In a recent reddit post, ethereum developer Danny Ryan announced the first release of Casper Friendly Finality Gadget (FFG), ethereum’s proof of stake consensus algorithm. This software release, includes the introduction of validators which will aid in the transition to a proof of stake (PoS) consensus mechanism. Since this release, the code has been made available to researchers, auditors and client developers, including Parity and Geth which have begun testing the software.
Currently, in ethereum’s mainnet, the consensus algorithm used to validate transactions and provide a deterrent for denial of service or spam is called proof of work (PoW). Using PoW algorithms has come under scrutiny, often due to the amount of energy consumption required to support the underlying cryptocurrency networks. The Ethereum Energy Consumption Index has been developed to track ethereum’s energy consumption. It is currently estimated that the network consumes enough energy to power 1,881,612 American households.
Moving forward, ethereum has committed to moving to a (PoS) consensus algorithm instead called Casper. A PoS approach determines the probability of validating a transaction based upon the stake that a person/organization holds in the related cryptocurrency. Also, instead of being rewarded for mining a block in PoW, validators receive a network fee as their reward.
Transitioning from a PoW model to a PoS model creates some uncertainty. As part of the first release of Casper FFG, also known as 0.1.0, new participants will join the ethereum network as validators. These validators will work alongside traditional miners who will continue to leverage PoW during the transition from PoW to PoS.
The underlying mechanics of using a hybrid approach includes leveraging a smart contract that will link existing miners to validators. In the early phases of this transition, it is expected that miners will continue to perform most of the work. But, validators will perform periodic checkpoints. The ethereum network, in the early stages, will only be able to accommodate so many validators. During a recent presentation at EDCON Toronto, Vitalik Buterin explained the process of becoming a validator. Becoming a validator does come with some constraints, including:
Sending a transaction that includes a minimum 1500 ETH deposit, otherwise you can join a stake pool. You will get inducted as a validator in around 2 dynasties, or about 45 minutes
Once you become a validator, it is important that your node stays online and is connected as every epoch, a 50 block period or about 20 minutes, will require your node to sign and send a vote message which will contribute to establishing consensus on the network.
The smart contract is expected to exist for about two years and by this time PoS is expected to have its implementation complete. During this period, the network will operate in a hybrid manner and there will be rewards and penalties to encourage positive behavior by validators. As of the initial Danny Ryan’s Ethereum Improvement Proposal (EIP), validators that stay online and consistently vote, can expect between 0 to 5% return on the amount they stake. For stakers who go offline, they may lose between 5-10% of their holdings and may lose more in more extreme circumstances. In scenarios where validators make conflicting votes, as a way to game the system, they will get logged out and lose between 1 and 100% of their holdings. During Buterin’s talk, he did express that these values are subject to change.
Image Source: https://www.youtube.com/watch?v=NJ9StJThxZY
In order for the Casper FFG release to be adopted, ethereum clients need to support this implementation. The Parity Casper testnet is live and was recently announced on Twitter, while Geth is also preparing for its testnet launch.