New age bitcoin experiences first sustained period of segwit dominance

This renewed interest in alternatives to fiat money was shared by the public. Convictions are now being tested. Today, with governments once again spending like drunken sailors, there is good reason to worry about inflation.

But just as many former gold bugs regret buying bullion at the market peak, confidence in bitcoin is being tested. And while total supply is artificially constrained, that constraint is just… well, artificial. New gold or not, the hype around bitcoin is invaluable as an awareness generator for the real revolution going on in cryptoeconomics and the greater fintech space.

And this is particularly true in Canada. Nobody knows exactly how big an impact the digital revolution will have on the financial sector. But you can probably soon forget about regular branch visits or banking at an ATM. In fact, you can probably even forget about using banking apps. As I noted in FinTech: The Disruptive Enabler , the digital world will eventually allow you to bank anywhere at any time without access to a computer or smartphone.

Think about all the wasted time you currently spend in traffic. After hailing an automated transport pod to take you to work or out for dinner, your robo life manager will be there to offer advice on investing matters, help you find the best deals on consumer goods, or do other productive things like arrange a crowd-sourced mortgage or peer-to-peer loan.

As you travel from A to B, you might just earn enough reward credits making transactions to pay for your trip. Simply put, the banking customer experience will eventually be nothing like it is today. In 20 years, McWaters figures financial institutions might even exist below the surface of consumer perception, providing a secure platform for an ecosystem of products and services, including plenty of third-party offerings.

Visible or not, banks will not just be in the business of providing financial services and offering market advice. Using a combination of behavioural science, biometrics, transaction data, and customer tracking data, financial service firms will exist to offer advice throughout your day. For example, your bank will coach you to be a better spender. Many market-watchers still expect the Canadian financial sector to face off against fintech firms in a battle for market dominance. After all, large financial institutions have proven relatively slow to innovate in the past thanks to their size, heavy procurement processes, and legacy systems.

However, when previously challenged, the heavily regulated sector has shown significant resilience partly due to consumer inertia, which is being eroded by demographics. Thanks to the so-called uberization of market expectations, banking customers want better service. Bankers know this, which is why they are moving to disrupt themselves. And unfortunately, Canada is weak on both fronts.

According to an EY global survey of digitally active consumers conducted last year, fintech adoption in Canada sits below the global 33 per cent average, seriously lagging leading nations such as China 69 per cent , India 52 per cent , the United Kingdom 42 per cent , Brazil 40 per cent , and Australia 37 per cent.

The state of local government support is equally depressing. Indeed, while politicians in other countries champion fintech innovation with national strategies and open banking initiatives the United Kingdom and European Union have moved to give third-party developers access to bank data , the Canadian fintech community is still waiting for someone in government to mount a horse.

Bitcoin is now a decade old, which in tech time is near death. But the hype around it obviously still has legs. In late February, Trademark Renovations, a general contractor based in Calgary, announced that it would now accept bitcoin to support a more level payment playing field.

The press release insisted: Before this story is finalized, the value of bitcoin could reach a new record. But sooner or later, its true believers will likely pay for underestimating its offspring, meaning newer disruptive technologies.

If not, anyone in the future who claims Canada is an innovation leader might just end up looking as silly as that guy sporting a bitcoin bubble suit. Segwit technology allows for flexibility to scale in the near future and will only work if more people adopt it.

R linked your article and as a coop student, I was intrigued by your interest. Keep it up, we need more transparency and honesty in the crypto-journalism space. That way we could still enjoy watching him play, and cheer him on.

A scholarship and Ivy degree is akin to winning the lottery! As long as the powers that be in Congress want to funnel money to SLS, this competition is alive.

The money will be wasted, but if SLS has any measure of success, these masters of pork are going to use that to funnel more money down the black hole, for as long as they can.

This is why the private sector has to blow the government pork projects away, repeatedly, and embarrassingly so. Your email address will not be published. Skip to main content. Menu Skip to content. Chintu, Namukale Chiu, Raymond B. Colbeck, Carol Colson, Thomas J. Doshi, Viren Dotlich, David L. Endo, Takahiro Enns, Douglas J. Nunes, Paul Farrell, Grace O. Febbraro, Sam Feiner, Michael C. Gelinas, Patrice Gentile, Mary C. Hoffman, Carl Hollenbeck, George P. Iyer, Bala Jackson, Eric M.

