What is the Ethereum Casper Hardfork?

We’ve continued to hear about “Casper” in the Ethereum community throughout 2018, ever since the testnet was launched on the last day of 2017. There has been great anticipation for the Casper hardfork and what it can help Ethereum achieve, but as we head into the end of October 2018 we’re still awaiting the momentous hardfork that is supposed to go off before the end of 2018.

Excitement that had been gathering all year in anticipation of an October 2018 Casper hardfork has turned into a more muted feeling as Casper looks to be delayed.

The Ethereum developers haven’t swayed from their confidence that Casper will appear before the end of 2018, so we have to just sit tight and wait, but in the meantime I’ve put together this little guide to the Casper hardfork for those who may not fully understand what it is, or why it’s been so highly anticipated by the Ethereum community.

What is Ethereum Casper?

Casper is the name given to the next hardfork of the Ethereum blockchain. It is anticipated that Casper will solve many of the issues that have been holding the second largest cryptocurrency by market cap from mainstream adoption.

That’s pretty darn exciting.

Casper is expected to enhance the security of Ethereum, reduce the chance of centralization of mining, and eliminate the expensive and unsustainable practice of mining.

Casper will mark the shift in Ethereum from a Proof-of-Work cryptocurrency to a Proof-of-Stake cryptocurrency. It’s first phase will actually give Ethereum a hybrid consensus mechanism, with Proof-of-Stake being used on every 100th block.

That said, details remain hard to come by, so the final implementation of Casper could see PoS implemented on more blocks or on less blocks. There’s also a chance that the fork will result in three versions of Ethereum: one PoW, one PoS, and one hybrid.

As the countdown to Casper continues, Ethereum mining has been extremely popular throughout 2018. Miners wanted to get as many coins as possible before Casper, since the hardfork could mark the end of mining for Ethereum.

The reason mining could end is that Ethereum’s developers have said they could detonate a “difficulty bomb” on the PoW fork when Casper is released. This would make Ethereum mining exponentially difficult to mine until it reaches what Ethereum co-founder Vitalik Buterin has called the “Ice Age” of mining in 2021.

What is Casper’s Purpose?

As stated in the Ethereum whitepaper, Casper looks to bring “security, reduced risk of centralization, and energy efficiency” to the Ethereum network. Wrapping your head around how it will achieve this requires an understanding of the issues Casper aims to solve.

The first issue is as old as Ethereum – its consensus mechanism. Ethereum uses the same Proof-of-Work consensus as Bitcoin and many other older cryptocurrencies. The issue with this is that PoW is powerful, but also very expensive in terms of resources consumed. And the more difficult mining becomes, the greater the resource usage becomes.

In addition to bbeing a huge waste of energy, the PoW mechanism also exposes Ethereum to the possibility of a 51% attack, whereby a group of entities could join forces to control more than 51% of the network hashing power, and thus control the network and currency, potentially leading to reversed transactions or double spending.

It’s a really bad problem to have.

And the Ethereum developers know what a bad problem it is, so they’ve been planning on switching to Proof-of-Stake since 2014.

Proof-of-Stake differs from Proof-of-Work because there is no mining. Instead it allows users to “stake” the coins they own, and in return they earn rewards from the system, in a similar way that interest is earned from bank deposits.

This achieves consensus for the network without a huge energy usage, and eliminates the potential for a 51% attack as it simply becomes too expensive to consider.

Initial statements from Vitalik Buterin indicated that users will need a minimum of 1,000 ETH to stake and particpate, but later statements indicate that this figure could be as low as 10 ETH when Casper is released.

Currently the Casper testnet requires 1,500 ETH to participate, so the 1,000 ETH figure for the mainnet might be closer to the truth. Even if that’s the case there will almost certainly be stake pools that allow users with less than 1,000 coins to join forces and participate in staking.

The switch to PoS is expected to speed up the Ethereum network, and will also make sharding possible. Sharding is the partitioning of the Ethereum database into smaller, faster, more manageable pieces. In theory this will make the network much faster, and will dramatically lower transaction costs.

And finally, PoS is expected to remove the growing centralization of Ethereum mining, which is caused by rich miners being the only ones who can afford the newest, most efficient, and most expensive mining equipment.

The History of Casper

guide to ethereum

It’s not commonly mentioned, but the Casper hardfork has been planned for a very long time, with the Casper project beginning in September 2014. The idea for Casper came from Ethereum’s top developer Vlad Zamfir, who was very straightforward at the time in saying he felt that Ethereum could do bettter and be better.

If Casper makes you think of ghosts you won’t be surprised that the inspiration for the name came from the acronym GHOST, which stands for Greedy Heaviest Observed Sub-Tree, which is a protocol for transitioning from Proof-of-Work to Proof-of-Stake.

Casper Challenges

Casper most certainly marks the end of an era for Ethereum miners, but there are other challenges that will be faced by the community once Casper is implemented.

Turning over the important task of verifying transactions and maintaining consensus to a new group of stakers could introduce several issues. One is that the switch to PoS could put the entire Ethereum network at risk of failure if some anti-Ethereum regulation is enacted or a physical disaster occurs. Hypothetically such an event could occur in a zone that holds all of the network validators, wiping out the entire network. With PoW this could never occur, since new miners could join the network from outside the affected area.

Casper will only contain 250 validators, so even though the above scenario remains improbable, it certainly isn’t impossible. While 250 may seem a fairly high number, taking down that many nodes certainly isn’t out of the reach of a dedicated group of hackers or of government entities. This possibility is certainly a concern.

