The economics of ethereum’s coming consensus change are taking shape


According to Ethereum blockchain creator, Vitalik Buterin, users will need 1,500 ether to participate in testing ethereum’s upcoming consensus protocol called Casper. Buterin took to stage during the last day of an ethereum conference in Toronto last week, to discuss his version of the software created to improve the way those running the software establish an agreement.

The algorithm called Casper FFG has recently witnessed notable progress (with the first specification appearing in April), and Buterin announced at the conference he expects the speed of experimentation to accelerate (though no specific timeline has been given for the change).

Proof-of-stake deemed as an equal form of keeping the global software in sync, lets users set aside funds whereby they serve as virtual mining devices. Therefore, Buterin took time to outline the protocol on stage, explaining how the change will affect participation in the Ethereum Network.

Whereas today users must purchase specialized hardware, Buterin explained that the main requirement for participating in Casper would be to put a minimum of 1,500 ETH into a smart contract.

While 1,500 ETH might look like a huge sum of money, Buterin affirmed that nodes with limited ether can partake in a pool or a group of nodes that act together and share the profits.

The high price is partly as a result of ethereum’s current scaling challenges, as the consensus protocol can only support a certain number of nodes. Nevertheless, after implementation of sharding, a scaling solution that operates by splitting up the blockchain into smaller pieces, Buterin estimates this figure will be reduced to around 32 ETH.

However, users with less available ether will be able to explore with staking on the testnet version of Casper, which is currently only working on a few nodes.

How it works

Buterin, elsewhere in his address, gave an analysis of the several steps involved in creating a Casper validator, or a node that will take part in the proof-of-stake protocol of ethereum.

For developers, Buterin emphasized, the Casper FFG code gives much customization freedom. For instance, in the first stage of the setup, nodes have the option to introduce functionalities like additional security and multiple keys.

The method of configuring Casper code may seem quite complicated for non-developers, but Buterin stated that for most users, the setup stage would be as simple as clicking one button.

He said: “The good news is … that in practice, you as a user probably don’t need to worry about which validation code you’re using. You as a user just have to click a deposit button.”

After that setup, users will then be required to choose a wallet for which to get profits, but again, Buterin said, “Your customer will do all this magic on your behalf.”

After users have tendered the a minimum of 1,500 ether, the funds will be secured into a deposit, and via the software, profits will be handed out in according to the amount of ether given. Nodes will automatically vote on likely blocks, and the user doesn’t need to bother about how this works, but only needs to keep the node online to see profits start to pour in.

How it will generate profit

With the node online, Buterin then revealed what profits a node could expect from investing in the network (although he insisted that the numbers are not precise).

If a user’s validators are constantly online, a deposit of 10 million ETH will attract a profit in the range of 0 percent to 5 percent annually, and according to Buterin is “Likely to be near five than to zero.”

But if a user’s node goes offline most of the time, they’ll start losing some of their funds, because the protocol starts to penalize nodes that are not active. However, Buterin said, even if validators are only online within two-thirds and half of the time, they’ll still make profits.

Still, these profits are conditional on users being good actors in the network.

With Casper’s original “slasher” notion – that is, not merely rewarding those who do well, but doling out punishments to those who perform poorly – the protocol does not encourage some behaviors, like double voting on which transaction history is correct, and the formation of large staking pools.

According to Buterin, a user can lose between 1 percent and 100 percent of their deposit if they are caught doing these things.

However, this would imperil a significant amount of funds, which to Buterin and several ethereum developers will prevent bad behavior.

Jacob Lucas

Jacob Lucas

Jacob has been active in the cryptocurrency markets since 2010, specializing in Bitcoin. He received education as Certified public accountant, specializing in taxes and cost management. Looking for alternative sources of income due to some personal struggles Jacob discovered Bitcoin 2010, showing some commitment and first to learn and get all the basics. Jacob made his fists investment in bitcoin in 2011 and has been successful in the field. Writing in the field is part of Jacob’s commitment to share knowledge with others.