[Kill Joy]

Many of you probably have not heard of the news. Ethereum is moving from Proof of Work to Proof of Stake and plans to roll this out in late 2017 as of right now. A lot of you are probably asking, what even is Proof of Work and Proof of Stake? Why should I care? I am about to explain what these things are, why Ethereum is switching, and what this means for you. If you are too lazy to read or cannot comprehend the information in this article, please feel free to ask specific questions. :)

Ethereum & Proof of Work

The first version and also current version of Ethereum uses an algorithm called Proof of Work, which involves mining. To thoroughly explain what Proof of Work is, I am going to steal a section from a thread I wrote a few days ago.

Proof of Work is defined as an economic measure to deter denial of service attacks and other service abuses such as spam on a network by requiring some work from the service requester, usually meaning processing time by a computer. Proof of Work is not a new concept. For additionally reading on the history of it, read here. Coins like Bitcoin use Proof of Work.

Simply put in terms of crypto currency, this means that calculations are required by the network nodes in order to form a distributed ledger. This process is called mining.

A distributed ledger is a decentralized system that can agree on and keep track of the correct amount a wallet has by providing a history of every single transaction.

• The Purpose of Mining

Mining is the process in which Proof of Work is generated. Before we go into the exact purpose of mining, we need to address what a Block is. A block is a permanent storage of record that includes a group of data of all or some transactions that have not yet been included in previous blocks.

The main purpose of mining is to verify the legitimacy of a transaction and prove that it is not a double spend. A double spend is when the same coins are spent more than once. Since mining is a strenuous process, miners are rewarded for their work upon successful completion of mining a block. Rewards vary by coin and can change over time.

Explaining like I am five, here is what happens:

• A transaction is made and included with other transactions in a Block;
  
• Miners verify every transaction in the block are legitimate;
  
• In order to do this they must solve a mathematical problem;
  
• Rewards are handed out to the miner that successfully solved the problem;
  
• All legitimate transactions are stored in the mined block on the blockchain.
  

Due to the strenuous computation nature Proof of Work, it can become an expensive process.

Read my thread on different variations of Proof-of-X here.

Ethereum & Proof of Stake

Proof of Stake is an alternative to Proof of Work and aims to achieve distributed consensus. The idea was first discussed on bitcointalk in 2011 and first used with Peercoin. Instead of having miners prove each and every transaction is legitimate, proof of stake requires that a person stake (hold or lockup) coins and prove ownership. To become a validator, you can lock up (bond) some of your ethereum and send them to the Casper Contract. We'll talk about Casper shortly.

In the event that a user tries to cheat the system, the Casper protocol will punish them. Vitalik Buterin, Ethereum Co-Founder, explained it like this:

Imagine 100 people sitting around a circular table. One person has a bundle of papers, each with a different transaction history. The first participant picks up a pen and signs one, then passes it onto the next person, who makes a similar choice.

Each participant only gets $1 if they sign the transaction history that most of the participants sign in the end. And if you sign one page and later sign a different page, your house burns down.

Read my thread on different variations of Proof-of-X here.

Why is Ethereum Switching?

Ethereum developers believe that consensus Proof of Stake algorithms can provide a higher degree of security for a given amount of resource expenditure than Proof of Work algorithms.

In simpler terms, this means that Proof of Stake will be:

• Cheaper. There will no longer be a need for hardware and electricity costs.
  
• Less Censored. Unlike Proof of Work blockchains, Ethereum plans on providing solutions for a more censor-friendly blockchain.
  
• Scalable. Ethereum will become more more scalable allowing larger applications.
  

Proof of Stake however is not perfect. There are many flaws and Ethereum developers plan on tackling these flaws with a security-deposit based economic consensus protocol called Casper. There are many technicalities surrounding Casper, so I will try to bring a few to light.

• Casper & The Casper Contract

• Hardware Mining will no longer exist. Virtual mining and validators will take its place. To become a validator, you must lock up some ETH for a specific amount of time, currently set for 4 months.
  