Kippin, Henry Kitzis, Ellen S. Kohli, Chiranjeev Konrad, Alison M. Kozan, Jeff Krishnan, Rishikesha T. Ramesh Kunsch, David Kwon, O. Laughland, Pamela Laurie, Donald L.

Lawver, Teri Lax, David A. Lee, Ryan Leeds, Michael A. Lineback, Kent Linetsky, Barry L. Oliver, Caroline Oliver, Donald H. Overall, Jeffrey Palus, Charles J. Parmar, Simon Patten, Rose M. Pearce, Ed Pearce, Michael R. Pearson, Christine Pekar Jr. Crypto trading is very risky and underlying prices are highly volatile.

While this type of movement is unexpected and undesirable, the price on BitMEX accurately reflected the price on the underlying spot market throughout this crash and recovery.

Index stability is important to us. BitMEX will continue to evaluate if adjustments are needed to existing index compositions. The liquidity of crypto spot markets is constantly in flux and can change significantly over the lifetime of a quarterly contract. More information is available here. In this piece we examine proof of stake PoS consensus systems. We look at their theoretical advantages and weaknesses. We then analyse the specific details of some of the most prominent and novel PoS systems attempted thus far, where we learnt that some pure PoS systems becomes increasingly complex, to the point which they became unrealistic.

We review the latest Ethereum proposal, which we think is a significant improvement compared to previous attempts and it could provide net security benefits for the Ethereum network. However, the system may still be reliant on proof of work PoW , which is still used to produce the blocks and at this point it is not entirely clear to us if the PoS element of the process contributes to ensuring nodes converge on one chain.

Essentially one is trying to construct a data structure with the following properties: PoW uses the most accumulated work rule to decide between competing valid chains fork choice rule. This is not only an apparent solution to criteria three above, but the PoW mechanism also inherently solves the block production and block timing issue. While total accumulated work is the fork choice rule, a block producer is also required to include an element of PoW in each block, a stochastic process, and therefore the issue of who produces each block and when each block is produced, is also be addressed by PoW.

PoS is the general concept of a fork choice rule based on the most accumulated stake i. However, unlike PoW, this does not necessarily directly address the issue of who produces each block or when blocks are produced. Therefore these issues may need to be addressed by alternative mechanisms.

PoW is also a solution to the coin distribution problem, something which may also require an alternative solution in PoS based systems. Theoretical overview of PoS. Essentially the issue is about timing and how to determine which updates to the ledger occurred first. Actually if one third or more of the actors are disruptive, the problem is provably unsolvable, from a mathematical standpoint, as Leslie Lamport proved in It is shown that, using only oral messages, [reaching agreement] is solvable if and only if more than two-thirds of the generals are loyal; so a single traitor can confound two loyal generals.

The Byzantine Generals Problem PoW can therefore be considered as an imperfect hack, which seems a reasonably strong Byzantine fault tolerant system, but certainly not a mathematically robust one. It is in this context, of imperfect systems, which one should analyse PoS alternatives, as like PoW, these systems will also have flaws. In PoS there are two competing philosophies. One of which is derived from PoW. PoS is typically looked at in the context of PoW, as an alternative which solves or mitigates against negative externalities or problems inherent in PoW based systems: Perhaps the most widely cited advantage of PoS systems is the absence of the energy intensive process which PoW requires.

If PoS based systems can achieve the same useful characteristics as PoW systems, environmental damage can be avoided. Another major problem with PoW based systems is that the interest of miners may not align with that of coin holders, for example miners could sell the coins they mine and then only care about the short term, not long term coin value. Another issue is that hashrate could be leased, with the lesee having little or no economic interest in the long term prospects of the system.

PoS directly ties the consensus agents to an investment in the coin, theoretically aligning interests between investors and consensus agents.

Another key advantage of PoS based systems is potentially improving decentralisation. PoW mining has a number of centralising forces which are not applicable to PoS: General and economic weaknesses of PoS. PoS only appears to be a proposed solution to the chain selection problem, leaving the other problems open.

