ethereum into a PoS blockchain, which will be ‘Ethereum 2.0’. An entire team of developers are responsible for creating it. However, the credit for being the “Face of Casper” often goes to Vlad Zamfir.

Casper is essentially a hard fork of Ethereum. Its main goal is to tackle a few of the key obstacles that stand between the platform and mass adoption. The objective here is to provide better scalability and repel the risk of centralization. Moreover, it hopes to put an end to mining that is energy-inefficient.

So, what exactly differentiates Casper from other PoS protocols? Well, the answer to that is Casper has a special implemented procedure. With it, they have the ability to punish any and all malicious elements. The steps below show how PoS under Casper would function. As you can see, there are similarities to the traditional PoS procedure, but with an extra step.

  1. The validators will wager a portion of their Ethers as stake.
  2. Following the wager, they will begin the validation process of the blocks. Whenever they discover a block that they think can go onto the chain, they will validate it. They will do so by simply placing a bet on it.
  3. In the event of the block getting appended, the validators will then receive a reward proportionate to their bets.
  4. Should a validator act in a malicious manner and attempt to conduct a “nothing at stake,” they will be reprimanded. Moreover, the entirety of their stake will undergo a slash.

Mitigating malicious actions

Drawing from the way the protocol operates, the design of Casper is specifically for working in a trustless system. On top of that, be considerably more Byzantine Fault Tolerant.

Those who choose to act in a malicious (i.e. Byzantine) manner will receive immediate punishment. The consequences of their actions will be having their stake slashed off. This, above all else, is where it separates itself from a majority of other PoS protocols. Malicious elements have something to lose, therefore it is next to impossible for there to be nothing at stake.

As it turns out, this is not the only area in which Casper plans to punish the malicious validators.

As Hudson James and Joris Bontje note in their answers in “StackExchange,” Casper designs harsher incentives to guarantee network security, including punishing miners who go offline, unintentionally or not.”

What this boils down to is that validators will have to be extra careful concerning their node uptime. Any trace of carelessness or negligence on their part will result in them losing all of their stakes. This property effectively dwindles censorship of transactions and overall availability. In addition, the “slashing” property will also add a distinct edge to Casper. This further separates it from other typical PoW protocols.

In a PoW protocol, it does not matter where a miner carries out their duties. Whether it’s on the blue chain or the red chain, it is irrelevant. Both the honest miner and the malicious miner would ultimately spend the same amount of resources.

Conversely, with Casper, if an honest validator mines on the blue chain, then they will receive a reward equal to their bet. However, the stake of a malicious miner will get slashed off for wagering on the red chain.

Project vs. Project

It is important to note that Ethereum’s Casper Protocol is not one specific project. As a matter of fact, it is actually a mixture of two research projects. Both of which are currently being undertaken by the development team of Ethereum. The two projects are:

  • Casper the Friendly Finality Gadget (FFG)
  • Casper the Friendly GHOST: Correct-by-Construction (CBC)

The initial proposal of the CBC version was by Zamfir (aka. The “Face of Casper”). Originally, the focus of the research on CBC was on PoS protocols for public blockchains. Since then, it has gone through an evolution into a wider field of study. To elaborate, one that consists of a family of PoS models.

Zamfir also leads the research on Casper FFG. The initial proposal of this particular project consisted of what is basically a hybrid PoW/PoS system. However, the implementation itself is still under discussion and has not reached finalization quite yet. Furthermore, there is a chance that new proposals will eventually replace it with a pure PoS model.

CBC

Casper CBC utilizes the correct-by-construction protocol in its system. It is the second major Casper protocol development initiative. To better explain what it is, we must compare it to a normal protocol. Conventional design is like so:

  • You specify the protocol in a formal manner.
  • Define the properties that the protocol needs to placate.
  • Prove beyond a reasonable doubt that the protocol wholly satisfies those properties.

Now, in contrast, this is what a CBC protocol looks like:

  • You formally, but partially specify the protocol.
  • Define properties that the protocol needs to specify.
  • Derive the protocol in such a way that it placates all the properties that it states to specify.

To put simply, you are basically deriving the protocol in a dynamic fashion. One way to derive the full protocol is to implement an estimate safety oracle, known as an ‘ideal adversary’. This oracle does one of the following tasks:

  • Raises exceptions of a specific fault of a justified estimate
  • Takes note of any failures that could occur in the future

So, this ideal adversary is going to continuously adjust and perfect the partially built protocol. It keeps on doing this until it is fully complete.

FFG

The best way to describe Casper FFG is that it is a hybrid PoW/PoS consensus mechanism. The individual behind this project is Vitalik Buterin. This will be the version of Casper that will be the first to undergo implementation. Generally speaking, the design of this project is to alleviate the transition into PoS. For that matter, there is a PoS protocol that overlays on top of the typical ethash PoW protocol.

It is true that the mining of the blocks will still be via PoW. However, every 50th block will become a PoS checkpoint where there will be a finality assessment by a validator network.

What is finality?

Before moving forward, we should clarify what ‘finality’ means.

In loose terms, finality is indicative of the results of a certain process. Basically, upon the completion of an operation, it will be permanently inscribed in history. Moreover, there is nothing that can regress that operation. This is especially crucial in fields that concentrate primarily on finances. Suppose someone owns a specific amount of an asset in a company. Despite a glitch in the company’s processes, she should not have to revert ownership of that asset.

