[Ethereum] delegated proof of stake and why is it not suitable for Ethereum

The fundamental flaw of Proof of Work (PoW) is that the costs of attacking the system are equal to what is spent to run the system. High security thus can only be achieved at high operating costs. The idea is that the honest participants just outspend the dishonest.

This is already today highly inefficient, but it does work for Bitcoin. As soon as the block subsidiary starts reaching zero, the ratio between the Market Capitalization and the costs of attacking Bitcoin becomes critical. Details are presented here.

Why Proof of Stake?

• Costs

Proof of Stake (PoS) promises to solve this problem. An honest validator is expected to have very low costs, compared to the costs an attacker would incur.

• Less Censorship

Another problem Casper tries to solve is to disincentivize censorship. The PoW schema of Bitcoin is, more or less, a zero sum game. This means, if a miner loses a block (it does not get included in the main chain/ it gets censored), all other miners benefit from their loss. PoS for Ethereum will not be a zero sum game but instead a coordination game, where the rewards for everyone are highest, if every participant can include their blocks.

• Scalability

Finally some scalability problems can be addressed more easily with PoS.

A basic answer is that Casper was not ready (and Proof of Stake theory back then was lacking maturity).

Vlad Zamfir has some posts on his Medium about The History of Casper, starting with Chapter 1.

2 commonly cited problems with Proof of Stake are:

1. nothing-at-stake
2. long-range attack

Chapter 2 concluded with the status on these problems and the path forward:

With the nails in the nothing-at-stake and long-range attack coffins completely hammered in, we were ready to start choosing our slashing conditions.

The next chapter will document what we learned from our first struggles to define a consensus protocol by specifying slashing conditions. I’ll also tell you about what we learned from talking with fine people from our space about our research. The game theory and economic modelling story presented here will continue developing in Chapter 4.