Buterin devoted most of the tweets to explaining the history of Ethereum developer efforts to create a Proof of Stake (PoS) consensus mechanism that would streamline the process while also combating nefarious attacks to control blockchain content.
He also clarified that a PoS system will be implemented independently from another effort to roll out sharding on Ethereum. (Sharding is a way of distributing the computational work needed to validate new documents, known as blocks, on the distributed ledger technology). The PoS and sharding development efforts had been part of one project, but they will now be rolled out separately.
Proof of Work and Proof of Stake
The two most popular mechanisms or algorithms for authenticating new entries on a blockchain and governing changes to the networks are Proof of Work (PoW) and Proof of Stake.
PoW algorithms force computers on the peer-to-peer (P2P) network to expend CPU power to solve complex cryptographic-based equations before they’re authorized to add data to a blockchain ledger; those computer nodes that complete the equations the fastest are rewarded with digital coins, such as Ether on Ethereum or bitcoin on the competing technology. The process of earning cryptocurrency through PoW is known as “mining,” as in mining bitcoin.
As the name suggests, PoS consensus models enable those with the most digital coins (the greatest stake) to govern a cryptocurrency or business blockchain ledger. To date, however, the most popular blockchain-based cryptocurrencies — Bitcoin, Ethereum (Ether) and Litecoin — have used PoW as their consensus mechanism.
While PoW algorithms are excellent at ensuring the authenticity of new documents posted to a ledger, they’re also slow and expensive to run.
The PoW process chews up a lot of electricity, both from running processors 24/7 and from the need for cooling server farms dedicated to mining operations. Those mining operations are siphoning off so much electricity that cities and even countries have begun clamping down on mining operations.
PoW protocols can also be extremely slow due to the lengthy process involved in solving the mathematical puzzles; approving a new entry on a blockchain ledger can take 10 or more minutes. PoW algorithms are, however, excellent at thwarting users who would try to game the blockchain, as it’s simply too expensive to expend the CPU power and time.
In contrast, PoS algorithms can complete new blockchain entries in seconds or less.
“Proof of Stake algorithms definitely have the potential to overtake Proof of Work,” said Vipul Goyal, an associate professor in the Computer Science Department at Carnegie Mellon University (CMU). “However, there are still some significant research challenges that need to be overcome before that happens.”
Ethereum began working on a PoS system in 2014 and last year introduced the mechanism on a testnet called “Casper” (as in Casper the Friendly Finality Gadgetor Casper FFG). Casper was intended to be overlaid on Ethereum’s current PoW algorithm. Its release had been scheduled for some time this month but has been delayed.
There have also been internal development wars over the way Casper should be implemented.
As with other PoS models, the Casper consensus protocol would work by creating “bonded validators,” or users who must place a security deposit down before being allowed to serve as part of the blockchain consensus or voting community. As long as bonded validators act honestly on the blockchain, they can remain in the consensus community; if they attempt to cheat the system, they lose their stake (their money). Ethereum’s Casper PoS system would enable a consensus mechanism to process new transactions in about four seconds.
A hybrid system
Last year, two developments in the effort to implement a new consensus model came in the form of a standalone PoS mechanism named Serenity and a hybrid PoW/PoS system named Metropolis. Metropolis was divided into two phases: the development of a byzantine fault-tolerance mechanism launched last year and a project known as Constantinople — the hybrid PoW/PoS system.
The Constantinople name was dropped earlier this year and the effort to implement a new Casper PoS and sharding system is now being referred to as Ethereum 2.0.
The PoS system, whether hybrid or standalone, was going to require that validators deposit 1,500 Ether coins to become part of the consensus mechanism. In his tweet storm, however, Buterin announced the number of Ether coins required to become a validator will now be 32.
Jake Yocom-Piatt, creator of the digital currency network Decred, believes the best governance model is one that employs both PoW and PoS mechanisms, as Buterin and the Ethereum development team are proposing.
In a hybrid model, deference is given to the PoS validators who can override bad behavior on the PoW network.
“If you’re a Proof of Work miner and you’re playing games and causing problems on our network, the stakeholders on the network can penalize them and strip them of their rewards,” Yocom-Piatt said. “You can also vote on consensus rule changes. This acts as a dispute-resolution and decision-making mechanism for major decisions in the cryptocurrency,” Yocom-Piatt said, referring to new software releases and other blockchain changes.
In Ethereum 2.0’s latest model, the blockchain would grow in blocks using the current PoW algorithm, “but every 50 blocks is a PoS ‘checkpoint'” where finality is assessed via a network of PoS validators, a white paper explained.
Over its development lifecycle, the PoS protocol faced a number of challenges, the most difficult of which is what is known as “posterior corruptions,” which could undermine the authenticity of a blockchain. For example, a set of users on a blockchain can hold the majority stake, and then sell that stake. In a PoS system, those entities could still hold the cryptographic keys that gave them governing power in the past and use that authority to create a new blockchain or “attack chain” off the primary chain (known as a fork). In effect, they would still have their money stake as if it had never been sold and control the blockchain’s direction.
“If the attack chain diverges from the main chain at a fairly recent point in time, this is not a problem, because if validators sign two conflicting messages for the two conflicting chains this can be used as evidence to penalize them and take away their deposits,” Buterin wrote in his Twitter thread. “But if the divergence happened long ago (hence, long range attack), attackers could withdraw their deposits, preventing penalties on either chain.”
To deal with long-range attacks, Ethereum developers introduced a change requiring clients log on at least once every four months and that their deposits take four months to withdraw, so the incentive to avoid a penalty would no longer be available.
Ethereum developers also considered other consensus algorithms “inspired by traditional byzantine fault tolerance theory,” such as Consensus by Bet, but eventually abandoned them as “too risky.”
Shawn Dexter, an analyst with Mango Research, said the most recent Ethereum update has people confused because much of the explanatory information is contained in comment sections across various forums. Even in an explainer last week, Dexter cautioned things still may change between now and when a PoW/PoS and sharding algorithm is implemented.
Casper and sharding will likely not be launched on the beacon chain together, Buterin explained, saying that while they’ll be implemented on the same chain, Casper could come first or sharding. Both will be implemented on a new overlay network known as Beacon Chain.
Buterin ended his Twitter thread by saying there is no formal timeline for implementing the new consensus mechanism. While at one point he said Casper would be released this month, his last tweet said there are still “formal proofs, refinements to the specification, and ongoing progress on implementation,” which have already been started by three developer teams.
Martha Bennett, a principal analyst with Forrester Research, cautioned against speculating on when Ethereum 2.0 would be released. “The PoS consensus design took several iterations,” she said via email, “and we simply won’t know until it’s been implemented and has been running for a while whether it’ll work in the desired fashion or not.”