What happens when Ethereum will switch to Proof of Stake (PoS)?

What happens with Ethereum (ETH), when the acne Buterin will transfer the platform to the new Protocol? Can I create Ethereum after the transition to PoS? What are the theoretical pros and cons of the transition? In this paper, we analyze the specific details of some promising and innovative PoS systems that have tried to create, as well as the last sentence Ethereum aimed at solving many network problems, such as excessive absorption of energy by the algorithm PoW (Proof of Work) and the availability of ASIC miners Ethereum.

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What will happen to the Air after moving to Casper?

Before delving into the features of Proof of Stake ("the proof of share ownership", or just PoS), it is important to clarify why anyone would use such a system consensus. In fact, the PoS allows you to create a data structure with the following properties:

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No One controls the content data (a distributed storage and validation of data is not enough); the

• Database will be able to develop ("Liveliness", in the terminology of Casper);
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• Participants will be able to agree on the contents of the data because the node (nodes) will be the mechanism of choice between the conflicting chains confirm ("Security", in the terminology of Casper).

Consensus PoW, Proof of Work ("proof of work"), uses the most precise rule for choosing between competing chains confirm (fork choice rule, the "rule of choice" branch). It is not only obvious solution for the above three criteria — the PoW mechanism in itself also solves the problem of the production unit and the time of its creation. Despite the fact that accumulated work determines the choice of the chain, the manufacturer of the unit must also include the PoW element in each block (a stochastic process), and therefore the question of who produces each unit is made and when each block is solved in PoW.

PoS is a General concept of the choice of the branching of the chain based on the accumulated share of ownership (that is, chains for which voted more coins which bet the overwhelming number of them). But unlike PoW, this algorithm will not necessarily solve the issue of who produces each unit or when these blocks are produced. These problems will have to solve other mechanisms. PoW solves the problem of distribution of the coins, and to the system based on the PoS for this, probably also need to add more solution.

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What is PoS? The Byzantine generals problem

The Byzantine generals Problem illustrates some of the main problems associated with the attempt to create a data structure with the aforementioned properties. In fact, it is the problem of choice of time and determine what changes in the registry occurred first. However, if a third or more of the actors will rebel, the problem will be intractable from a mathematical point of view, as Leslie Lemport proved in 1982.

"it is Proved that using only oral messages, to reach an agreement only if two thirds of the generals are loyal; so a single traitor can confuse two loyal generals."

PoW, therefore, can be regarded as a flawed Protocol that will be strong Byzantine fault-tolerant system, but definitely not reliable mathematically. In this context, speaking of non-ideal systems, PoS alternatives, such as PoW will also have its drawbacks.

In PoS there are two competing schools of thought. One of them came out of the PoW. Coins based on it include Peercoin, Blackcoin and the first iteration of proposals from PoS Ethereum. The second school of thought largely based on academic research of Lemport 1980-ies and welcomed the conclusion to which he came Lemport: to create a fault-tolerant Byzantine system you need a majority of two thirds. The current iteration of the proposal from Casper Ethereum takes just did the second option.

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the benefits of Proof of Stake

PoS is usually considered in the context of the PoW as an alternative, which solves or alleviates a number of negative consequences of the problems inherent in systems based on PoW:

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More eco-friendly system

Perhaps the most powerful advantage of a PoS system is the absence of energy-intensive process that supports PoW. If the PoS system will be able to achieve the same valuable features as the PoW system, the environmental damage can be attributed. This is an important positive point for PoS, although the problem is probably exaggerated: to maintain the same Bitcoin often find that they are often renewable or even take away the excess energy, which is still impossible to properly store, don't have methods.

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Strong alignment of incentives

Another problem with PoW is that the interests of the miners may differ from the interests of the holders of the coins, as miners can survive on short-term return on investment and sell your coins as fast as possible, without thinking about the price increase. Another problem is that hash rate you can rent, and the tenant will have no economic interest in the long-term prospects of the system. PoS is directly connected agents, a consensus with the investment in a coin, theoretically aligning the interests between investors and parties to the agreement.

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the Centralization of mining, and ASIC

Another benefit of PoS systems is that they can improve decentralization. PoW mining includes a number of centralized forces, which are impossible in PoS:

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• Production of ASIC miners are expensive and centralized (Bitmain has a huge market share).
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• Production of expensive and centralized chip (TSMC, Intel, Samsung, SMIC, they cannot compete).
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• Associated with ASIC technology can be patented.
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• source of cheap energy may not be so much.

Many aspects of mining are a scalable economy, for example, the cost of maintenance and electricity costs, leading to centralization.

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General economic weakness Proof of Stake

Incomplete solution

As we have seen, systems PoW can kill four birds with one stone:

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• Choose the chain (choice branches);
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• the Distribution of coins;
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• Who makes the block, and
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• is a block.

PoS, on the other hand, can be a decision only to select a chain, leaving other problems unresolved.

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is“Unfair” economic model

One of the frequent topics of criticism of PoS systems is that they distribute new funds in proportion to existing savings. Consequently, "money make money", the rich get richer and all of this translates into the fact that a few rich users have greater riches than it would be in an egalitarian system PoW. If someone invests in the PoS system at the start, he will be able to maintain their share of the wealth, and PoW-your wealth is eroded, because the new rewards go to miners. When handing out rewards in proportion to existing savings, you can assume that it is not inflation, but the reward will be economically equivalent to adding zeros to the currency. Consequently, the reward system will be meaningless and will not create any incentives. However, this will be true only if all users will be PoS-validators, whereas in reality some will want to use the funds for other purposes.

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Risk of loss

Another problem is that stacking (that is, in fact, the possession of shares) requires the signature of the message using the systems connected to the Internet. Consequently, stacking will require storage in a “hot wallet” that increases the risk of theft of funds forces hackers. However, this can be mitigated if the “show” private key share for a short time and return the entire balance back to the owner. However, hackers can bypass this mitigation. Another possible mitigation strategy might be to create special equipment for staking.

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Technical weaknesses PoS

"Nothing at stake"

The basis of the consensus problem is the timing and order of transactions. If two blocks are born at the same time, PoW solves this problem through a random process, allowing the units to compete among themselves. What will build the longest chain is the winner. PoW requires energy in the real world is very limited, so the miners have to decide what chain to use this resource.

In the PoS system, this process, in contrast, is not clearly clarified. If two blocks are produced simultaneously, each conflicting block can form a proportion. In the end, one unit will have a greater share than another, will be the winner. The problem is that if the owners of a share can change your selection and return to the winner because the system is assembled on one circuit, why not use its share in the many chains?

In the end, share is a resource inherent in the circuit and is not connected with the real world, so the same proportion or rate can be used on two conflicting chains. Is born the problem of "nothing at stake", which is considered one of the most serious for Proof of Stake.

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the Problem of "nothing at stake" (Nothing at Stake)

The Problem of "nothing at stake" adds to the community system, since the same rate can be applied to multiple competing chains, creating a risk of increase in rewards for owners. In contrast, in a PoW-systems, energy is a finite resource of the real world, and "the same" operation cannot be applied to a variety of competing chains.

Protection #1

The Problem can be avoided or mitigated. Protocol can be configured so that if a shareholder put it on a few circuits, the third party may provide evidence that each of the circuits, which will lead to punishment-the confiscation. Alternatively, instead of punishment, the fraudster can lose...