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Before the 'Bomb' Hits: Why the Race Is on to Alter Ethereum's Economics

The proposals just keep piling in.

At press time, a total of six ethereum improvement proposals (EIPs) have emerged, each hoping to alter the project’s code ahead of an upcoming software update (scheduled for October).

Driving the debate is ethereum’s so-called “difficulty bomb,” a piece of code locked into the $45 billion platform that makes it so a steadily increasing amount of computing power is needed to mine its blocks and unlock its rewards. As designed, the code would eventually push the blockchain into an “ice age,” where no further blocks can be formed – that is, if left untouched.

Originally added to ease a transition in which ethereum would change how participants on its blockchain come to agreement – migrating from bitcoin’s pioneering proof-of-work algorithm to an alternative called proof-of-stake – the difficulty bomb is set to reactivate in early 2019.

With no proof-of-stake migration in sight, steps must now be taken to delay the bomb — as well as reconfigure how ether rewards are released so as to ensure incentives are aligned to properly secure the blockchain.

But delaying the bomb brings its own problems.

For one, it will make blocks easier for miners to find, meaning ether rewards (currently at 3 ETH) must be decreased along with the delay to ensure that the cryptocurrency is produced at the same rate.

However, because ethereum lacks a formal agreement on its rewards model — unlike bitcoin, whose code caps its creation at 21 million units — there are differing perspectives on how much supply should be reduced, with many calling for a further reduction (and some for an increase) of the quantity of ether that is distributed to miners.

Further, having such a debate in a decentralized network brings added obstacles.

Users, for example, could vote according to how many coins they own — a popular signaling method, but one that has been criticized as too informal a metric. But miners (the individuals dedicating computing power to the software) aren’t guaranteed to support a vote.

It’s worth noting that debates concerning ethereum’s undefined issuance model, as well as the difficulty bomb, have emerged several times throughout ethereum’s three-year history.

As detailed by CoinDesk, it’s a difficult topic because when it comes to monetary policy, miners and investors are pitted against each other, each calling for the opposite outcome in many cases.

As Lane Rettig, an ethereum developer, told CoinDesk:

“The postponement of the bomb isn’t particularly controversial, but the issuance is controversial. But for that reason the whole thing is controversial, you can’t have one without the other.”

Together or separate?

Speaking in a core developer meeting Friday, the communication officer for ethereum, Hudson Jameson suggested a solution could come from separating the two mechanisms.

In a sense, he wants to settle each debate in isolation, tackling one problem before the other.

“I think decoupling them would help us create priorities, where we have one thing which is an economic and technical change and the other which is a pure technical change that isn’t as controversial a thing,” Jameson said.

Several developers pushed back against this, though, stating that the two issues are intrinsically bound together and necessitate a combined solution.

Still, several EIPs target the question separately — impacting either the bomb or the reward schedule – while others bind them together.

Currently set to activate in 2019, two proposals seek to remove the difficulty bomb completely: EIP 1240, which simply removes the bomb, and EIP 1276, which seeks to remove bomb and alter ethereum’s reward structure, lowering the current issuance of 3 ETH per block to 2 ETH.

Two proposals want to delay the bomb: EIP 1234 and EIP 1227, though each takes a different approach to raising and lowering the issuance total.

A further two proposals simply target the issuance rate: EIP 858 does not impact the difficulty bomb but reduces the reward to 1 ETH, and EIP 1276 wants to change the reward to 2 ETH.

Paying for security

Complicating the discussion is the differing views on how much ethereum users should pay for security (in effect that’s how developers see blockchain rewards to begin with).

That’s because, while the inflation rate of ether ensures its resistance against attacks — preventing the ability of malicious hash power to overwhelm the network — it’s essentially a tax that comes from ETH holders directly, as inflation slowly decreases the value of their ETH over time.

Plans to limit the overall issuance with the upcoming consensus switch to proof-of-stake, an upgrade called Casper, have been under discussion for several years, however, that plan is now in question given the consensus switch is still several years away.