Ethereum Casper Protocol

There are some that say PoW is the definitive way to achieve finality in the blockchain. Contrary to this popular belief, that is not necessarily true. In reality, the truth is far more complex than this simplistic perspective.

Buterin notes that no system in the world can possibly provide 100% finality. In the end, it is entirely possible to hack into a system. Alternatively, it’s possible to physically break into a registry and alter numbers to change a mark sheet. That is a huge problem when it comes to institutions that are centralized. Be that as it may, decentralized systems are no stranger to these same issues.

In fact, Bitcoin – the most notable figure concerning PoW mechanism – has experience with finality issues. They were victims of them at least three times. There was one instance when there was a fork in the chain because of a bug. This bug was from one version of the software, however, it did not exist in another. This would lead to a division in the community. One part did not accept a chain that the other half was fully accepting of. Within six hours, this division would reach a resolution.

Finality & FFG

There is one question that remains at this point: how exactly does Casper FFG provide finality? According to Vitalik, there is a guarantee that Casper will provide a stronger finality than PoW. The reasons for this are the following:

  • To sum up in three words: total economic finality. Roughly 2/3rd of validators conduct maximum odd bets as a means to finalize the blocks. Because of this, there is not much motivating them to attack the network. By doing so, they would consequently be jeopardizing their own deposits. Zamfir perfectly illustrates it with a simple statement. “Imagine a version of the proof of work where if you participate in a 51% attack your mining hardware burns down.”
  • Suppose that the entire network is consists of three people: Person A, Person B, and Person C. Let’s imagine that Person A and B are placing their stakes behind one claim. Moreover, Person B and C are placing their stakes behind a contradictory claim. It doesn’t matter what will happen. In the end, either Person A or C stands to lose a significant amount of money. Evidently, the validators have no incentive to conspire and act in a malicious manner. There will always be a chance that they will lose a lot of money.
  • If a double finality ends up happening, there is a contingency plan for that as well. Should this finality occur, then users have a choice as to which chain they want to go for. Whichever chain garners the majority vote will become the dominant chain. In essence, double finality in Casper would wind up in a hard fork rather than a reversion.

The progress of these projects

Both of these projects are distinct innovations possessing certain features that make them unique. One thing that they have in common, however, is the dedication from the development team behind Ethereum. Lately, they have been working very hard on these two Casper projects. In time, they will hopefully reach what they are aiming for. 

Obviously, this is not going to be the final version. As with most other projects, the development and testing stages will likely change certain things along the way. Whatever it will be, there is no doubt that its influence will draw from both Vlad’s and Vitalik’s Caspers. To reiterate, Buterin’s Casper is going to be the first to experience implementation. Doing so will ease the transition from PoS to PoW. Vlad’s Casper, meanwhile, will derive safety proof by way of the utilization of an ideal adversary.

Advantages

One benefit that comes from using the Ethereum Casper Protocol is that – in making staking possible – it will help Ethereum become environmentally friendly. To reiterate, in regards to electricity and computational resources, PoW systems tend to be very demanding. In stark contrast to this, PoS models often have a comparatively lower demand. Upon the implementation of a full PoS in Ethereum, there is no longer a need for miners to secure the blockchain. Thus, the mandatory amount of resources will be much lower.

An additional advantage of Casper usage relates to the matter of security. Casper will basically be a selector who has the responsibility of ordering the chain of blocks. In essence, its role will be to act as something of a bookkeeper of the Ethereum 2.0 ledger. So, should a validator act maliciously, then there will be a quick removal of them. Moreover, they will receive a punishment. The penalty that comes from cheating the rules is a validator’s stake (in Ether). This means that network transgressions will be incredibly costly. With that said, developers are still in the middle of discussing the possibilities of 51% attacks.

On a final note, there are some who believe that Casper will grant Ethereum greater levels of decentralization. For the time being, the more powerful entities on the network are those with the resources to run mining operations. In the future, anyone who is able to purchase the appropriate amount of Ether can help in securing its blockchain.

Limitations

With all the progress and potential concerning Casper, it’s important to remember that it is still in its early stages. There is a long way to go until the protocol is fully ready for implementation. As is, its efficiency and security are still relatively ambiguous. There is an array of details that still need to be defined and will need adjustments. Until a version of it goes live, we cannot be sure of how it will look like, let alone behave.

In terms of theoretical limitations, Casper will be unable to finalize blocks if Ethereum’s validating system faces corruption. With the current structure, Casper is still not completely impervious to 51% attacks. Beyond that, there is still a need for a formal specification for outlining a fork rule that may be useful when responding to attacks.

Conclusion

Slowly but surely, Ethereum is separating itself from mining and moving towards staking. Here, users will be able to stake Ether in a deposit address to secure the blockchain. The Ethereum Casper Protocol is a technology that will finalize blocks and will facilitate that pivotal shift.

Casper will aid in the creation of the foundation upon which additional Ethereum 2.0 progressions will rely on. What’s more, it is dead set on making the transition to a PoS model considerably more smooth. Moreover, the open-source nature of the blockchain space means the outlined benefits of Casper can be forked out. They can be modified and built upon by various other projects.

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