Finally, one of the key principles of blockchains is that they are decentralized, but staking could actually make the network more centralized than it would be under PoW. By requiring stakers to hold such huge quantities of Ethereum it reserves the role to only the wealthy, ETH whales and collaborative pool staking. All of these scenarios opens up the possibility of increased centralization.

Ethereum Casper or Ethereum Casper?

One strange fact about the Casper project is that it isn’t just one project. There are actually two separate projects currently being worked on by the Ethereum developers. These two projects are:

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

Let’s have a deeper look at each to see where they’re similar and how they’re different.

Casper the Friendly Finality Gadget

Casper FFG is Vitalik Buterin’s version of Casper and it creates a hybrid PoW/PoS consensus mechanism. This version of Casper will be implemented in Ethereum first, and it’s been designed to ease the blockchain from its current PoW algorithm to the eventual PoS algorithm.

Casper FFG is still primarily a PoW protocol, expect it also has a PoS protocol overlaying the PoW protocol. This means blocks will still be mined via Proof-of-Work, but every 50th block will be a Proof-of-Stake block that is validated by a network of PoS validating nodes.

Casper and Finality 

At its most basic, finality means that once some operation has been completed, it is forever cemented in history, and nothing can change or reverse it. As you can imagine, this is especially important in the finance industry, where sales and purchases of assets need to be final and irreversible.

It’s been claimed that Proof-of-Work is the best way for a blockchain to achieve finality, but the truth is that PoW isn’t always good for finality, and that finality can be achieved in other ways.

As a matter of fact, there is no system in the world that provides 100% finality. Because any system or ledger can be hacked or physically tampered with to change the data it contains. That’s been one of the big issues with centralized organizations, and while decentralized systems seek to correct this issue, they have also faced the same issue at times.

Bitcoin, the original Proof-of-Work blockchain, has faced finality issues on no less than three occasions. And in one case the chain forked because of a bug in one version of the software that wasn’t present in another version. This caused a rift in the community that had them split almost 50/50 between the two chains. The split was eventually resolved with one chain receiving the majority of support.

Since finality seems impossible, we have to ask how Casper FFG plans to offer finality. According to Vitalik Casper FFG is superior to Proof-of-Work in terms of finality for three reasons:

  1. Total Economic Finality: With two-thirds of validators making maximum odd bets to finalize blocks there is almost no incentive for collusion and an attack on the network. Such actions would put their own assets in jeopardy. Vlad Zamfir put it best when he said:” Imagine a version of the proof of work where if you participate in a 51% attack your mining hardware burns down”.
  2. In the simplest scenario imagine there are only three people in the entire network: Peter, Paul and Mary. Validation requires 2/3 backing so imagine Peter and Paul are backing one claim, but Paul and Mary are also backing a contradictory claim. No matter the outcome, both Peter and Mary will potentially lose a great deal of money. As you can see, there’s no good reason for the participants to collude with each other because they will always stand to lose a lot of money.
  3. Suppose double finality does occur anyway. The Casper FFG has a contingency for this. If double finality occurs all the users will have to choose which chain to follow. The chain receiving the majority of votes becomes the dominant chain. So there’s a hard fork rather than a reversion.

Casper the Friendly GHOST: Correct-by-Construction

Vlad’s Casper CBC differs from Vitalik’s FFG since it uses the correct-by-construction protocol. But what is this CBC protocol?

Here’s what protocol design traditionally looks like:

  • Formal specification of the protocol;
  • Definition of the properties to be satisfied by the protocol;
  • Prove the protocol satisfies the defined properties.

But here’s what the CBC protocol looks like:

  • Formal (partial) specification of the protocol;
  • Definition of the properties to be satisfied by the protocol;
  • Derive the protocol so that it satisfies all the defined properties it was said to specify.

The key difference is that the protocol is being derived at dynamically. One way to do this is to implement an estimate safety oracle known as the “ideal adversary” which will do one of the following things:

  1. Raise exceptions of a fault of a justified estimate.
  2. List any future failures that could occur.

This means that as time goes on, the ideal adversary will constantly tweak the partially defined protocol until it is complete.

The Ethereum development team has been hard at work on both Casper projects for many years, and even so this will not be the final version. You can bet that it will be heavily influenced by both Vitalik’s Casper FFG and Vlad’s Casper CBC. The FFG version will be implemented first to ease the transition from PoW to PoS, while the CBC version will derive a safety proof by utilizing an ideal adversary.

What does Ethereum Casper Provide us?

Switching from Proof-of-Work to Proof-of-Stake gives Ethereum several advantages, which can be broken down to the following broad categories:

  • Helps achieve decentralization;
  • Energy efficiency;
  • Economic security;
  • Scaling;
  • Transition to POS.

What is Ethereum Casper: Conclusion

The long-awaited Casper hard fork is meant to accomplish several things, not least of which is to replace the agonizingly slow PoW consensus mechanism and allow Ethereum to move into the future of scalability and network speed.

Switching to Proof-of-Stake is expected to benefit the Ethereum network in many ways. It will rid the network of wasteful mining, reduce the risk of centralization, and greatly increase transaction speeds and throughput.

Of course many questions and concerns remain concerning the changes that Casper will bring. Those will undoubtedly be addressed by Vilatik, Vlad and the rest of the Ethereum development team, hopefully prior to the Casper hard fork, but certainly afterwards as the network adapts to its ghostly new direction.

Featured image by Jason Ewins

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