“If you rewind way back two or three years ago when this difficulty bomb was first installed, the plan was we will be on Casper by now, by 2018. If that had happened then the bomb would never have been an issue,” Rettig told CoinDesk.

Similarly, the supply schedule has yet to be formalized.

Retting said: “Even with Casper, the issuance schedule, the rewards, the inflation, all that has never been worked out. It has never been finalized, this is called the parameterization of Casper and it’s still very much a work in progress.”

Concerns from everywhere

To complicate matters further, there are developers on complete opposite sides of the difficulty bomb debate.

For instance, several developers argue that the difficulty bomb should remain permanently – even though it was only originally planned to last until Casper took effect.

“It lessens the default effect of inaction being the most attractive option,” ethereum core developer Nick Johnson said in the meeting.

Yet, Augur developer Mical Zoltu’s proposal (EIP 1240) suggests the complete opposite – the removal of the difficulty bomb altogether. Discussing the proposal on a related forum, Zoltu argued that developers should fight against so-called “planned obsolescence”  – or when software is programmed to become obsolete after a certain time – of the ethereum chain.

“As a consumer, I have been bitten many times by planned obsolescence and now it is a business strategy that I actively try to avoid,” Zoltu wrote.

The contention surrounding the difficulty bomb and ETH issuance has also led a group of miners to also speak up about their concerns.

Miners using GPUs, a class of mining hardware that risks being made obsolete due to the emergence of ASICs, are calling for developers to use this opportunity to change ethereum’s underlying mining algorithm. According to GPU miners, in the absence of Casper, such a change would restore the blockchain to a more decentralized state.

As Casper developer Danny Ryan said in the developer meeting Friday:

“They need to be talked about at the same time. A lot of people in the community want them to be talked about at the same time.”

Burnt gears via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Vitalik Buterin Talks About DAO Like Forks, Sharding and More

Vitalik Buterin, one of the most important figures in the cryptocurrency world, and Ethereum’s founder, talked about scalability, forks and more. During a meeting at the Wang Feng’s Ten Questions show he said that Hybrid Casper may still launch before sharding.

The main intention was to create Casper as a smart contract on Ethereum, to make the design as easy to build as possible. And at the same time, the team was going to keep working on sharding.

Buterin commented about it:

“The new roadmap is still ‘Casper then sharding,’ but the first version of Casper is modified so that it is ‘along the way’ to a full Casper and sharding implementation.”

At the moment, there is no estimative date for when casper or sharding might be launched.

Vitalik Buterin

Fred Wang decided to ask about what a BTC core developer said about migrating their code to platforms like GitLab.so. Buterin explained that, for him, it is very unhealthy when companies see their business model as being VC followed.

“At this point, I think it is very possible that Ethereum will never see any more coin recoveries, because there are enough cases that are politically contentious that any attempt to set a bar will lead to people just below the bar complaining that they were not included,” commented Buterin.

Back in November 2017, Ethereum’s second most popular client, Parity, has been hacked and 500,000 ETH have been blocked. At the time of the hack, these ETH were worth $150 million dollars.

In order to unlock the frozen funds, Parity explained that they backed the idea to make a hard fork if the community decided to support it. But even at this moment, Vitalik Buterin did not like the idea. Instead, Buterin stated that the best solution was to allow private key holders to withdraw their Ether.

But then, he explained that there is a possibility to see a ‘cleanup’ of the chain to restore some funds.

“Though it is also possible that when we move to sharding, there will be some kind of one-time ‘cleanup’ of the public chain that will restore funds to as many people as possible. That said, I do think tit is my place to make that decision or even heavily influence it,” he commented.

Moreover, he gave his opinion about the future of the cryptocurrency space. He said that he would like to see a stabilized industry and more projects working in order to have better products.

Buterin stated:

“I expect that over the next few years the industry will stabilize, and we will see fewer tokens issued and more projects that pay more attention to providing value, and there will be more correlation between fundamental value and price.”

