Will Proof-of-Stake Put an End to Ethereum Mining?

Date:

June 27, 2018

Will Proof-of-Stake Put an End to Ethereum Mining

Nearly a year ago the Ethereum community learned about Casper. The first version of the new algorithm brings upon fundamental changes the Ethereum mining is performed. The new method Proof-of-Stake will be added as a hybrid to Proof-of-Work. Many members of the mining community worry that this measure would result in smaller mining profits and may even undermine the whole Ethereum network. This could disrupt the platform in the way it is able to provide users with the ability to utilize “decentralized applications” (DApps) on top of their underlying networks to get functionality to work.

The upgrade to Casper is expected to happen by the end of 2018 as part of a hard fork (complete system upgrade), so it’s a good time to understand more about what is Casper, and how does this affect miners.

The mining world becomes less democratic as it used to be. To mine nearly all most widely used cryptocurrencies today the Proof-of-Work algorithm is used. It ensures that miners are earning their rewards for providing their services. Lately, the PoW started to make the network slower and more expensive since it consumed more electricity required by units to find the solution to the puzzles.

A PoS algorithm introduces the concept of validators. The whole start to look more like gambling rather than a lottery today. Validators will place stakes with their coins. When they discover a block, they place bets and get rewards after the block has been validated. Those who placed bets and validated the data were paid proportionally on to the amount they bet, just like in a casino. Each hundredth blocks will be validated by a “checkpoint” which becomes irreversible. Even if a miner doesn’t want to create a checkpoint, the whole Ethereum platform will still rely on the ledger with checkpoints.

In theory, the move to PoS algorithm may if not eliminate, then significantly diminish scaling difficulty. Generation of new blocks becomes easier thanks to the use of sharding method — splitting the distributed ledger into more flexible clusters — will allow the network to expand without requiring too many resources. Decentralized clusters will be less susceptible to attacks — some believe that the network is going to be up to 50 percent more resilient.

After the Casper is implemented, miners will have to decide which ledger to support. While it’s entirely up to a participant to decide which coin to continue to mine according to PoW, Casper developers came up with a smart way to encourage miners to adopt PoS. This is called “time bomb.”

The difficulty time bomb makes the mining process more and more complex, which as a result would require exponentially higher resources. At the end the old chain will become so difficult to mine, participants will quit. Welcome to “Ethereum Ice Age.” This would add even more reasons for miners to feel insecure since the block reward will be reduced from 5 ETH to 3 ETH. Some participants may move to another coin such as Monero or stay true to Ethereum Classic.

Proof-of-Stake principle had to become operational in 2017, however, the launch was delayed. And if so will it bring more scrutiny and volatility than stability on the digital currency? Like any new disruptive innovation, Ethereum has a fiercely loyal core group of supporters and followers who are passionate about the idea. They are the ones who take it forward and spread the idea and take it to the next level. Ethereum has plenty of enthusiasts who are excited about the idea of Casper and the same amount who hate it, so we can only wait and see how it can shape the future of cryptocurrencies. This means that if you’re looking at the next level of “crypto” growth, it’s almost certainly going to come from the various platforms you’re able to identify out there.