There has been a lot of perplexity around Ethereum’s planned change from PoW (Proof of Work) to PoS (Proof of Stake). In this article, we will explain what are these changes and what is the goal of these changes.
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What is the Constantinople Hard Fork?
Ethereum intends to dispatch both Casper and Sharding with the Constantinople hard fork. Basically, there will be a hard fork which will incorporate these new changes. Both Casper (Ethereum’s enhanced emphasis of PoS) and sharding will help Ethereum scale from a technical and financial point of view.
What is conventional Proof of Stake?
The vast majority don’t comprehend what Casper is. Fundamentally, it is an improved version of PoS.
To understand better Casper, it will make sense to understand first the traditional Proof of Stake process. Here’s the essential procedure of Proof of Stake:
Validators place coins in their wallet to stake.
Next, they start validating blocks. To validate blocks they place a bet on it.
If the block they placed a bet on is added the chain they are awarded a reward in proportion with their bet.
What are the drawbacks of Proof of Stake?
But the proof of stake has some problems compared to the proof of work.
While in proof of work an attacker is punished by wasting their resources in PoS an attacker acting maliciously does not lose anything.
So POW is superion to POS in this case since the malicious miner will lose money.
In current PoS models, since all mining is presently virtual, a staker can add to numerous chains all the while and receive rewards from both. Regardless of whether one chain isn’t acknowledged, they don’t lose anything.
There is no motivation for keeping constant staking — “uptime.” In PoS systems (particularly ones that consider coin age) a client can adjust their wallet once per month and gain the staking rewards owed to them with no punishment.
Why is Casper an Improvement?
Before we can clarify why Casper is an enhancement over current PoS conspires, we should layout Casper’s procedure:
Validators place coins in their wallet for staking
Validators then bet on the following block
In case the block they bet on is included they receive the reward.
This is the place Casper enhances conventional PoS: If a validator demonstrates malevolently by attempting to approve two forms of the blockchain (one being a false form), OR a node does not have steady uptime, at that point their whole stake is slashed and exhausted.
The slashing capacity is the enhancement. The danger of having one’s coins expelled makes staking nodes progressively responsible for their activities. Envision if a PoW aggressor had the majority of their mining gear crushed. This is basically what slashing does to PoS stackers.
Also, Casper has enhanced “finality” over traditional PoS. Finality is a tech term which implies that no history can be changed. In Casper, 66.6% of all validators must concur, so in the event that anybody attempts to conspire, they will eventually lose their stake.
It would be interesting to see how markets will react to these radical changes in the Ethereum system.
From the investment point of view, people will have the incentive to hold their Ethereum for profits instead of investing in mining hardware. After the update, everybody with at least 32 ETH will be able to “mine” ETH without energy costs. From the risk-reward point, this seems to be a lucrative opportunity for investment.
While the rumored minimum amount of ETH needed to stake is 32 which is about $3500 at the actual prices. Seems to be a low barrier for entering the “mining” game without risking anything
Some even think that with the new features which make possible scalability Ethereum will overtake Bitcoin.
Ethereum suffered a sharp decline in Q4 2018 and was overcome from ripple in the coinmarketcap.com index. At the beginning of January 2019, Ethereum regained the second position but today losed the second place again.
What is your opinion? Post your thoughts in the comments below.