At the moment of writing this article, Ethereum (ETH) is the second most important cryptocurrency in the market, being traded around $450 dollars at press time. In general the virtual currency market is operating in a downtrend and most of the assets are losing between 3% and 10%.

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Proposed Ethereum Roadmap Would Activate Its Biggest Upgrades Together

The developer team behind ethereum is considering possible changes to a planned rollout of new technology upgrades.

Addressing rumors that such plans are now under review, ethereum creator Vitalik Buterin told a meeting of the platform’s open-source developers Friday that the idea is that the team might seek to alter the sequence in which Casper and sharding, perhaps its two most-anticipated updates, are activated.

Rather than releasing sharding and Casper separately, Buterin said, new advancements in research might enable both upgrades to activate together. (The idea is Casper might be released on a sidechain, or shard, rather than as a smart contract, as previously proposed).

“This is a substantial reworking of the intermediary steps in the roadmap, but of not the final product,” Buterin said.

Casper, ethereum’s long-planned consensus algorithm proof-of-stake, promises to be more energy efficient and egalitarian than its current proof-of-work system, while sharding could hold the keys to scaling the system to a massive number of transactions. In this way, Buterin stressed that, if enacted, the technologies would combine to create a version of the protocol that could be orders of magnitudes more efficient.

Buterin said:

“This design can basically scale up to the theoretical maximum.”

As detailed by CoinDesk, the current version of Casper (Casper FFG) is being tested in the form of a smart contract, named EIP 1011, on ethereum software clients. However, a result of today’s meeting, such development could cease in favor of the new design.

“As someone who has been working on this, it took a second to digest and to be comfortable moving forward with, but I am totally okay with this, and think it gets us where we want to be sooner rather than later,” author of EIP 1011 Danny Ryan said in the meeting.

In light of the news, ethereum developers also appeared open to the idea the platform’s next hard fork, named Constantinople, might not include any Casper-related changes.

Rather, a hard fork will likely occur within the next five months, that focuses on “improvements that we have smoothed out and ready to go, unrelated to that,” ethereum developer Nick Johnson said.

Key advantages

According to Buterin, combining the shift with sharding comes with several advantages.

“The development of the one system will be much more directionally en route to what we expect the final later stage sharding system to look like,” Buterin said.

Plus, by bringing the first version of Casper onto a shard, the deposit required to participate in securing the network will be reduced significantly, from 1,500 ETH, Buterin’s most recent estimate, to 32 ETH.

Due to this lowered figure, Buterin said, “regular individuals participating in staking directly becomes much more viable.” Buterin also said that the new model allows Casper to go live without disturbing the ethereum blockchain itself.

“The Casper component is somewhat more separate from the main chain, that means it can be developed less intrusively in some ways, it can be developed as a separate chain and can have its own rules,” Buterin said, “there’s a much clearer wall between those systems.”

Sharding developer Justin Drake echoed these points.

“It allows to unlock new functionality which radically changes the performance properties of the design,” Drake said.

Drake also mentioned that there are security advantages for the new system. For example, such a system would allow for an “animosity” between nodes on Casper and sharding, increasing the security of both systems. “You can’t be a casper validator without also being a sharding validator,” Drake said.

The developer continued to state that there are advantages to bridging the Casper research team and the sharding team together.

He said in the meeting:

“In general, there will be more unity between Casper and sharding, and the teams lobbying these projects. I think that’s good, there will be more networks effects there.”

Circuit board via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Ethereum May Skip Casper to Focus on Sharding

Ethereum is taking the problem of scalability very seriously with a possible decision of skipping Casper FFG to focus directly on the development of Sharding.

Sharding is the most critical scalability solution proposed by Vitalik Buterin and consists of subdividing the blockchain into small parts according to the needs that arise.

Casper FFG is a scalability solution that proposes to move from PoW to PoS, saving resources and increasing transaction efficiency.

