The founder of Ethereum, Vitalik Buterin, has released some details of drastic changes which will be implemented to the Ethereum protocol known as Casper. Ethereum will switch from proof-of-work (PoW) to proof-of-stake (PoS), which is an algorithm that has been successfully implemented by many different cryptocurrencies and uses almost no electricity at all.
As Bitcoin has gained popularity and expanded globally, the amount of electricity PoW mining uses has become tremendous. As of this writing, Bitcoin uses 65 TWh of electricity annually, the same amount of electricity used by the entire Czech Republic per year, and the electricity consumption of Bitcoin mining is rapidly increasing. An enormous amount of fossil fuels are burned each year to fuel Bitcoin mining, releasing vast amounts of pollutants into the environment. Some 32,070 kilotons of carbon dioxide, the primary gas which is causing global warming, is released each year due to Bitcoin mining.
With PoS, users leave coins in their wallet and “stake” them. They find a block which they think will be added to the blockchain and place a bet on it, and if this block does indeed get added to the blockchain they get a reward proportional to the amount of coins they bet relative to everyone else, from the transaction fees in the block.
A minimum of ETH 1,500 will be required to participate in staking, valued currently at over USD 1 million. This large minimum is because Ethereum can only handle a small number of nodes due to its scalability problems. This will result in the formation of Ethereum staking pools where users can join together to achieve the minimum necessary for staking. Once Ethereum implements sharding, where the blockchain is broken up into smaller chunks, the minimum to participate in PoS might drop to as little as ETH 32, which is USD 25,000.
Ethereum will be unique from other PoS cryptocurrencies in that it will punish stakeholders for bad behavior. If a stakeholder tries to validate blocks on the wrong chain in an attempt to cause a fork they will lose all the coins they are staking. If a stakeholder amasses too many coins in an attempt to attack the network they would need millions of Ether worth over USD 1 billion in a single wallet, and the network would recognize this and start to slash coins from the balance.
Also, to ensure network consistency and security, stakers who go offline will be punished by having some Ethereum slashed from their balance. This means anyone who participates in Ethereum staking will have to be very careful to stay online round the clock.
Initially, when the PoS changes are implemented, PoW will continue, and only every 50th block will PoS be used to validate the block. Eventually, Ethereum will become full PoS. The founder of Ethereum is confident this change of protocol will be one of the most anticipated experiences in Ethereum history, and will make Ethereum much more eco-friendly.
Ethereum is the second most valuable cryptocurrency according to market cap, with a price per coin near USD 750 as of this writing. Considering the huge amount of money tied up in Ethereum, any changes to its protocol are big news for the cryptocurrency world.
Currently, Ethereum uses the proof of work (PoW) mining algorithm like Bitcoin, where computers cryptographically hash transactions into blocks and add them to the blockchain, a process which secures and maintains the network.