Like bitcoin, ethereum currently operates on a proof-of-work (PoW) consensus algorithm, meaning that the network is secured and new currency units are issued through “mining,” whereby participants solve cryptographic puzzles to validate transactions and create new blocks.
However, PoW has attracted criticism over the years, both for its tendency to centralize mining hardware into a few pools and for the amount of electricity it consumes.
Ethereum to implement Proof-of-Stake
Ethereum aims to address these problems by transitioning to Casper, a proof-of-stake (PoS) consensus algorithm. Under Casper, participants can become validators by locking up or “staking” ether. Validators will take turns proposing and voting on blocks, and both the weight of their votes and the size of their rewards will hinge on the size of their stakes.
According to developers, moving to Casper will greatly reduce the amount of electricity “wasted” through PoW mining. In addition to limiting its environmental impact, PoS will allow ethereum to dramatically reduce its rate of currency inflation since validators will have much lower overhead and will thus require smaller rewards to incentivize them to continue to serve as validators.
Moreover, PoS will also reduce the incentive that validators have to centralize their influence. With decreased centralization comes increased security and, importantly, resistance to dreaded 51 percent attacks.
Ethereum is not the first project to attempt to integrate a PoS consensus algorithm. However, most previous PoS implementations have been criticized because, in the event of a blockchain split, validators are incentivized to try to make blocks on top of every chain rather than resolving the consensus back to a single blockchain.
Casper aims to solve this problem by imposing economic penalties on malicious validators that violate the network’s rules. This ensures that validators are properly incentivized to achieve consensus on a single blockchain in the event of a network split.
Following three years of development, Casper has officially entered alpha testing, and the first full-featured testnet has launched. The software must still traverse several release checkpoints before it is ready to launch on the main network, but this alpha release nevertheless marks an important step toward its eventual activation on the main ethereum network.
Users can join the testnet by following the instructions in this guide, and once online they can send transactions and become validators, just as they would on a normal network, although the network’s performance is not indicative of how production clients will operate once the project receives an official release.