If you invest in cryptocurrencies, you’re probably aware that there will be major changes to Ethereum. What’s driving them though? In order to understand what’s driving the changes to Ethereum, you need to understand Casper.
So, What Is Casper?
In short, Casper is the latest update to the Ethereum network. However, there are two parts to the project of updating Ethereum, but the most important one is the Friendly Finality Gadget update. This update will help to make the cryptocurrency more secure, and it will add proof of stake consensus to Ethereum.
What Is The Difference Between Proof of Stake and Proof of Work?
In order to understand how Casper will affect Ethereum, you need to understand the difference between proof of stake and proof of work in cryptocurrencies.
Proof of Work:
Proof of work has been used by Ethereum, and it’s considered to be less effective than proof of stake. The equations that are used to create the blockchain are solved by miners, and this requires a large amount of computational power. This adds a block to the blockchain, and the equations are quite challenging to solve. However, there are quite a few problems with a proof of work system:
The process is highly inefficient, and it requires a large amount of effort.
While there are substantial rewards for mining, the fact that a large amount of computing power is needed means that only people with substantial financial resources are able to profit significantly from mining.
Due to the fact that only a small number of people are able to afford the start-up costs associated with mining cryptocurrencies, this makes proof of work systems much less decentralized than they would be otherwise.
Proof of Stake:
Proof of stake is considered to be more secure and overall a better system than proof of work, and it will be used by Etherem in the near future. Proof of stake replaces cryptocurrency miners with validators, and this means that the validators lock a set number of coins to create stake.
Then, they begin solving the equations that will be used to validate blocks, and they place bets on blocks that they feel can be added to the chain. After a block is approved, validators will get a reward. This system will effectively eliminate the problems that are associated with proof of work systems
However, proof of stake systems are essentially a new concept, and it’s possible that there could be some surprises with the implementation of it. It’s also likely that there will be quite a bit of testing, planning, and changes before Casper is effectively implemented. Although, this change is likely to be very positive for investors.
How Will Casper Improve Security?
If a proof of work system is used, there is the risk that large cryptocurrency mining operations could begin to team together. This could effectively make the cryptocurrency centralized, and then the cryptocurrency could be controlled by these organizations. However, this could never happen with a proof of stake system.
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