But one of the problems with PoS is the possibility of a higher level of centralization, something that the Ethereum community seeks to avoid at all costs.

Currently, Ethereum uses a PoW consensus algorithm. However, the network has grown so much due to the support of token that right now- counting ETH and the many ERC20 tokens – it handles a more substantial number of transactions than the Bitcoin itself network.

This not only caused Ethereum’s mining to grow exponentially but also increased concerns for efficient resource management.

Casper FFG was one of the first proposed solutions. Previous studies had already shown that the energy consumption of Bitcoin and Ethereum’s PoW is a real problem.

The implementation of a PoS protocol eliminates this situation by using a form of validation that in turn promotes savings and avoids inflation.

However, this type of ‘second layer’ ethereum scalability proposals have evolved in their own pace making it difficult to keep a uniform follow-up of all the projects that developers are working on.

Casper + Sharding All-In-One?

A few hours ago, Reddit user Roynalnaruto published a post in which he mentioned the possibility of a joint release of Casper and Sharding protocols. It shows a video of Vitalik talking about a “Casper+Sharding Validator.”

In the absence of an official statement, Reddit users tried to give various explanations about the event while making their comments. Reddit User playingetherem attempted  to provide some objectivity to the matter. He said people took Vitalik’s words out of context:

“This is bound to be confusing to many people – Vitalik is describing “Casper and Sharding” in this video. This is staking with 32 Ether that will occur AFTER Sharding has been launched in the Constantinople (second part of Metropolis) update that will occur some time AFTER late 2019, when Casper FFG (Friendly Finality Gadget) has run its course. Casper FFG is the first PoS system that could start as early as August 2018 and requires a minimum of 1500 ether to stake.
It would be a mistake to watch this video and develop an understanding that staking with 32 Ether is going to happen very soon. Staking with 32 Eth is second-stage staking.”

Sharding: The Future of Ethereum?

Answering this comment, Justin Drake, of Ethereum’s research team, responded clarifying the situation but with a still surprising statement:

“It’s Justin from the sharding research team. Apologies for the confusion. We are considering changing the Ethereum 2.0 roadmap to skip Casper FFG with 1500 ETH deposits. Instead, Casper and sharding validators would be unified from the get-go in the beacon chain, and deposits would be 32 ETH. There’s more information in this ethresear.ch reply. It’s a recent and unconfirmed direction, but one we are taking seriously.”

If this situation were confirmed, the development of Casper FFG would be put on one side as it would become unnecessary due to the implementation of Sharding.

The use of a beacon chain as a unifying factor between both protocols simply seeks a kind of guidance to make transaction processing more efficient:

“We are considering merging Casper and sharding such that the Casper FFG system logic and the sharding system logic both run on the beacon chain instead of on the legacy main chain.
For validators to make 32 ETH deposits the legacy chain would have a one-way burn contract. Withdrawals of deposits and rewards would remain disabled until we ship the EVM 2.0 in the shards.”

Building the Future One Step At a Time

Also, Mr. Drake clarified that they are not talking about a joint implementation but about a progression that will soon appear on a new Roadmap:

“That’s not to say we’re launching sharding and Casper in the same release. That’s more of an implementation detail. I’m personally in support of a progressive rollout… The new roadmap should significantly accelerate the advent of full Casper because Casper FFG would run on top of a pure proof-of-stake heartbeat from the get-go. In terms of prioritisation, Casper and sharding are fairly independent endeavours so launching whichever is ready for production first makes sense to me.”

The Ethereum Team has not said anything regarding Mr. Drake’s statements; however, they did not deny them either, something they quickly do when there is some confusion.

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Testing for Ethereum's Coming Consensus Change Is Moving Ahead

A hotly anticipated change aimed at ridding ethereum of its bitcoin-inspired mining process is moving forward in testing, with the platform’s popular software clients now participating in review.

