For those unfamiliar with blockchain platform Ethereum, it currently runs on Proof of Work (PoW) consensus. The result is a lot of hardware and electricity is needed to confirm a transaction through a process called “mining”, or searching for the next block on the chain (hence “blockchain.”) Many are still unaware of the future of Ethereum, Casper, the friendly ghost.

No that’s not what it is, Casper is the new consensus strategy that Ethereum will run on once it is implemented. Casper uses the Proof of Stake (PoS) algorithm, which requires much less computational power to find the correct block. Proof of Stake differs in a way that nodes place a stake, similar to a security deposit to validate transactions. If they bet with the consensus they are likely to be rewarded, while betting against the consensus can result in a loss. The amount of influence that any given coin holder has is proportional to the amount of coins they hold (stake).

Scaling Issues

Now after all that, you may ask why is Casper so important? Well, currently the Ethereum network can handle 10 to 20 transactions (txns) a second, which means the network can get bogged down quite easily, especially when an Initial Coin Offering (ICO) is going on. Anyone who was trying to send Ether during Bancor’s ICO back in June noticed that lots of transactions were not getting through due to the sheer volume of people trying to send Ether for the ICO.

Vitalik Buterin (Co-founder of Ethereum) has spoken about how the network needs improvement. Here is a quote from him:

“the applications are there…all are on backburner now precisely because scalability is not there. I personally have cut down evangelism precisely because I see that the main bottleneck is now not interest, but tech.”

Switching to Casper will allow Ethereum to scale in order to handle the network usage we’ve seen in recent months and in the future. This scaling will affect gas prices, which go up and down depending on network usage and how much the validators can handle. Gas is the little amount of Ether you use to pay the validators to verify your transaction.

Ethereum Transactions from July 2015 to September 2017 courtesy of Etherscan

Casper is vital for Ethereum if it wants to become the Microsoft Operating System of blockchain. As you can see above, Ethereum transactions have gone up exponentially this year. The most transactions sent in a day was 496,376 on September, 6th, 2017. In order for Ethereum to fulfill its role as the backbone network for decentralized applications (Dapps), it will have to scale to handle thousands of transactions a second.

Just this past week, Buterin came out and said that Ethereum will scale to handle as many transactions as Visa over the next few years. Visa can handle roughly 50,000 transactions a second. Buterin has been asked numerous times by press and media a like for a deadline for the switch over to Casper, his response is, “I prefer to give no timeline.” Though recently he put on social media that the end of 2017 is the goal to implement Casper.

Upcoming Hard Fork

Before Casper can be implemented, there will be a change from the old network to the new network, Metropolis, which will mean there will be a hard fork in the near future. It will prepare the network to be ready for the switch to Casper. The first stage of the hard fork was rolled out Monday, September 18th. This first step is known as the Byzantine hard fork. Successful implementation of the Byzantine hard fork will allow for the second phase of the hard fork to roll out, completing the integration of Metropolis.

The switch from PoW to PoS will not be right away, but instead a hybrid of PoW and PoS as stated in the Casper Basics paper on Github. PoW will be used to validate blocks, while every 100th block, PoS will be used as a “checkpoint”.  In the event of an attack, Casper prevents attackers from finalizing the “checkpoint”.

Casper Basics also goes on to discuss how Casper protects against a 51% attack. A 51% attack is where a miner or pool of miners control a majority of the computing power and use it to their advantage to double spend or block transactions. Buterin discusses how Casper mitigates this problem by punishing attackers and taking their stake away.

It is worth noting that this is not the only version of Casper, The Ethereum Foundation’s Vlad Zamfir is working on his iteration. He has said the paper will be released prior to Devcon, The Ethereum Foundation conference in November. Vlad shared his thoughts on his way forward versus Vitalik’s:

“Vitalik is more driven to implement something soon, whereas I’m more driven to search for theoretically optimal solutions even if it means some delays.”

Metropolis is said to be finished this fall. The completion of the fork will allow for Dapps to be commercialized and utilized to their full potential in the Ethereum ecosystem.

Ethereum isn’t the only coin that’s faced scaling issues, Bitcoin has been dealing with scaling issues for a while, which led to the hard fork back on August 1st. Scalability is something every coin will have to face as networks grow and the adoption of cryptocurrency continues.Opinions expressed here by Contributors are their own.

Brett Kotas

Brett Kotas is a Blockchain & Cryptocurrency enthusiast, investor, and adviser. He currently is finishing up his finance degree at the University of South Carolina. Outside of that he is working on a few projects in the cryptocurrency field and runs his own blog on Steemit (steemit.com/@investoranalysis), which is a new blockchain based platform that is like a hybrid of Reddit, Twitter and Facebook. His overall goal is to help people learn about cryptocurrency and blockchain, and the effects they will have economically and socially in the future.