Before we discuss the fundamentals that comprise proof-of-stake blockchains, let’s review proof-of-work, for context. Satoshi’s white paper in 2009 established a groundbreaking method for incentivizing a distributed network of computers to securely store peer-to-peer exchanges of authentic, unforgable value, for cryptocurrency rewards (Bitcoin). This proof-of-work concept ensures the uniqueness of each Bitcoin and the immutable ledger guarantees that no Bitcoin can ever be double-spent—a monumental advancement in digital currency.
In proof-of-work, cryptocurrency rewards are disbursed to miners for performing complex computational calculations that verify transactions on a blockchain. Those verified transactions are then stored publicly, which sustains immutability of the blockchain. Bitcoin is the original (and most notable) proof-of-work blockchain in the world.
As with every breakthrough, possibilities for improvement come to light. Some of the perceivable downsides inherent to proof-of-work include:
- Energy costs: Peripheral computer hardware is required to solve the cryptographic puzzles that mine tokens in proof-of-work blockchains. The hardware itself, along with subsequent energy consumption, is costly.
- 51% attack: Overthrowing a blockchain network the size of Bitcoin would take nation-state level finance and operational organization. However, for smaller proof-of-work networks, bad actors may destroy the sanctity of a network by controlling 51% of it and skewing the ledger via false consensus. This can be accomplished in an undetected manner, posing an existential threat to optimal blockchain security.
Proof-of-stake is a solution devised to incentivize transaction validation and storage processes by requiring a security deposit (stake) and rewarding authentic verification consensus, rather than rewarding miners for solving cryptographic puzzles. These are some goals proof-of-stake aims to achieve:
- Cost-effectiveness: Proof-of-stake requires token staking for maintaining the blockchain instead of computational contribution, which reduces the residual spatial, hardware, and energy costs involved with running a successful mining operation.
- Validator honesty: Security deposits act as collateral in proof-of-stake. This strongly incentivizes honest behavior, which facilitates the integrity of the network.
- Self-interest based cooperation: A 51% attack may occur, but it no longer threatens the network the same way as in proof-of-work. A bad actor must acquire 51% of the tokens in order to attack a proof-of-stake network, and thus suffer the consequences upon successfully destroying the value of that asset.
- Protocol: The ability to programmatically collect evidence about validators in order to detect cheating and enforce rules on a blockchain is a major strength when deploying a proof-of-stake network.
Casper Consensus Protocol
Vlad Zamfir’s Casper consensus protocol carefully defines malicious behaviors and financially punishes them by slashing (removing) required security deposits.
Utilizing Casper for a proof-of-stake blockchain ensures Byzantine Fault Tolerance (BFT), which means the blockchain maintains consensus even in the midst of attacks, or “Byzantine faults.” This has been derived from a mathematics paper titled “The Byzantine Generals Problem” published in 1982 by computer scientist Leslie Lamport, along with colleagues Robert Shostak, and Marshall Pease.
Here are examples of Byzantine Fault behaviors defined by Casper:
- Equivocation: When the same sender executes multiple messages in order to pursue financial gain from multiple transaction chains, rather than executing the protocol in a singular manner to transition between states, this is considered fraudulent behavior that can cause consensus failure.
- Casper protocol detects equivocation by tracking down message pairs from the same sender that were executed independently and counts it toward the Byzantine fault threshold.
- Cartel Formation: In any market with value at stake, oligopolies should be expected to form. It’s much easier for a small group of wealthy investors to collude than it is for a large group of smaller investors. This poses major risks to the fair distribution of validation rewards.
- At this point, Casper is the only protocol that explicitly addresses cartel formation by using censorship-resistant incentives to deter cartels from unjustly censoring others for control of the network for themselves.
Vlad Zamfir’s continued efforts for the Ethereum Research Foundation help drive the transition towards a hybrid proof-of-work/proof-of-stake incentive implementation dubbed, “Casper the Friendly Finality Gadget.” In 2017, after building a relationship with Greg Meredith in the mathematics field, Vlad joined the RChain Cooperative as a board member. Since RChain is still building its blockchain infrastructure, the plan is to launch a purely proof-of-stake blockchain on main net from day one. This is an exciting differentiation from RChain’s primary predecessor, Ethereum. Validators and validator pools on the RChain network will stake REV and receive Phlogiston (think “Gas” on the Ethereum blockchain) as network validation reward.