Although these other issues could be less significant than the chain selection issue. One of the most common criticisms of PoS systems is that they allocate new funds in proportion to the existing holdings. If one invests in a PoS system at the start, you can maintain your share of the wealth, alternatively in a PoW system your wealth is diluted as new rewards are distributed to miners. Indeed, if rewards are allocated in proportion to the existing holdings, one could argue its not inflation at all and that the reward is economically equivalent to adding more zeros to the currency.

Therefore one can even claim the reward system is pointless and does not provide an incentive at all. However this only applies if all users become PoS validators, while in reality some users will want to use the funds for other purposes.

Another issue is that staking requires signing a message from a system connected to the internet. Although it may be possible to mitigate this downside by having a private key only entitled to stake for a short period of time, after which the balance reverts back to the owner.

Although if there is a slashing rule punishment for voting on two conflicting chains , a hacker could conduct action which destroys the funds even if this mitigation strategy is used. Another potential mitigation strategy could be the creation of specialist hardware for staking. Core to the consensus problem is timing and the order of transactions.

If two blocks are produced at the same time, PoW solves the problem by a random process, whichever block is built on top of first can take the lead and then miners are incentivised to build on the most work chain.

In contrast this process in PoS based systems is not entirely clear. If two blocks are produced at the same time, each conflicting block can build up stake. Eventually one block may have more stake than the other, which could make it the winner.

The problem here is that if stakers are allowed to change their mind to back the winner, such that the system converges on one chain, why would they not use their stake on multiple chains? After-all stake is a resource inherent to the chain and not linked to the real world, therefore the same stake can be used on two conflicting chains. Therefore the nothing at stake problem means PoS systems can never make a contribution to system convergence and the idea is therefore fundamentally flawed.

This is the idea that attackers could, for instance, buy a private key which had a large token balance in the past and then generate an alternative history from that point, awarding oneself more and more rewards based on PoS validation. Due to the large amount of rewards given to the attacker, one could then generate a higher stake chain than the existing chain and a large multi year chain re-organisation could be performed.

The solution to this problem is checkpointing, which is the process of locking in a certain chain state once a certain stake threshold has been met, such that it can never be re-organised. Critics argue that this solution requires one to keep their node online at all times, since an offline node cannot checkpoint.

However, in our view this is a matter of different priorities. If one wants each individual user to fully verify all the rules and the state of the system, then relying in these checkpoints is insufficient. There are strong incentives preventing them from allowing a large chain re-organisation.

To many, this is sufficient security and the risks posed by the long range attack problem are therefore irrelevant or too theoretical. In a pure PoS system, stakers also need to produce blocks. These systems have often worked by selecting a sequence of authorised block producers randomly from a pool, where the probability is proportional to the stake.

The issue here is a source of randomness is required inside the consensus system. If the blocks themselves are used for generating the entropy, stakers could try to manipulate the content in blocks in order to allocate themselves future blocks. Stakers may then need more and more computing power to try more and more alternative blocks, until they are allocated a future block. This then essentially results in a PoW system. In our view, the stake grinding problem is less of a fundamental problem with PoS, when compared to significant issues like the nothing at stake problem.

All that is required to solve this problem is a source of entropy in the network and perhaps an Ethereum smart contract like the RanDAO , in which anyone can participate, can solve this problem. Peercoin is a hybrid PoW and PoS system, built on the idea of coin age. The fork choice rules is the blockchain with highest total consumed coin age.

Coin age is simply defined as currency amount times holding period. In a simple to understand example, if Bob received 10 coins from Alice and held it for 90 days, we say that Bob has accumulated coin-days of coin age.

In Peercoin, some blocks were produced purely using PoW, whilst other blocks were produced using PoW where the difficulty adjusts based on the coin age destroyed by the miner in the transaction the coinstake transaction as opposed to a coinbase transaction.

This was solved by centrally broadcasting checkpoints several times a day. Peercoin was therefore a centralised system. Stake grinding This may not have been an issue, since there was no selection from a validator pool as PoW was always required and coin stake altered the PoW target. At the time Peercoin was an interesting early novel approach, however the proposal resulted in a centralised system, not able to match the properties of PoW.

According to the Ethereum blog, betting should occur using the following strategies by default: The default betting strategy had a formula given below , to push the probability away from 0.