• Lower Latency. Block times will become super fast. Ethereum developer Vlad Zamfir believes it can start at 4 seconds/block and be pushed down to 1 second/block.
  
• Finality. Ethereum will be able to quickly prove who owns what and how many. This will make it impossible for a random blockchain glitch to suddenly decide that the operation that made those assets theirs is now reverted and so their ownership claim over those assets is lost.
  

There are so many different paths and technicalities to talk about and it is hard to just pick a few to highlight and talk about in-depth. I am hoping for this thread to spark an interest in the actual technology of Ethereum and for you to do some reading and research on your own.

What does this mean for me?

Ethereum is not immediately switching from Proof of Work to Proof of Stake. They will be doing this in stages and temporarily have a hybrid system of the two in place. During the first stage in the switch, Proof of Stake will be used everyone 100 blocks as a checkpoint. This is done to further prove all the transactions are legitimate. Review Finality. Smart contracts for Casper will be issued where users will be able to become a validator. This will become default when it is fully incorporated with the Casper daemon and Ethereum client. Stage two is just a much larger scale of this. Keep your eye out on the Ethereum Blog for further Development.

The beginning stages of the transition are currently targeted for the end of 2017. This is subject to change.

• Key Changes

• Mining will no longer exist in a sense. Hardware mining will disappear. Mining will now be conducted in the form of validating.
  
• Proof of Stake and the absence of miners mean less coins coming into supply. Inflation will now be initiated.
  
• Total ETH supply will be around 100M. Target ETH at stake is 10M. Target ROI for validators is 8%; therefore, the annual inflation will be around 0.8%.
  
• Block times will start around 1 block/4 seconds and eventually become 1 block/second.
  

Further Reading

Proof of Stake FAQ
Introducing Casper “the Friendly Ghost”
The History of Casper — Chapter 1
The History of Casper – Chapter 2
Proof-Of-Stake: Vitalik Buterin Shares Casper Contract Code
Where's Casper? Inside Ethereum's Race to Reinvent its Blockchain

Like I stated at the beginning of this thread, if you are lazy, overwhelmed, or confused by any of this, then feel free to ask any questions!

[Αdvertisement]

Great post, lots of good information. Thanks for this.

I'm excited to see what PoS has to bring to Ethereum, lots of stuff to come.

[Ramsey]

My word...
This is a great in depth explanation! Hats off to you!
Didn't get the time to read everything but I will be back!
Thanks for this!

[daymon]

I haven't read too much up on the PoS system, but whats to combat if I hypothetically have control of a large amount of validators?

[abc123xD]

Will this affect transaction fees at all?

[Kill Joy]

I haven't read too much up on the PoS system, but whats to combat if I hypothetically have control of a large amount of validators?

This is combated by the Casper Protocol. So far it is planned to have only 250 validators at any given time. Validators will want to follow the rules or they will be punished and lose their own money.

Example by Vitalik Butener:

Imagine 100 people sitting around a circular table. One person has a bundle of papers, each with a different transaction history. The first participant picks up a pen and signs one, then passes it onto the next person, who makes a similar choice.

Each participant only gets $1 if they sign the transaction history that most of the participants sign in the end. And if you sign one page and later sign a different page, your house burns down.

Since it is early and there hasn't been a development post in a couple months, we can look forward to even more assurance that validators cannot be abused.

[ASLR]

This is exciting news. I hope that ETH overtakes bitcoin as this is much more environmentally responsible. The amount of energy spent mining coins is absurd

[daymon]

This is combated by the Casper Protocol. So far it is planned to have only 250 validators at any given time. Validators will want to follow the rules or they will be punished and lose their own money.

Example by Vitalik Butener:


Since it is early and there hasn't been a development post in a couple months, we can look forward to even more assurance that validators cannot be abused.

Yeah, but what if the majority of the validators are owned by me, and I have them "sign papers" of my choosing? I'm just a little confused on the specifics that would actually combat this. I mean, how would you know I was breaking the rules, if I make up the majority?

