Casper- Ethereum’s treasure keeper

In a contemporary context, the first thing that comes to mind with the word “treasurer” is someone who administers or manages the financial assets and liabilities of an organization. In pre-medieval times, this person was the one in charge of administering a kingdom`s treasure. The question now is, what does Casper mean in the context of blockchain?

In the cryptoworld, Casper is an umbrella term that covers two fundamental upgrades for Ethereum. The first one is called “Casper the Friendly Finality Gadget” (FFG). This consists in a change from the current pure Proof of Work (PoW) validation system to a hybrid form of Proof of Stake (PoS) and PoW. It is planned to be implemented throughout 2018 and the beginning of 2019. The second upgrade is called “Casper the Friendly GHOST: Correct by Construction” (CBC). This is a full PoS blockchain fork-choice rule protocol. Its implementation is planned for the coming years. In the following article, we concentrate on explaining Casper FFG. We chose only this upgrade because it will be implemented sooner and it is more relevant for Pool of Stake. Please do not be intimidated by the terminology. this article is intended to paint a simple and clear picture of Casper FFG. However, we do expect the reader to be at least familiar with PoW, PoS, and their main differences.

What sets Casper FFG apart from most other PoS algorithms, is that there is a process to punish malicious behavior. As we stated before, validators will lock up a portion of their ETH in a similar condition to staking a bet. Any malicious behavior makes the validator lose this bet. Casper FFG is designed to be “Byzantine Fault Tolerant”. This means that it punishes any act that has a malicious (or Byzantine) intent. Casper FFG’s behavior control does not stop here. It has additional controls to guarantee network security, including punishing validators that go offline. The idea is to not only reward good behaviour (as other PoS) but also punish malicious behaviour. This creates an additional incentive (or fear of punishment) for validators, who need to make sure that they take care of their node uptime.

Casper FFG is designed to ease the initial transition to PoS. This is going to be done by overlaying a smart contract over the normal “ethash” PoW protocol currently in use. Miners will continue to create new blocks and every 50th block a PoS mechanism will be used. This will ensure that every 50th block “finality” is reached. “Finality” refers to a record of a transaction or operation that is forever registered in a ledger and cannot be reverted. It is argued that no system can provide 100% finality, but Casper FFG comes quite close. There are three reasons where Casper FFG does this very well.

The first reason is total economic finality. ⅔ of the validators make maximum odds to finalize blocks. Because of this, there is a very small incentive for them to collude and attack the network since they would put their stake at risk. It would be the equivalent of PoW miners risking burning down their equipment if they participated in an attack.

The second reason also relies on the ⅔ recipe. Imagine a scenario where on one hand Alice and Bob are placing their stake behind one claim. On the other hand, Bob (again) and Charlie place stakes in a contrary claim. No matter what happens, Alice and Charlie stand to lose a lot of money due to Bob’s bad behaviour. Validators have no incentive to collude as they always stand to lose a lot.

The third and final reason is more of a contingency plan in case double finality occurs. Vitalik got very clever on this one, as usual. If a double finality occurs, the users will have an opportunity to vote for the chain of their preference. The chain that gets the majority vote will become the dominant chain, and this would cause a hard fork. Now that we have all these advantages of Casper FFG laid out, lets move on to why Ethereum benefits from the upgrade.

The first benefit is that it reduces centralization. Blockchains using pure PoW, like Ethereum at this time, suffer from high centralization. This is because all the hashrate (computing power required to verify PoW blockchains) is mainly held by a few group of pools. This puts the whole ecosystem at risk, since these pools could team together and participate in an attack. Additionally, it gives these pools a better chance of mining the blocks and receiving rewards, leaving small participants out.

The second benefit that Casper FFG will bring to Ethereum is energy efficiency and with it cost reduction. It has been a widespread news that Ethereum, with the PoW algorithm consumes more energy than Serbia. This is a big problem. Further adoption would increase the hash difficulty, requiring more computing power, and resulting in an even higher carbon footprint. These electricity costs are reflected in the price of transaction fees, carried by the entire network. People would argue that the problem is the way we source our energy. Why not take into our hands fixing the problem with solutions that the Blockchain community can achieve? PoS blockchains already did this. PoS is not even fractionally as energy reliant as PoW, as it does not require computing power for validation. The energy efficiency problem will be solved partially with Casper FFG, and fully once Casper CBC is implemented.

A third benefit that Casper FFG brings is economic security. This goes back to the risk validators face when they act maliciously. If a validator has his ETH staked in the network, it is in his own interest to keep a secure network, or else he would risk losing his stake. Any kind of attack would involve a slash to the validator’s stake. An additional thing to note, is that if there is an attack, it is likely that coin holders would sell ETH as they lose trust. This would again harm any validator that acts maliciously, since he would not only get slashed, but also bring down the price of the token.

In conclusion, Casper FFG provides a set of reasons to get close to finality, and benefits to the Ethereum network. The punishing mechanism that derives from the ⅔ based agreement system creates a huge deterrent for attackers, since any malicious activity would result in a harsh penalty. Additionally, it would also lead to a depreciation of the token that the malicious actor holds. Apart from this, the benefits that Casper FFG will bring to Ethereum include higher decentralization, energy efficiency, economic security, and the ability to scale.

Pool of Stake is very excited about Casper FFG. Once it is implemented, it will provide us the golden opportunity to create a highly decentralized pool to stake Ether. Participants will be able to stake their tokens together in a Pool of Stake smart contract running on the Ethereum network. The contract would not require users to give away their private key, so their tokens would be unspendable and secure. This way, small coin holders get the opportunity to participate in an endeavor that would normally cost 1500 ETH. We are looking forward to start our tests on the Casper testnet. Our vision is still clear, to create safe staking pools for PoS blockchains that will let everyone receive rewards and participate in securing the blockchain.