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Will Casper and Ethereum 2.0 increase the market value of ETH?

Analyze Ethereum 2.0 to Explore The Future of Consensus Algorithm

By Connor_LC | Poporo | 14 Apr 2020


Will Casper and Ethereum 2.0 increase the market value of ETH?

The introduction of Casper

According to the current development plan of Ethereum, at the moment when version 2.0 is released, the consensus algorithm will be switched from POW to POS which is the Casper algorithm.

Casper is similar to the POS algorithm used by many new generation public chains, allowing miners to mortgage a certain amount of ETH and wait for a certain period of time to participate in generating blocks. However, if a validator acts in a malicious manner, they will immediately be reprimanded, and all of their stake is going to get slashed.

casper-poporo

This idea is mainly to solve some problems of the previous POS algorithm, such as nothing at stake. Before the Slash mechanism published, POS miners may continue to try to generate blocks on different fork chains to maximize the benefits.

After Ethereum adopt Casper algorithm, it can bring some visible benefits, such as reduced energy consumption, and miner do not need to purchase proprietary hardware. Moreover, since all miners need to mortgage a certain amount of ETH, theoretically, the demand for ETH will also increase.


 

The problem of Slash

Does this current solution solved all the problems? has it brought new hidden dangers? Just like when DeFi first appeared, many people did not expect that when ETH plummeted in March 2020, MakerDao would have 0Dai liquidation problems, and more than $ 4 million of ETH was auctioned at 0. Is it possible for Casper to appear similar black swans in extreme cases?

Casper will be adopted along with Ethereum 2.0. The most important feature of Ethereum 2.0 is sharding, which increases the data throughput of the entire network.

In theory, with the adoption of more and more DAPPs such as DeFi, the application of ETH is likely to become more and more widely, thereby bringing the increasing price of ETH.

But there is another possibility. With the popularity of stablecoins such as USDC, many payment scenarios like DeFi will directly use stablecoins as a means of payment and mortgage such as USDC. ETH change to only be used to pay handling fees.poporo-eth

If the developing progress happened like this, a boom in application on Ethereum would be possible, and Ethereum would become the world computer and financial settlement layer. The price of ETH depends only on how much the user needs to pay for miners. Due to the introduction of ETH2.0 sharding, the overall TPS would increase significantly, and the transaction fee for a single transaction would be a big decline, and the price of ETH may continue to fall.

If Ethereum develops in this direction, it may introduce a problem that the value of the mortgaged ETH may be less than the value of the DAPP running on the shard chain. At this time, miners have enough reasons to acts in a malicious manner and steal the value of DAPP by launching a double-spend attack or other ways.

What should we do? keep increasing the mortgage of the miners? Imagine an extreme situation, if the market value of the entire ETH is less than the market value of all Dapps or even 1/100 important DAPP, then mortgage all ETH is not enough to cover the evil cost of the miner. What would happen?

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Of course, not the whole miners would definitely do evil. We also have many other ways to punish the evildoers. For example, the exchange freezes or refuses to accept the assets of the evildoers. Since the current status of the blockchain industry mixed centralized and decentralized. But the essence of this logic is that if the POS consensus and Slash models are adopted, the security boundary of the value of DAPP applications that can be carried on Ethereum is the market value of ETH itself.

Will Casper and Ethereum 2.0 increase the market value of ETH? There are both possibilities of rising and falling, which can only be proved by time.


 

The status of POW algorithm

In other words, if Ethereum insists on adopting the POW consensus algorithm, or other blockchain projects using POW consensus algorithms, this problem would not happen? It is not the case at present.

In the past few years, we have seen a series of double-spend attacks happening in several coins using POW consensus, including Bitcoin gold, Bytecoin, etc.

In essence, as long as the cost of POW mining is smaller than the profit, the attack is profitable. If the mining cost is not high, or it is easy to rent computing power, and the market value of the cryptocurrency is high enough, the attack may occur.