Following on an April software release that saw the idea formalized in code, the upgrade looks to transition the world’s second largest blockchain to a new way to keep those running its software in sync. However, the current iteration of the idea (called Casper FFG) actually finds ethereum’s developers proceeding with a plan that would enable both its new and old consensus algorithms to work together to protect the network from unexpected attack vectors that may arise during the transition.

Under the proposal, smart contracts will link miners that secure the network with a new set of participants called “validators.”

The code provides a way for mining to continue undisturbed by layering a smart contract on top of ethereum that allows users to bet on transaction histories in exchange for rewards. The smart contract also contains a “difficulty bomb,” which would (upon bing enacted) propel an upgrade by making mining this iteration of the code more prohibitive over time.

According to the current block times, the difficulty bomb is expected to activate in about two years, at which time the new consensus method, proof-of-stake, is expected to launch – and ethereum will relinquish its mining layer entirely.

But while much of that has been in the project’s official roadmap, what’s new is that the smart contract in question is getting tested by Parity, the second largest ethereum software client. Plus, Geth, the largest ethereum software client by users, is getting closer to launching its implementation of the code on testnet.

“All of the major clients are working on implementation,” author of the proposal Danny Ryan said.

The forward momentum will come as a relief to many in the ethereum community who are upset by the recent release of specialized crypto mining hardware that some believe will upset the platform’s distributed network of users.

And with the work going toward testing the smart contract – less than a year from when the Casper white paper was released – it seems clients are equally as interested in pushing proof-of-stake from concept to code.

Ryan told CoinDesk:

“Proof of stake has been on the roadmap since day zero. Our community is very excited to take the first step with this hybrid model and to follow it up with a full [proof-of-stake] implementation soon after.”

Critiquing the contract

And there’s reason for those backing the software to feel confident in their current approach.

For one, proponents argue releasing the code as a smart contract first reduces the complexity of the full proof-of-stake transition and creates a software-agnostic template for ethereum’s various software iterations, or clients, to build upon.

“The contract acts as a black box for much of the functionality and thus greatly reduces the complexity of the code that has to be replicated across clients,” Ryan said.

As client developers implement the spec, Ryan said, they’re likely to identify issues that can feed back into the initial code as well. Already an issue has been identified – a piece of code that could enable spam transactions.

Wei Tang, the developer leading Parity’s integration, told CoinDesk:

“The Casper research team is really open to those critiques.”

Tang added that his team has been proactively addressing problems as they come up, and said, “I think Casper research team, Geth, Parity and other implementations still need to work together to agree on and improve the specifications.”

As such, it’s a collaborative moment between Casper researchers and client developers are working together.

Ryan echoed this, saying, “Formalizing the spec in EIP 1011 really opened contributions and development up to the entire community.”

More testnets

According to Wei, Parity is using the testnet specification to test out network functionality, such as how voting happens and blocks are formed, in an effort to make sure the smart contract code behaves in conditions that mirror those of ethereum itself. Not only that, but Wei said, the testing is also about making sure the smart contract doesn’t conflict with the way ethereum clients are written.

And in these tests, Wei said, both the Parity and Geth teams have made good progress.

“I’m excited about Parity’s testnet,” Ryan told CoinDesk, “I believe they are the first client to get EIP 1011 implemented. As more clients implement, we will either have them join Parity’s net or we will coordinate a new testnet.”

Parity’s current testnet won’t be the only one, though.

“The current Parity Casper testnet is certainly not the last one,” Wei said, noting that the specification will have to be tested many times before it’s finally released to all users.

He continued:

“Casper is a relatively big change to the consensus protocol, so we need to be careful, and there are also many parameters in specifications that need to be finalized.”

Ryan said similar things about not rushing the implementation, during an ethereum core developer call on June 1.

According to Ryan, the smart contract is unlikely to be launched alongside ethereum’s upcoming hard fork, Constantinople. Rather, Ryan continued, it’s important to have all ethereum clients testing the code in a shared testing environment before such decisions can be made.