The fork choice rule then is the sum of all the weighted probabilities, which have crossed a certain threshold, say 0. For instance a chain of five blocks, each with a probability of 1 will represent a score of 5. Any validator who changes their mind after the 0. While changing your mind before the threshold is considered legitimate and there is no punishment in that scenario. In our view, this proposal is highly complex, which we consider as the main downside.

The proposal was not adopted by Ethereum. In our view the proposal was never complete, as some parameters and aspects of the system lacked a specification.

Although the consensus by bet approach was interesting, it seemed too complex and there were too many uncertainties. The current Casper proposal represents a change in philosophy or a pivot, compared to some of the earlier PoS systems. Therefore the current version of Casper is less ambitious than before.

PoS is no longer used to produce blocks or decide on the timing of blocks, which is still done by PoW miners. The PoS system is used as a checkpointing process. In our view, this proposal is superior to the more complex earlier iterations of Casper. The Ethereum reward structure will be adjusted, such that PoS validators also receive a share of the rewards, in addition to the PoW miners.

As far as we can tell, the details of this new allocation have not been decided yet. The latest iteration of Casper is a significant improvement from earlier versions, in our view, primarily because of lower levels of complexity and greater reliance on PoW mining. In theory, there are only three problems with the new proposal: Core to the assumption behind this system is that its PoW which drives the chain forwards and that the PoS system only comes into play, once the PoW miners have decided on a chain, PoS votes are not even valid before 12 miner confirmations.

Indeed, if the two thirds majority cannot be achieved then the chain continues on a PoW basis. Therefore, we conclude, that the core characteristic of this latest Casper proposal is that the PoW happens first , and only after this does PoS potentially provide an extra assurance against a chain re-organisation, orchestrated deliberately by a hostile PoW miners.

PoW therefore still provides computational convergence, with the PoS mechanism defending against the threat of a human threat of a miner re-organisation.

Therefore although PoS provides this safety, as point three above indicates, it also provides extra risk, therefore its not clear if there is a net benefit. For the hybrid version of the model, the convergence issue may be solved by relying on PoW mining. Block production PoW miners produce blocks and therefore there is no issue related to selecting the block producer. Long range attack Once two-thirds of the stake in the validator pool has used a block as a reference for voting, nodes finalize the block and there cannot be a re-organisation.

The long range attack problem remains for periods in which nodes are switched off. Stake grinding PoW miners produce blocks and therefore there is no stake grinding issue. Other potential unresolved issues. In the event of a contentious hardfork and chainsplit, if the new chain alters the format of the validator checkpoint votes, two-thirds of the validators could conduct destructive re-organisations on the original chain, while avoiding punishment slashing due to the new voting format.

Validators could therefore destroy the original chain, while still moving forward on a new chain of their choice. The system could therefore be less resilient to being shut down.

Are you concerned about the negatives of this? I would say no. There are plenty of reasons to believe that it should not negatively impact stability. Both miners and validators use the chain scoring rule, so miners and validators would both naturally help the chain grow, not try to revert it.

Question 2 — How do you expect users and exchanges to behave? Question 3 — Will there be an overall confirmation score metric, combining both the impact of PoW and PoS, which exchanges can use? Here are a few distinct stages of confirmation that I can think of: This latest PoS proposal is the best proposal so far, in our view. We think it may be adopted by Ethereum and it could make a net positive contribution to the security of the system.

However, the system remains reliant on PoW mining, at least at the interim stage. PoW is relied on to resolve any Byzantine faults first, before the PoS process occurs. Therefore the system relies on PoW for both block production and for the crucial property of ensuring the system converges on one chain. Although PoS mining may mitigate some risks hostile PoW miners , it is unclear if it makes a net contribution to convergence or security. Critics of PoS could therefore argue that any rewards redistributed from PoW miners to stakers unnecessarily dilutes system convergence and security.

Although we think the current proposal could work, the nothing at stake problem could still be a significant challenge. The jury is still out on whether this new mechanism solves this problem. Therefore despite the plan to use this proposal as a stepping stone, as part of a gradual shift towards a full PoS system, this could be more difficult to achieve than some in the Ethereum community think.

We look at the price correlation between Bitcoin and some traditional financial assets since and notice that the correlation with stocks in the last few months has reached record high levels, although it remains reasonably low in absolute terms. Due to the current correlation with stocks, Bitcoin may no longer offer downside protection in the event of a financial crisis, which some people may expect.

