Ethereum currently uses the same Proof of Work (POW) algorithm as Bitcoin to confirm transactions on the blockchain. The block reward for Ethereum is 3 ETH compared with Bitcoin’s 12.5 BTC, but POW systems use a vast amount of electricity.
The cost of electricity varies widely across the world from 2c / KWH for hydro-electric power in countries such as Iceland and China to over 20c / KWH for conventional power generating systems in many countries. This means that miners receiving block rewards where electricity costs are relatively cheap have a significant financial advantage, and ultimately this leaves the network vulnerable to a 51% attack.
To combat this, Ethereum has been working on a hybrid system which takes the benefit of both POW and POS systems. Vitalik Buterin and Virgil Griffith authored Casper the Friendly Finality Gadget towards the end of 2017, and they plan to move to a full POS system at some later date. The Finality element of Casper relates to the assurance that a block is final and that no conflicting block exists, which gives participants economic assurance that the blockchain can be trusted. Casper will use POS consensus to finalize at 50 block intervals with two-thirds of the network voting on the validity of the network.
Updates for stage 1 of Casper, the hybrid phase, were published on the Ethereum GitHub in April 2018. The announcement states “Ethereum will transition from pure proof of work to hybrid PoW/PoS. In this scheme, all of the proof of work mechanics will continue to exist albeit with a reduced block reward (0.6 ETH), but additional proof of stake mechanisms will be added. In particular, the fork choice rule (i.e., the way that a client determines which chain is “the canonical chain”) will be modified to take these mechanics into account.”
The reduction from the existing block reward of 3 ETH down to 0.6 ETH is a significant change, and the Ethereum community will be eagerly awaiting the proposed timetable for stage 1 of Casper. With the additional news of Bitmain releasing an Ethereum ASIC miner, it could be that the community pushes for Casper to be introduced sooner rather than later. It should be noted that the hybrid POW / POS system is only intended to be an interim stage with the final goal being full POS consensus.
Financial analyst, smartphone app designer, technical writer, and crypto enthusiast. Blockchain verified graduate of MOOC 9, DFIN-511: Introduction to Digital Currencies, run by the University of Nicosia.