“Parity’s done some great work and there’s some ongoing work with the side team with Geth, kind of putting all the pieces together and hopefully getting a testnet with more than just Parity up in the next few weeks,” he concluded.

Welding image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Ethereum (ETH) Price Analysis: Reversal Pattern Alert!

Ethereum formed a head and shoulders pattern on its 1-hour time frame to signal that further losses are in the cards. Price looks ready to test the neckline around $650 and a break lower could confirm that a downtrend will take place.

The chart pattern spans $650 to $840 so the resulting selloff could be of the same height. However, the 100 SMA is still above the longer-term 200 SMA to suggest that the path of least resistance is to the upside. In other words, the uptrend is more likely to resume than to reverse.

RSI is pointing down to show that sellers have the upper hand. In addition, the gap between the moving averages has narrowed to signal a potential downward crossover and pickup in bearish momentum.

Ethereum has been due for a network upgrade called Casper, which moved  network away from mining-related problems, as “excessive energy consumption, issues with equal access to mining hardware, mining pool centralization, and an emerging market of ASICs.”

According to developers:

“Through the use of Ether deposits, slashing conditions, and a modified fork choice, FFG allows the underlying PoW blockchain to be finalized. As network security is greatly shifted from PoW to PoS, PoW block rewards are reduced.”

In the latest Vitalik ButerinEdcon conference this month, Ethereum creator Vitalik Buterin shared more details. Hybrid Casper is set to launch in a few months and investors may be holding out for how this turns out.

Also, CME Group launched the CME CF Ether-Dollar Reference Rate and Real Time Index in partnership with Crypto Facilities, a digital asset exchange based in the UK.

According to CME:

“The products include a spot price index called the CME CF Ether Dollar Real Time Index, known as ETH_RTI_USD, and a reference rate called the CME CF Ether Dollar Reference Rate, known as ETH_RR_USD… ETH_RTI_USD is a real time index of the US dollar price of one Ether published once per second 24 hours a day 365 days per year. This index provides real time transparency to the US dollar price of Ether. ETH_RR_USD is a daily reference rate of the US dollar price of one Ether as of 4 p.m. London time…”

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Casper v.0.1 Released – Continuing Progress for Ethereum

The first version of Ethereum’s Casper code has been released on May 8, which intends to add improvements to its blockchain network’s consensus protocol. On Github, the v.0.1 version of the Casper code has been announced by Danny Ryan, who is behind the Casper FFG [Friendly Finality Gadget].

“v0.1.0 marks us more clearly tagging releases to help clients and external auditors more easily track the contract and changes.”

Reddit Post – “More than just the research team is using the contract now — auditors, client devs, etc — so we wanted to start issuing clearer versioning and changelogs to help everyone stay organized.”

As a solution to open questions of economic finality through validators deposits and cryptocurrency economic incentives, it was first announced on Oct 2017, while at the end of the last month, the Hybrid Casper FFG as Ethereum Improvement Proposal, was declared to target the creation of a hybrid system of consensus that will attempt to keep the platform far from issues that are related to mining.

Both PoS and PoW, as introduced, will be combined to support the movement towards Proof-of-Stake. Based on the information set on the proposal, the the reward by blocks for crypto-miners will drop to 0.6 ETH from 3 ETH.

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The First Version of Ethereum's Casper Upgrade Has Been Published

A new version of the code behind Casper, a planned change to the way the ethereum network reaches consensus, has been published for wider scrutiny by auditors and client developers.

Danny Ryan, the developer behind Casper FFG, posted a version 0.1.0 “first release” of the code to GitHub Tuesday, noting, “v0.1.0 marks us more clearly tagging releases to help clients and external auditors more easily track the contract and changes.”

(Short for “Friendly Finality Gadget,” FFG is the first iteration of Casper, and will possibly be followed by others.)