If Ethereum2.0 continues to use POW mining, the way to ensure security is to require sufficient computing power to maintain the entire network. However, because the incentive for mining comes from ETH, it means the investment of computing power cannot be greater than the incentive of ETH. If the overall market value of the DAPP running on ETH is much larger than the market value of ETH, then it is indeed more profitable to launch a double-spend attack than honest mining.

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From the analysis, it seems that neither of the two consensus methods can solve this inherent problem.

The essence is that if the value of the underlying token of the blockchain is much smaller than the value of the DAPP running above, the entire system is in danger of being attacked.

This may be a hidden problem for restricting the continued expansion of the DeFi economy on Ethereum. As for the security reasons, the market value of the overall DAPP cannot exceed the market value of ETH.

We can think about whether there are other solutions to this problem. Let’s first look at the situation of Bitcoin.


 

Why Bitcoin is safer

Why doesn’t Bitcoin have this problem, or it only seems safer?

bitcoin-poporo

The fundamental reasons are two.

One, Bitcoin is currently the cryptocurrency with the highest market value. Its computing power is much higher than many other small currencies, and the current Bitcoin mining uses proprietary hardware. Whether it is renting computing power or building a mining pool, the single input cost is very high, which increases the difficulty of the attack.

Due to the centralization of computing power, several mining pools may have the ability to attack the Bitcoin network if they band themselves together, but the mining pool only gathers the computing power of all miners. If the computing power of the miners was misappropriated, the attack would be launched and discovered. For the operation of the mining pool, or even the entire Bitcoin, it may be a relatively big blow. To put it simply, how do the mining pools do something harmful to themselves?

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Another, there are less distributed applications running on the Bitcoin network. At present, the only relatively well-known one is the USDT in Omni-Layer, and the current market value of USDT is much smaller than that of Bitcoin.

Since the computing power is very easy to rent, a new POW network is relatively easy to be attacked in the initial stage because the computing power is generally low. Besides, many people, including developers, begin to understand POW mining as a mere energy consumption, which is of course biased, but it makes more and more systems use non-POW consensus algorithms.

This trend itself will also bring about a Matthew effect. Maybe a few years later, there is only one POW network left in the whole world, which is Bitcoin.

This will make Bitcoin’s security reach an unprecedented level. In this case, a blockchain network such as ETH that uses a non-POW algorithm can take advantage of the security of Bitcoin, by hooking on Bitcoin, or use Bitcoin to fix blocks, or a mixture of several methods to improve the security on their network.

Under this approach, the attacker’s theoretical attack cost becomes to control the Bitcoin network and the Ethereum network at the same time, the cost will be greatly increased, and the attack itself will be much more difficult.


 

The future of consensus algorithm

At present, some blockchain systems are already doing such attempts, such as VeriBlock and Poporo, etc., they adopt the method of fixing their block headers on the Bitcoin network to increase security. This new consensus algorithm named Proof-of-Proof(http://poporo.io/).

After several years, will the public chain itself become a cascading network, and will Bitcoin become the bottom layer or infrastructure of other public chains because of its security?

Let’s have a daring conjecture, POP consensus algorithm will be applied to the mainstream with one and only POW system(Bitcoin).

poporo-bitcoin

I have done some research in POP consensus algorithm, if you are interested in it, please refer to another post- https://www.publish0x.com/poporo/a-confession-from-a-crypto-enthusiast-crypto-gold-is-coming-xwlnpe 

If you are a crypto enthusiast just like me or any good ideas for promoting the development of blockchain.

Join us at http://t.me/poporogroup Or http://discord.gg/NFyzc5Q

I believe we will have a good conversation. It’s time we reflect on where we wanted to go with digital currencies, honestly take stock of the state of blockchain technology today, and rigorously plan how to improve digital currencies moving forward.

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Connor_LC
Connor_LC

In the face-of-all that insists I turn back, I carry on. This is my compromise.


Poporo
Poporo

XMR 2.0 with high security and decentralization based on the POP algorithm. http://poporo.io

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