[OnlyProfit]

Don't get me wrong guys. I've read this through. To me its seems like PoW is much better for regular people like me and you as it seems like everyone has the same power if you can call it that. While PoS seem's like its like a banking system. Where 1 bank regulate's all transactions. I don't like this idea AT ALL. Unless i get something wrong here.

[IPIKIN]

Why won't we be able to mine ETH once it goes to POS?

[Unexplained]

Alright so after reading through this info here is what I gather. Please someone correct me if I am wrong.

-The speed of "confirming" transactions will be quicker and more secure.
-The current state of mining will go away.
-The fees could see a reduction from where they are now for ETH transactions.

Am I reading this correctly?

[Kill Joy]

Will this affect transaction fees at all?

Yes. They will become very fast. We are talking about 1 block every 4 seconds or faster.

Yeah, but what if the majority of the validators are owned by me, and I have them "sign papers" of my choosing? I'm just a little confused on the specifics that would actually combat this. I mean, how would you know I was breaking the rules, if I make up the majority?

I just wrote a shit ton out, then some coding in the post triggered a firewall. Gonna cut this short since I am about to get dinner.

Basically there are two ways to solve an attack. Economic consensus (best interest of the market) and social consensus (best interest of the users).

Since my post got blocked, I'm just going to paste some relevant information from the github. This talks about a few attacks and solutions to them.

What would the equivalent of a 51% attack against Casper look like?

The most basic form of "51% attack" is a simple finality reversion: validators that already finalized block A then finalize some competing block A', thereby breaking the blockchain's finality guarantee. In this case, there now exist two incompatible finalized histories, creating a split of the blockchain, that full nodes would be willing to accept, and so it is up to the community to coordinate out of band to focus on one of the branches and ignore the other(s).

This coordination could take place on social media, through private channels between block explorer providers, businesses and exchanges, various online discussion forms, and the like. The principle according to which the decision would be made is "whichever one was finalized first is the real one". Another alternative is to rely on "market consensus": both branches would be briefly being traded on exchanges for a very short period of time, until network effects rapidly make one branch much more valuable with the others. In this case, the "first finalized chain wins" principle would be a Schelling point for what the market would choose. It's very possible that a combination of both approaches will get used in practice.

Once there is consensus on which chain is real, users (ie. validators and light and full node operators) would be able to manually insert the winning block hash into their client software through a special option in the interface, and their nodes would then ignore all other chains. No matter which chain wins, there exists evidence that can immediately be used to destroy at least 1/3 of the validators' deposits.

Another kind of attack is liveness denial: instead of trying to revert blocks, a cartel of >=34% of validators could simply refuse to finalize any more blocks. In this case, blocks would never finalize. Casper uses a hybrid chain/BFT-style consensus, and so the blockchain would still grow, but it would have a much lower level of security. If no blocks are finalized for some long period of time (eg. 1 day), then there are several options:

The protocol can include an automatic feature to rotate the validator set. Blocks under the new validator set would finalize, but clients would get an indication that the new finalized blocks are in some sense suspect, as it's very possible that the old validator set will resume operating and finalize some other blocks. Clients could then manually override this warning once it's clear that the old validator set is not coming back online. There would be a protocol rule that under such an event all old validators that did not try to participate in the consensus process take a large penalty to their deposits.
A hard fork is used to add in new validators and delete the attackers' balances.
In case (2), the fork would once again be coordinated via social consensus and possibly via market consensus (ie. the branch with the old and new validator set briefly both being traded on exchanges). In the latter case, there is a strong argument that the market would want to choose the branch where "the good guys win", as such a chain has validators that have demonstrated their goodwill (or at least, their alignment with the interest of the users) and so is a more useful chain for application developers.

Note that there is a spectrum of response strategies here between social coordination and in-protocol automation, and it is generally considered desirable to push as far toward automated resolution as possible so as to minimize the risk of simultaneous 51% attacks and attacks on the social layer (and market consensus tools such as exchanges). One can imagine an implementation of (1) where nodes automatically accept a switch to a new validator set if they do not see a new block being committed for a long enough time, which would reduce the need for social coordination but at the cost of requiring those nodes that do not wish to rely on social coordination to remain constantly online. In either case, a solution can be designed where attackers take a large hit to their deposits.

