As a hybrid proof-of-stake (PoS)/proof-of-work (PoW) algorithm, Casper v1 is going to decrease (and eventually end) the profitability for Ethereum miners.
The release date is estimated to be sometime in 2018 as part of the Constantinople hard fork and there’s a lot to learn before this happens:
- What is Casper?
- What is the “difficulty time bomb”?
- How does this affect miners?
What is Casper?
Casper is a PoS algorithm that’s projected to be released on the Ethereum network sometime in 2018. Beginning as a hybrid with the current PoW algorithm, the first version of Casper will only use a PoS consensus to validate every 100th block, called “checkpoints”.
Once a checkpoint is validated, there’s no way to go back and use a chain without it. Even if 99% of miners support a chain that doesn’t include a checkpoint block, all clients in the network will still continue to use the one with the checkpoints. This removes a lot of the power that miners currently have.
The Ethereum community hypothesizes that the switch to PoS will help with the scaling issues that the network is currently facing. The algorithm should enable new blocks to be created more quickly while allowing the network to scale more efficiently through sharding. Sharding is a horizontal partitioning of a large database into smaller and more easily managed parts.
Beyond that, PoS algorithms also use less energy to run the network, reduce centralization, and make 51% attacks more difficult.
What is the “difficulty time bomb”?
With the upcoming hard fork, there could potentially be three forks of Ethereum:
- Ethereum PoS
- Ethereum PoW
- Ethereum Classic
And, if you’re a miner, you may be thinking, “No big deal, I’ll just continue to mine and give support to the Ethereum PoW fork.”
Not so fast.
The Ethereum developers have stated that they’ll be releasing what they call the “difficulty time bomb” on the PoW chain shortly after Casper is implemented. To put it simply, the difficulty time bomb increases the mining difficulty exponentially until the chain becomes impossible to mine – an event called the “Ethereum Ice Age”.
Implementation of this strategy should prevent the creation of a third fork as support for the original PoW fork will just shift to the new PoS fork. The time bomb was originally planned to go off at the end of 2017 but has been pushed back by a year and a half. Right now, there’s not an exact estimate of when it’ll be released.
How does this affect miners?
If you’re a miner, you may want to start looking for more profitable coins to mine. Even though a complete shift to a PoS algorithm is still a year or two away, it’s clear that the Ethereum community is almost unanimous in this decision.
Never Miss Another Opportunity! Get hand selected news & info from our Crypto Experts so you can make educated, informed decisions that directly affect your crypto profits. Subscribe to CoinCentral free newsletter now.