Most people who invested time or money in Ethereum are aware of how the project will switch to proof-of-stake in the future. To do so, the developers have introduced a new algorithm known as Casper. Considering how the switch to PoS is getting ever closer for Ethereum, now would be a good time to take a closer look at how Casper works exactly. It is an intriguing system that will change Ethereum forever.

The Casper PoS Algorithm

Introducing a switch from proof-of-work to proof-of-stake requires a lot of work and research by the developers. Casper is one of the more advanced solutions to introduce such a change. It is a security-deposit based economic consensus protocol. That is quite a mouthful, but the concept is simple to explain. Network nodes become “bonded validators” and place a security deposit to facilitate the generation of PoS blocks.

To put Casper into perspective, it will allow any member of the Ethereum ecosystem to participate in creating these new PoS blocks. When the nodes post a security deposit, they can bet on which block will be included in the future. Betting with the consensus will result in a reward, whereas betting against the consensus can result in losses. Attempting to exploit or game the consensus system will result in your security deposit becoming null and void. Casper is designed to create a fair PoS consensus mechanism.

There is a small caveat to the “anyone can participate” aspect, though. It is always possible existing network participants will prevent new validators from entering the ecosystem. While that may not necessarily be the most plausible outcome, it is one factor to take into account. Ethereum users who have more coins than other members may try to throw their weight around a bit by posting larger security deposits. It is unclear how this will play out when Ethereum effectively switches to proof-of-stake.

As we have seen in cryptocurrency as of late, politics play a  big part in any decision-making process. Switching to proof-of-stake may result in more politics taking place as part of the Ethereum ecosystem. The original Casper blog post mentions how the system will be censorship-resistant. This will be ensured by guaranteeing coalitions of validating nodes are made up of 100% of all consensus nodes. Validators who do not to create blocks as prescribed by the Casper protocol will not receive transaction fees and deposits.

The switch to Casper will – probably – result in more transactions per second on the Ethereum network.  The algorithm also accommodates faster block times compared to using the proof-of-work algorithm currently in place. This will also have an impact on the network’s gas prices, which will increase and decrease based on how much the network’s validators can handle comfortably. This particular aspect will have an interesting impact on Ethereum as a whole.

Even though Casper sounds quite interesting, it does not have an official release date at this time. The developers have come across multiple problems while developing this algorithm. A lot of progress has been made these past few months, but there is no official ETA to finalize the algorithm or successfully testing it on a testnet. Peer review of such an important algorithm needs to be conducted before Casper can be released to the masses. The whole Ethereum world will eagerly await this peer review.  

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