Casper (the friendly ghost) is back in Version 2

One of Vitalik Buterin’s major concerns regarding Ethereum involved improving its scalability. To achieve this, the Ethereum team developed an update named Casper FFG (Friendly Finality Gadget). An upgraded version of Casper FFG i.e., Casper Version 2 was rolled out recently. The focus this time was to fully move from a Proof-of-Work to Proof-of-Stake based system.

Casper (the friendly ghost)

Casper FFG was a hybrid of PoW and PoS protocols. It solved the “nothing at stake” problem associated with PoS, by penalizing validators who are caught mining on two chains at the same time.

However, Casper Version 2 is designed to fully transform the blockchain into a PoS powered system. This means that most transactions are processed on the “beacon chain” and validated on the main chain (PoW based) at certain intervals. The PoW-powered chain ultimately dies off, thus creating a fully PoS based system which is more secure, energy efficient and scalable.

To understand how Casper works, we need to be clear about a few terms – Proof-of-Work, Proof-of-Stake and Sharding.

Proof-of-Work Vs Proof-of-Stake

The Proof-of-Work algorithm was proposed by Cynthia Dwork and Moni Naor in 1993, but the term was coined by Markus Jakobsson and Ari Juels in 1999. Many popular blockchains run on this system. Bitcoin, Litecoin etc., are a few examples. PoW is a system in which a transaction is validated by miners who compete to solve a mathematical puzzle concerning a block and receive cryptocurrency rewards in return. Although it maintains the authenticity of the blockchain, it also causes the transactions to be slow because of the multiple nodes that are active simultaneously. Also, it consumes enormous amounts of electricity and expensive hardware resources, which also pose a risk of monopolisation of mining.

Proof-of-Stake algorithm uses an alternative way to validate a block. A Validator (equivalent to a/the miner in a PoW system) is determined by the number of stakes (coins) they hold. The more stakes a validator holds, the better are the chances of being assigned to complete a transaction. The advantages of PoS include less expenditure of energy and elimination of the need of expensive hardware. Buterin believes that PoS is the future of blockchains.

Also Read: All You Wanted To Know About Ethereum

Sharding

In a regular blockchain all the processes are updated on each and every node. Though it provides security, it considerably slows down the system. Sharding is a technique by which multiple parallel chains exist together and compute their results at a later point, hence decreasing the load on the main chain and improving its scalability.

A “beacon chain” was proposed for Ethereum (cross-linked to the main PoW powered chain) which would generate a block every few seconds and validate it by PoS mechanism. These sharded blocks would store all the transaction and accounts.