Proof-of-stake and casper

Before we get into what the casper consensus protocol is, we need to understand how the proof-of-stake consensus protocol works.

Proof-of-stake is the most common alternative to proof-of-work. Proof-of-work wastes too many computational resources. The difference between POW and POS is that in POS, a miner doesn't need to solve the puzzle; instead the miner needs to prove ownership of the stake to mine the block. In the POS system, ether in accounts is treated as a stake, and the probability of a miner mining the block is directly proportional to the stake the miner holds. So if the miner holds 10% of the stake in the network, it will mine 10% of the blocks.

But the question is how will we know who will mine the next block? We cannot simply let the miner with the highest stake always mine the next block because this will create centralization. There are various algorithms for next block selection, such as randomized block selection, and coin-age-based selection.

Casper is a modified version of POS that tackles various problems of POS.