Ethereum’s Casper: Ghostbusting Proof of Stake Problems

Every complex society has many cases where a big number of players need to reach consensus. The main advantage of such a society is that people can agree and act together on different issues, and can solve more and bigger problems than individuals can do alone.

Society is based on consensus. Trade, diplomacy, finances — they all have this prerequisite of consensus. This has created a need for different mechanisms of governance to reach consensus. And with it, often, comes a lot of abuse, manipulations and rogue players.

To prevent different manipulations, we’ve had centralized institutions that gave us efficiency in reaching consensus and making decisions. The necessary tradeoff between democracy and efficiency is well known among the students of different modes of government.

While different levels and models of centralized decision-making have lead us to sophisticated, functioning society, it has also lead to accumulation of power and resources in the hands of the few. In modern days, things like the Internet and cryptography have given us power to explore new models of reaching consensus.

Blockchain is one of the modern inventions that’s supposed to enable us to reach consensus without centralization and trusted parties. It is, in its many incarnations, still in its baby stages, but we can safely say that if it delivers on just a part of its promises, it will help us have a more efficient society without the tradeoffs.

Byzantine Fault Tolerance

When we start designing (or imagining) decentralized institutions, decentralized organizations, we can reduce (in programmers’ terms) all the related logic and data structures down to voting and a ledger of decisions/votes.

The ideal of decentralization involves applications that are robust and have no single point of failure. No central authority, and yet, we should be able to guarantee the integrity of the ledger. For example, we need to know that our bank accounts, or vote results, or some online text, or the content of some online conversation, or some digital identity have not been tampered with.

Without central, trusted players, this can be hard.

In a decentralized, untrusted environment, we need to provide for cases of rogue players, who will try to manipulate the consensus. To simplify: everyone needs to have a vote, but no one should be able to cheat the system using their voting right.

When a decentralized system — which consists of untrusted parties — is able to function when there are treacherous parties in its midst, we say it has Byzantine fault tolerance.

In cases of creating a decentralized financial system, or critical decision-making systems, incentives for cheating the system are huge, so these systems need to be bulletproof.

Cryptocurrency solutions of the recent years have addressed the “Byzantine generals problem” by various consensus mechanisms, combining cryptography and various game theory strategies.

Consensus Mechanisms

In blockchain applications – and more narrowly, cryptocurrencies — different consensus mechanisms are, really, ways to solve the “rogue players” problem of trustless systems we outlined above — the Byzantine generals problem. These algorithms are different ways to deter the players from cheating the system. These players are usually known as nodes — computer systems with instances of the blockchain, or which validate new transactions and mine new blocks.

Consensus mechanisms are devised to make it non-lucrative, or not worth the effort, to cheat the system.

Read more about these mechanisms in this post.

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