What Is Ethereum Casper Protocol? Why Do We Need It?

Since its launch in 2015, almost seven years after Satoshi Nakamoto introduced Bitcoin to the world, Ethereum has seen phenomenal growth and unprecedented success. Nowadays, Ethereum is battling Ripple for the second most value cryptocurrency, however, in terms of sheer importance, there’s no denying that Ethereum is second only to Bitcoin.

Every day thousands of dApps run on Ethereum, and thousands of new tokens see the light of day thanks to it. As magnificent as Ethereum might be from a technical point of view, it has its fair share of limitations. In fact, scalability has always been one of Ethereum’s biggest problems which left the development team with no choice but to find a workaround or an improvement.

Another problem for Ethereum is its own proof-of-work consensus mechanism. Even though it’s used by various other crypto platforms, for such a big platform as Ethereum it’s starting to show its weaknesses. Besides the basic network security issues, PoW also uses an insane amount of electricity in order to operate.

The Ethereum team has since long planned an evolution, an update to the network, the implementation of a new PoS (proof-of-stake) consensus algorithm which will power the new Ethereum 2,0.

At the heart of this change is Casper, or Ethereum Casper Protocol, to be more precise

What exactly is Casper?

Casper is the generic name for the next big Ethereum update, and it’s a hard fork of Ethereum. The team hopes that Casper will help Ethereum’s quest towards global mass adoption, as the protocol provides enhanced scalability capabilities and combats the risk of centralization, often associated with the PoW consensus.

Like Bitcoin, Ethereum currently uses a PoW consensus mechanism. Under this type of algorithm, network participants known as miners are required to solve cryptographic puzzles in order to validate transactions. This is how new blocks are created. Even though the system is still very popular, it has some weaknesses.

As mentioned above, it consumes huge amounts of electricity and, because it is mined by big pools, the problem of centralization also comes to mind. There some security risks involved here. If, for example, the largest mining pools were to join forces, then 51% attacks would become a reality.

Why is Casper needed?

Casper will ensure that Ethereum will switch from PoW to PoS. There are a great number of differences between the two. To begin with, miners will be replaced by the so-called “validators.” The validators will achieve consensus by taking turns proposing and voting on the next block. As its name suggests, the weight of each validator’s vote depends on the size of the validator’s stake (deposit).

At first, Casper will run a hybrid consensus mechanism, a combination between PoW and PoS. This will ensure the platform’s stability during this period of transition. What’s more, ETH holders can stake their tokens in special wallets. For their service to the network, they will be rewarded with ETH. The more ETH one validator stakes, the greater the rewards will be.

To conclude, PoS uses far less electricity than PoW, reduces centralization (by eliminating mining centralization), reduces the risk of 51% attacks, and improve overall scalability of the network.

Two versions of Casper

Casper may seem like an all-encompassing development for Ethereum, but it is, in fact, formed from two research projects. There are two proposed versions of Casper namely Casper the Friendly Finality Gadget (FFG), and Casper the Friendly Ghost: Correct by Construction (CBC).

The first version will ensure the functionality of the hybrid mechanism and will ensure the smooth transition from PoW to PoS. Whole new blocks will still be created using PoW, the FFG will be layered on top using a smart contract.

PoW

PoS

The second version is designed to fine-tune the partially-built PoS protocol until the system can function properly.

Are there any risks associated with Casper?

As with all major changes in complex networks, there are a few key challenges and risks associated with the switch to PoS and both versions of Casper. Even though the system is designed to be much safer than PoW, there are a few security risks. At first, Casper will only feature up to 250 validators, which could compromise the network in case of an attack were to happen.

Even though staking promises true decentralization, it’s also one of the best gateways towards creating the so-called “whales.”

Conclusion

Casper is probably one of the biggest developments within the Ethereum network, and will most probably take years until it will be ready. The implementation will most likely take Ethereum into a new era of usability and will broaden the network’s “horizons” in terms of scalability, security, decentralization, and energy efficiency.

There’s a lot of risks involved for Ethereum with the Casper update, however, with caution and a slow transition, Vitalik Buterin’s creation might very well become the most important crypto/blockchain network of our time.