5

So I'm reading up on Casper, and I see Consensus By Bet. How does it protect the network in a POS system?

6

See https://blog.ethereum.org/2015/12/28/understanding-serenity-part-2-casper/ ; essentially, it's a kind of generalization of economic consensus protocols, and one that particularly allows for us to more easily reason about secure PoS schemes.

4

Essentially it works like a prediction market. If you know anything about prediction markets and their abilities they do a fairly decent job of actually predicting outcomes and in the grand scope end up being right in the long run. So what this tries to do is create a system of bets that shape the chain in general.

Basically you put down a deposit from which your bets will draw their value. You then make a bet on where the ethereum state will be at this block level, and if that bet is wrong, you lose the money you had put in to bet, however you have the chance to adjust it for the future consensus and be less wrong and thus lose less money. The idea is that this creates a convergence on the correct outcome with the bets whereby people adjusting themselves to the proper state form the perimeters of what the correct state is in the chain.

Whether or not this will actually work is another matter, but it's definitely an innovative approach.

0

Proof of stake, as I understand it, is like setting an amount as a set-aside value which you can loose if your vote on the next state does not end up being the actual next state.

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