Ryan followed up with a reply to a Reddit post on the update, in which he wrote:

“More than just the research team is using the contract now — auditors, client devs, etc — so we wanted to start issuing clearer versioning and changelogs to help everyone stay organized.”

The move signals that momentum is building behind the protocol change, as ethereum software clients can begin scripting the software into their individual coding languages and testing the software.

Vitalik Buterin, who created ethereum, addressed the Casper upgrade at a conference in Toronto last week, calling it “hopefully one of the more joyous experiences in ethereum in a fairly short time.”

Once implemented, Casper FFG will alter ethereum’s software so that updating the blockchain involves a combination of proof-of-work – the electricity-intensive “mining” familiar from bitcoin – and proof-of-stake. The latter employs validators to update the ledger through a voting system within which users, sometimes called stakers, put down deposits of ether, which they risk losing if they attempt to cheat.

In its initial stages, Casper will retain ethereum’s current proof-of-work protocol to do most of the heavy lifting, using proof of stake to validate “checkpoints” periodically. Because the network can only handle so many validating nodes, the minimum deposit will start off at 1,500 ether, or $1.1 million at the current exchange rate.

The plan is eventually to move to a fully proof-of-stake system and to lower the minimum stake, but there is no definite timeline for that transition at present.

For now, this first stage of Casper has to be audited, and the network cannot implement it until more code has been written for ethereum clients, the programs users download to run the cryptocurrency’s protocol. Since Casper will not be compatible with earlier versions of ethereum, the network will need to hard fork.

Ryan told a meeting of developers last month:

“As these pieces of the puzzle are getting closer to being completed, I’ll signal that it’s time to start talking about fork block numbers.

Code image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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The Economics of Ethereum's Coming Consensus Change Are Taking Shape

1,500 ether.

That’s how much cryptocurrency users will need to participate in testing ethereum‘s upcoming consensus protocol, Casper, at least according to the blockchain’s creator Vitalik Buterin. During the final day of an ethereum conference in Toronto last week, Buterin took the stage to discuss his version of the software designed to change the way those running the software reach agreement.

Called Casper FFG, the algorithm has recently seen notable progress (with the first specification arriving last month), and Buterin said at the event he expects the pace of experimentation to quicken (though no timeline for the change has been given).

Heralded as a more egalitarian form of keeping the global software in sync, proof-of-stake enables users to set aside funds whereby they act as virtual mining machines). As such, Buterin spent his time on stage outlining the protocol and how the change will alter participation in the network.

Whereas today users must buy specialized hardware, Buterin explained that participating in Casper will first require submitting a minimum of 1,500 ETH (or just over $1 million) into a smart contract. While 1,500 ETH might seem like a large sum of money, Buterin emphasized that nodes with less ether can participate in a pool, or a group of nodes that work together and split the profits.

“[Casper] will hopefully be one of the more joyous experiences in ethereum in a fairly short time,” Buterin said.

The high price is due in part to ethereum’s current scaling challenges (the consensus protocol simply cannot support more than a certain number of nodes). However, once sharding, a scaling solution that works by splitting up the blockchain into smaller chunks, is implemented, Buterin estimates this figure will be lowered to around 32 ETH ($25,856).

Still, even users with less available crypto will be able to experiment with staking on the Casper testnet, which is currently only running on a handful of nodes “soon.”

The developer said:

“You will also soon be able to stake – ‘soon’ with a trademark. So, that’s more than two weeks.”

A how-to

Elsewhere in his speech, Buterin gave a breakdown of the various steps involved in setting up a Casper validator, or a node that will participate in the ethereum proof-of-stake protocol.

For developers, Buterin explained, the Casper FFG code offers a lot of customization freedom. In the first stage of the setup, for instance, nodes have the option to introduce features like multiple keys and additional security.

For non-developers, the process of configuring Casper code may seem complicated, but Buterin said that for most users, the setup phase will be as simple as clicking a button.

He told the audience:

“The good news is … that in practice, you personally as a user probably don’t need to worry about which validation code you’re using. You as a user basically just click a button that says deposit.”