We calculated the day rolling daily percentage price-change correlation between Bitcoin and a variety of traditional financial assets since As the chart below demonstrates, the correlation never really significantly escaped the Bitcoin price correlation versus various traditional assets — daily price percentage change over a rolling day period. The R-squared between Bitcoin and other assets in the chart below is low, peaking at only 6. In addition to this, we have not been able to prove the statistical significance of any daily price-change correlation between Bitcoin and any traditional asset using any robust methodology.

Scientifically speaking therefore, this article is speculative. This comparison may be somewhat spurious, since the stock market actually peaked at the end of January while Bitcoin peaked in December and earnings estimates reset to higher levels for the year ending December at the end of The price correlation between these coins and Bitcoin is obviously far higher than for traditional assets and it is statistically significant.

During the massive crypto-coin rally in , the price correlation to Bitcoin fell dramatically to the 0. After the price correction started in , price correlations have began to climb as the coins seem to move together again.

Bitcoin price correlation between Ethereum and Litecoin — daily price percentage change over a rolling day period. These traditional portfolio managers are then expected to allocate a weighting in their portfolios for crypto-coins, which may cause further price appreciation. It appears that Bitcoin has been a reasonably non-correlated asset class throughout its history. During the recent rally to a valuation of hundreds of billions of dollars, however, correlations — and, crucially, correlations to risk-on assets — started to increase.

Although there is some merit to the hypothesis of crypto-coins not correlating with traditional assets, if crypto-coin prices remain elevated or increase further and become a significant part of the global financial system, higher correlation with traditional assets may become inevitable.

Notice the BitMEX logo in the box? This is how you know the message was generated by the system, and was not a forgery by a user. Slash commands are available now on all channels, and Testnet. Give it a try today and let us know what you think! Here, we provide an update on SegWit adoption with six more months of transaction data.

We also compare the transaction throughput to that of Bitcoin Cash, an alternative capacity-increase mechanism. The transaction volumes of Bitcoin Cash and the new SegWit Bitcoin transaction format have been reasonably similar. Since the launch of Bitcoin Cash, 6. Adjusting for the one-month head start, SegWit has Of course, its possible that at some point either or both of these figures could be manipulated. Although the data suggests that SegWit transaction have been adopted slightly faster than Bitcoin Cash, resulting in more transaction volume, Bitcoin Cash advocates could argue that the Bitcoin Cash token is more about a philosophy of larger capacity in the long term, rather than the speed of the actual increase in transaction volume in the short term.

Therefore Bitcoin Cash supporters can still claim that Bitcoin Cash will eventually have more transaction volume than Bitcoin, once adoption of the coin increases.

Cumulative transaction volume since the launch of Bitcoin Cash. As these charts indicate, there was a sharp spike in Bitcoin Cash transaction volume when it launched; in contrast the SegWit upgrade was more gradually adopted.

This is likely to be related to the investment flows and excitement of the new Bitcoin Cash coin, which may have driven short term adoption, as some of the spikes in the chart illustrate. Three months after the launch of Bitcoin Cash, on 31 October , SegWit transaction volume overtook Bitcoin Cash and has remained in the lead ever since.

The chart below shows that the adoption of SegWit has continued to grow since August , perhaps increasing in steps as large corporate entities switch to SegWit. Percentage of transactions that use SegWit. SegWit has begun to meaningfully impact system-wide capacity, potentially reducing fees and benefitting even users who choose not to upgrade to the new transaction format.

However, the transaction fee market is still immature and, in our view, transaction prices are likely to remain volatile going forward. Adoption of both the new transaction format for SegWit and Bitcoin Cash has been reasonably slow. At the same time, as our earlier piece shows, adoption of new consensus rules can also be gradual. This illustrates why it may be important to construct network upgrades in the least disruptive way possible, perhaps an upgrade mechanism which is safe even if users and miners do not upgrade at all.

Skip to content BitMEX is proud to launch its first optionality products: Why Can You Only Buy? As further discussed below, one cause of the engine overload issue is that we have many market makers constantly updating quotes on currently listed products. This consumes a vast amount of precious engine capacity. Until our engine performance is fixed, we refrain from listing any new product that exacerbates the issue. Hence, if only one market maker quotes on the UPs and DOWNs product, then the impact will not be meaningful on the engine.

