The Best Ethereum Casper Explanation: Everything You need to Know

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Ethereum Casper Explained Simply!

September 12, 2018Everybody is talking about Ethereum Casper and how it can solve a lot of problems. But what is Ethereum casper? A lot of people use ICO smart contracts and tokens. They operate on top of the Ethereum blockchain. As a result, the Ethereum network is processing over half a million transactions per day. Bitcoin only manages to process around 50.000 transactions per day. So Ethereum can handle more than 10 times the amount of transactions of the Bitcoin network. But as Ethereum got bigger, some huge problems evolved.

The Problems of Ethereum

Ethereum relies on proof of work for consensus. Thus, you need a lot of people with a lot of computing power to validate transactions. If someone tries to cheat, they lose all their money. This makes it costly for bad actors. But the proof of work concept is really wasteful. It burns a lot of electricity because miners constantly battle for the reward. As a result, one miner gets the reward and the other miners wasted their computing power and electricity.

What is Ethereum Casper?

Casper is the transformation of Ethereum from a Proof of Work (PoW) Blockchain to a Proof of Stake (PoS) Blockchain. At the moment, Ethereum relies on proof of work for consensus. But it has been announced that in the future we will switch to the Proof of Stake protocol. So there are two types of Casper implementation. The first one is Friendly Finality Gadget (FFG) the other one is Correct Buy Constructions (CBC).

What is Casper Friendly Finality Gadget (Casper FFG)?

FFG is a proof of work proof/proof of stake hybrid solution. So it is not a pure proof of stake concept and this is kind of in the first stage of Casper. The reason for this is to lead people away from proof of work mining. Its shortcut stands for Friendly Finality Gadget. While there is still proof of work going on, for every 50 blocks there is a proof of stake voting. This basically writes a checkpoint to history.

So FFG still uses proof of work, but every 50 blocks there is a proof of stake voting mechanism. When they write this checkpoint they are basically voting on something which is final. Something that is a historical representation of history that can’t be changed. This kind of hybrid concept will be there for a while but not forever. So the goal is to move people away from proof of work mining as reliance on consensus.

What are Correct Buy Constructions (Casper CBC)?

So CBC is a completely new way how the consensus protocol operates. It does require two-thirds of the validators to agree to come to a consensus. This is necessary to avoid the “dubbed a 33 percent attack”. As a result, Casper introduced the transaction deposit. Thus, people that are staking have to put down a lot of money. And if they act badly they lose that deposit. As a result, it is really costly to be a bad actor. Because of the security deposit being required in order to work as a proof of stake validator on an FFG system the deposit might be huge early on. In addition to laying down that money, proof of stake validators always has to be connected to the network as well.

The deposit is high because that makes it really expensive to try and attack the network. But it is gonna be interesting to see how many people actually use proof of stake and become a validator.

How does Ethereum Casper work?

When Serenity will start and Ethereum will make the transition to Ethereum 2.0, they will launch the beacon chain. It is a new blockchain that runs next to the Ethereum chain and uses the proof of stake consensus mechanism.

So with Proof of Work, miners validate blocks of transactions by solving a computationally intense puzzle. This process is inefficient and generates enormous electricity costs.

Casper will solve this problem with the proof of stake consensus mechanism. Thus, a miner will be selected based on his stake in the network. Therefore, he has to deposit a minimum of 32 ether. After a validator is selected randomly, he is then incentivized to validate the new transaction block. If he validates a fraud transaction block, he will lose his deposit. So there is no financial reason for him, to cheat the network.

Ethereum Casper Advantages

As we said before, Casper will change the consensus mechanism from proof of work to proof of stake. As a result, it will save a lot of electricity and other resources.

A big problem with proof of work is that it creates huge mining farms. As a result, blockchain is not that decentralized anymore. With Casper there is no need for huge mining farms. Therefore, Ethereum will be more decentralized.

Casper will also increase the security level of our blockchain. With proof of stake it is unlikely that someone will consider a 51% attack because it is not worth anymore. If a validator commits fraud, they lose all their deposit and have to leave the network immediately. So there is no reason for someone to try to cheat the system or even attempt a 51% attack.

“Ethereum Casper Disadvantages

With Casper, rich people are chosen more often.. So that means, they will get more transaction fees and earn more money. As a result, they get richer and therefore increase the chance of being chosen as a validator.

Another disadvantage of casper is that validator sometimes doesn’t show up to do their job. So Casper has a lot of advantages but it still needs to be optimized.

“Ethereum Casper” – Summarized:

Casper solves the scalability problem that Proof of Work brings with it.
There are two types of Casper implementation.
The First one is Friendly Finality Gadget (FFG).
The second one is Correct Buy Constructions (CBC).
The goal of both is to move people away from proof of work mining.

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