After that setup, users will then need to pick a wallet for which to receive returns, but again, Buterin said, “Your client will do all this magic for you.”

Once users have submitted the 1,500 ETH minimum, the money will be locked up into a deposit, and by running the software, rewards will be dolled out in proportion to the amount of ether at stake. Nodes will automatically vote on potential blocks, and the average user doesn’t need to worry about how this works, but just needs to keep the node online to see returns start to come in.

“From your point of view, as a regular user you just need to keep your node online, keep your node running, and your node will just do all this voting automatically,” Buterin said.

Money maker

With that node online, Buterin then detailed what returns a node could expect from staking in the network (although he stressed that the exact numbers were not final yet).

Assuming a deposit of 10 million ETH – if validators are constantly online – they will earn somewhere between 0 percent and 5 percent returns annually, Buterin said, adding, “Probably closer to five than to zero.”

But if a user’s node goes offline for the majority of the time, they’ll actually start losing some of your deposit, because the protocol begins to penalize inactive nodes. Yet, Buterin said, even if validators are only online between two-thirds and one-half of the time, they’ll still see returns.

“So, yes, it is safe to validate if you just have a laptop. Unless you’re like me and you travel 24/7 and can’t even count on your laptop being connected to the internet,” he joked.

Yet, these returns are contingent on users being good actors in the system.

With Casper’s internal “slasher” concept – that is, not simply rewarding those who perform well, but punishing those who perform badly – the protocol disincentives certain behaviors, such as the formation of large staking pools and double voting on which transaction history is correct.

If a user is caught doing these things, they can lose between 1 percent and 100 percent of their deposit, Buterin said.

Yet, this would jeopardize a significant amount of money, which to Buterin and many ethereum developers will deter bad behavior.

“Who here wants to successfully attack Casper FFG?” Buterin asked, adding:

“You can do this at the low, low price of 1.67 million ether, which I believe is somewhere north of $1 billion dollars.”

Vitalik Buterin image via CoinDesk archives 

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The Code for Ethereum's Consensus Change Is Now Ready for Review

New code written to change the way the ethereum network reaches consensus is now ready for review, developers said Friday.

Ethereum improvement proposal (EIP) 1011, known as Hybrid Casper FFG (short for “Friendly Finality Gadget”), would implement the first step in a long-planned shift away from the energy-intensive mining process and toward towards a greener method sometimes called “minting.”

Ethereum’s current consensus protocol – the way the network agrees to add a new block to the chain – is called proof-of-work and requires resources to be expended as its “proof.”

Ethereum’s creator Vitalik Buterin and other developers have discussed eventually moving to a proof-of-stake model, in which users lock ether up in special wallets and risk losing these “stakes” if they don’t follow the consensus rules. That planned transition to proof-of-stake is known as Casper.

EIP 1011, if implemented, would bea first, partial step toward the full move to Casper, introducing a hybrid system that combines proof-of-work and proof-of-stake, an approach discussed in papers unveiled last year.

Casper, while long in the making, is still controversial in some quarters – for example, a security researcher at VMware called it “fundamentally vulnerable” last month.

Yet Danny Ryan, one of EIP 1011’s authors, along with Chih-Cheng Liang, told fellow developers during a meeting Friday that the proposed code is “ready for review, community discussion, etc.”

Ryan added that development work for ethereum clients could begin soon and that he was corresponding with the formal verification engineers.

“As these pieces of the puzzle are getting closer to being completed,” he said,  “I’ll signal that it’s time to start talking about fork block numbers.”

As Ryan suggests, the change will not be compatible with existing ethereum software, meaning that the network will have to undergo a hard fork to be implemented. That said, there’s still some way to go before that happens.

“In terms of testing … I don’t know when exactly that happens,” Ryan continued, adding that he would “leave the EIP up for discussion a little bit longer before we start doing testing on that side.”

Code image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.