A more insidious kind of attack is a censorship attack, where >= 34% of validators refuse to finalize blocks that contain certain kinds of transactions that they do not like, but otherwise the blockchain keeps going and blocks keep getting finalized. This could range from a mild censorship attack which only censors to interfere with a few specific applications (eg. selectively censoring transactions in something like Raiden or the lightning network is a fairly easy way for a cartel to steal money) to an attack that blocks all transactions.

There are two sub-cases. The first is where the attacker has 34-67% of the stake. Here, we can program validators to refuse to finalize or build on blocks that they subjectively believe are clearly censoring transactions, which turns this kind of attack into a more standard liveness attack. The more dangerous case is where the attacker has more than 67% of the stake. Here, the attacker can freely block any transactions they wish to block and refuse to build on any blocks that do contain such transactions.

There are two lines of defense. First, because Ethereum is Turing-complete it is naturally somewhat resistant to censorship as censoring transactions that have a certain effect is in some ways similar to solving the halting problem. Because there is a gas limit, it is not literally impossible, though the "easy" ways to do it do open up denial-of-service attack vulnerabilities.

This resistance is not perfect, and there are ways to improve it. The most interesting approach is to add in-protocol features where transactions can automatically schedule future events, as it would be extremely difficult to try to foresee what the result of executing scheduled events and the events resulting from those scheduled events would be ahead of time. Validators could then use obfuscated sequences of scheduled events to deposit their ether, and dilute the attacker to below 33%.

Second, one can introduce the notion of an "active fork choice rule", where part of the process for determining whether or not a given chain is valid is trying to interact with it and verifying that it is not trying to censor you. The most effective way to do this would be for nodes to repeatedly send a transaction to schedule depositing their ether and then cancel the deposit at the last moment. If nodes detect censorship, they could then follow through with the deposit, and so temporarily join the validator pool en masse, diluting the attacker to below 33%. If the validator cartel censors their attempts to deposit, then nodes running this "active fork choice rule" would not recognize the chain as valid; this would collapse the censorship attack into a liveness denial attack, at which point it can be resolved through the same means as other liveness denial attacks.

https://github.com/ethereum/wiki/wiki/Pr...-Stake-FAQ

---

Don't get me wrong guys. I've read this through. To me its seems like PoW is much better for regular people like me and you as it seems like everyone has the same power if you can call it that. While PoS seem's like its like a banking system. Where 1 bank regulate's all transactions. I don't like this idea AT ALL. Unless i get something wrong here.

PoW requires a lot of money to buy hardware and pay for electricity costs. Not everyone has the same power like you said. This eliminates the need for hardware.

Why won't we be able to mine ETH once it goes to POS?

Proof of Work (what Ethereum is using) uses hashing to confirm legitimate transactions. Hashing requires hardware. Proof of Stake uses locked up amounts of Ethereum to verify transactions instead of using hashing, this is called staking. Mining isn't exactly gone, as staking is considered a form of mining.

Alright so after reading through this info here is what I gather. Please someone correct me if I am wrong.

-The speed of "confirming" transactions will be quicker and more secure.
-The current state of mining will go away.
-The fees could see a reduction from where they are now for ETH transactions.

Am I reading this correctly?

This is all correct.

I am getting dinner. Will be back soon to answer more questions.

[Tren Ace]

When you say only 250 validators, does that mean only 250 are eligible to gain ETH on what they stake?

[Kill Joy]

When you say only 250 validators, does that mean only 250 are eligible to gain ETH on what they stake?

Yes, but there is a catch. It all depends on the gas limits and how much ETH will need to be staked in order to make a profit. 2 months ago, Buterin said he was thinking of making a gas limit of ~200000. You will have to deposit a ton of ETH in order to even profit from it.

Links:
https://steemit.com/ethereum/@keysikg/et...tract-code
https://www.reddit.com/r/ethereum/commen...on_of_the/

[jujuger]

POS should also inflate the value of ETH even higher.
This will be interesting

hq thrad