That is, buyers must pay the premium in full and sellers must post the full notional of the option in margin. That means that irregardless of where the price settles, neither buyers nor sellers will ever be liquidated.

If the contract settles in the money, buyers are assured they will always receive their profit. Furthermore, this means that the anchor market maker cannot manipulate the UP or DOWN market in any way to liquidate any customer. The anchor market maker will be able to adjust to the new product structure faster than any third party.

That means that we can fail fast, and relaunch the product quickly with guaranteed liquidity. Optimise as many existing functions as possible to obtain efficiency gains. We have been rolling out improvements weekly; however, that extra capacity is consumed very quickly as the demand increases to match engine performance improvements.

Re-architect the engine from the ground up so that the aforementioned issues can be scaled horizontally which will allow for more products and more users without overload issues. How Do We Align Incentives? Who Runs The Desk? Financial Risks Trading losses incurred by the market making desk will not affect the solvency of the BitMEX trading platform. November 24, , Dubrovnik, Croatia. November 24, , Hong Kong. The following charts show monthly turnover in increasingly large timescales, to highlight detail completely lost in the overall view: The below are the results: Overview Bitmain have recently launched a new Ethereum miner, widely believed to be an ASIC, and it is expected to ship in late July Figure 1 — Monero hashrate compared to Monero price Source: Bitmain The advertised specification of the product is disclosed above.

Figure 5 — Crypto-coin chip type timeline Source: The inclusion of Vector Processors VPs towards the end of is speculative It might be possible that Bitmain has developed a new type of chip, a Vector Processor. Ethereum hashrate growth — No evidence of deployment of the new chips Despite the above, we have not yet seen any strong indications of the deployment of the new chips on the Ethereum network. I have a very similar impression myself Despite what we have said above, most of the content in this article should be considered guesswork.

Allowing ASICs, or, Allowing general purpose hashing chips, where technologies and production capabilities could be even more concentrated. Disclaimer Whilst many claims made in this note are cited, we do not guarantee accuracy. Abstract In this piece we examine proof of stake PoS consensus systems. No one entity controls the content of the data distributed storage and verification of the data is not sufficient ; The database can move forward, Casper terminology: It is shown that, using only oral messages, [reaching agreement] is solvable if and only if more than two-thirds of the generals are loyal; so a single traitor can confound two loyal generals Source: The Byzantine Generals Problem PoW can therefore be considered as an imperfect hack, which seems a reasonably strong Byzantine fault tolerant system, but certainly not a mathematically robust one.

Advantages of PoS PoS is typically looked at in the context of PoW, as an alternative which solves or mitigates against negative externalities or problems inherent in PoW based systems: More environmentally friendly Perhaps the most widely cited advantage of PoS systems is the absence of the energy intensive process which PoW requires.

Stronger alignment of incentives Another major problem with PoW based systems is that the interest of miners may not align with that of coin holders, for example miners could sell the coins they mine and then only care about the short term, not long term coin value. Chain selection the fork choice rule , Coin distribution, Who produces blocks, and When blocks are produced. Risk of a loss of funds Another issue is that staking requires signing a message from a system connected to the internet.

Defense 1 The issue can be avoided or mitigated against. The protocol can be adjusted such that if a staker uses the same stake on multiple chains, a third party can submit a proof of this to either chain, resulting in a punishment, such as the confiscation of the stake slashing conditions. Alternatively instead of a punishment, the cheater could lose potential rewards or be excluded from the staker pool.

Response from PoS sceptic The above defence is inappropriate and punishes what may be legitimate or necessary behavior.

For example if a staker receives a block first, while the majority receives an alternative block first, it may be legitimate for that staker to change their mind and switch to follow the majority. Indeed the process of changing your mind and switching to the majority to ensure the network converges is the point of the consensus system. If this behavior is punished, how does the system converge? Earlier proposals from Casper used multiple rounds of staking. Response from PoS sceptic By adding multiple rounds or criteria in which validators can change their minds one is increasing the complexity of the system.

This is merely adding layers of obfuscation to conceal the inherent weaknesses illustrated by the nothing at stake problem, without solving the fundamental issue.

Stake grinding In a pure PoS system, stakers also need to produce blocks. In a simple to understand example, if Bob received 10 coins from Alice and held it for 90 days, we say that Bob has accumulated coin-days of coin age Source: Peercoin Whitepaper In Peercoin, some blocks were produced purely using PoW, whilst other blocks were produced using PoW where the difficulty adjusts based on the coin age destroyed by the miner in the transaction the coinstake transaction as opposed to a coinbase transaction.

Analysis Weakness Summary Nothing at Stake The protocol aims to prevent miners using the same coins in a coinstake transaction on multiple chains by ignoring the second conflicting chain. However this is not sufficient and can result in nodes diverging, if they receive the conflicting blocks in a different order. Block production Solved by using PoW to produce the blocks Long range attack This was a critical vulnerability for Peercoin, an attacker can simply save up coin age by not spending their coins and then launch a re-organisation attack.

Conclusion At the time Peercoin was an interesting early novel approach, however the proposal resulted in a centralised system, not able to match the properties of PoW. Blocks are produced from a pool of block producers, a random number generator is used to select whose turn it is to produce a block and then the producer is given a time window in which they can produce a valid block.

There is a set of bonded validators, one must be in the set to make or take bets on blocks. Validators can then make or take bets on block propositions, providing a probability each time, representing the return betters can make.

Ethereum Blog Betting strategy According to the Ethereum blog, betting should occur using the following strategies by default: If the block is not yet present, but the current time is still very close to the time that the block should have been published, bet 0. If the block is not yet present, but a long time has already passed since the block should have been published, bet 0.

If the block is present, and it arrived on time, bet 0. If the block is present, but it arrived either far too early or far too late, bet 0. Analysis In our view, this proposal is highly complex, which we consider as the main downside. Weakness Summary Nothing at Stake The protocol aims to prevent miners using the same coins to bet on multiple chains by using a punishment mechanism, in which validators would lose their deposit.

In our view, this could harm the convergence of the system, although betting formula may move the probability away from 0. However, this only provides a time window in which blocks could be produced, it is possible there is a lack of consensus over whether the block was produced within the time window or not, after which the betting process is supposed to resolve the dispute.

Long range attack The nodes checkpoint blocks once a certain probability threshold has been reached. The system works as follows: The PoS system is only used every blocks, to provide an extra layer of assurance over PoW, as a checkpointing system. Every blocks validators put their stake behind a checkpoint block, whilst also referencing a previous checkpoint block. Once a block is justified, it can be used as a reference for future votes.

Once two-thirds of the stake use a justified block as a reference, this justified block is considered finalised and this finality takes precedence over PoW. Validators votes are only valid 12 confirmations after the last checkpoint block. If the two thirds threshold is not met, the chain continues to progress based entirely on PoW. Votes for multiple conflicting blocks at the same height. Votes for multiple conflicting blocks at different heights, but using conflicting reference blocks, unless the new reference block has more height.

Analysis The latest iteration of Casper is a significant improvement from earlier versions, in our view, primarily because of lower levels of complexity and greater reliance on PoW mining.

Over one third of the stakers refusing to participate — in which case we are just back to a PoW based system Stakers changing their mind after finality such that more than two thirds supports an alternative chain — the long range attack problem Stakers reaching two-thirds majority support for a lower PoW chain than the current leading PoW chain, a new way of causing a re-organisation.

We view this as the most significant downside of this proposal. Weakness Summary Nothing at Stake Validators can vote on multiple chains, but not at the same height. Other potential unresolved issues In the event of a contentious hardfork and chainsplit, if the new chain alters the format of the validator checkpoint votes, two-thirds of the validators could conduct destructive re-organisations on the original chain, while avoiding punishment slashing due to the new voting format.

If validators are more likely than miners to be majority-dishonest If the Casper-specific code has bugs We accept that if either of these are true then Casper FFG can add risks. A transaction has been included into a block, which is the head which is the Nth ancestor of the head which is an ancestor of a checkpoint C which is an ancestor of the head.

Validators have started voting on C. Validators have justified C. At this point, at least one validator needs to actually be slashed for the transaction to be reverted C is finalized. Conclusion This latest PoS proposal is the best proposal so far, in our view.