Ethereum 2.0 – The Path To Serenity

The Ethereum blockchain has undergone significant updates in preparation to a new version. The following software updates have been made since the project first started:

Frontier (July 2015)
Homestead (March 2016)
Metropolis (Byzantium in October 2017 and Constantinople in February 2019)
Istanbul (December 2019)

The next iteration is Eth2 or Ethereum 2.0 which will introduce the Serenity update. It is set to begin in late 2020 and deploy in phases. (Learn more at Ethereum.org)

It will change the Ethereum protocol, moving away from the Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS). It will launch in multiple phases, as developers begin deploying the necessary changes to the Ethereum blockchain. The main purpose for this transition is to bring more efficiency and scalability to the network, to process more transactions and operate with more efficiency and stability. Scaling has long been a problem of blockchain-based networks, because they have to rely on decentralization which doesn’t process transactions as efficiently at the rate of commercial business applications. That is part of a tradeoff with scalability, since blockchains are more decentralized and secure.

Eth2 will still be decentralized, but improve their consensus mechanism from mining to staking. This will allow validators to contribute based on their proportion of ETH (ether) on the network rather than providing compute resources. There is no more need to solve random puzzles using hash power. Instead the staking method allows validators of blocks to commit a portion or all of their ETH to validate transactions. Their incentive will be based on the amount they staked. It is more energy efficient as well, not requiring expending large amounts of energy to produce one block. Eth2 randomly selects validators in a fair and decentralized manner.

At present, the Ethereum network can process between 15 to 30 tps (Transactions Per Second). With Eth2 it will increase the transaction velocity up to 100,000 tps. This would be possible (in theory) with the implementation of the Ethereum 2.0 upgrades. Even if in the real world it isn’t exactly 100,000 tps, a higher transaction velocity is still the best outcome. The underlying element to increase the number of transactions involves the use of shard chains (sharding will be explained later).

Among other changes to the network, the beacon chain and sharding will also be deployed as part of the EIP (Ethereum Improvement Proposals). Beacon chain is a feature that coordinates the PoS implementation on the Ethereum blockchain. Sharding aims to improve the storage of data on the network, to scale to higher capacity and faster access to data. Rather than to have all nodes on the network storing the blockchain state, shards are created to store system state in a distributed and decentralized manner for more efficient operations. If all nodes had to keep store of the world state of the blockchain, it certainly slows down the network since each node has to perform updates whenever there are changes. That can take plenty of time when you have many nodes.

The idea is to keep the network open to all who want to stake without barriers in order to maintain a decentralized network. Ethereum 2.0 will require 16,384 validators, which means a more decentralized and secure network. The more nodes there are, the more security to the network through coordinated participation of each node. This is because those who have staked their ETH face losing what they staked if they do not cooperate with other nodes or if they attempt to attack the network. It is a coordinated game theory example of contributing resources for the greater good. However, there are also consequences and not just incentives.

Despite all the efforts by developers, the project has been facing delays. This is not a major setback, but has been expected due to the complex nature of the system. It has been in development for years and it could still take longer to deploy and implement. It does keep the momentum for driving the value of ETH higher, along with the surge in the DeFi (Decentralized Finance) space which is based on Ethereum’s ERC20 token standard. As transaction volume increases and ETH gas costs decrease, the value of ETH would show a likely bullish trend. The market is so volatile though, nothing is certain. The transition to Ethereum 2.0 will be undergoing phases, so they won’t happen over night. It is best to keep an eye out on the developments, because any progress would surely be a good signal to the rest of the market.

Did Vitalik Buterin propose Bitcoin Cash As A Scaling Solution to Ethereum?

For those who have been in the cryptocurrency space for a long time now, you know how tribal things are. Schisms like the Bitcoin and Bitcoin Cash hard fork due to ideology is common. There have also been splits due to consensus disagreements like the resulting Ethereum and Ethereum Classic split to the DAO hack. The tribalism in the cryptosphere does not really foster much collaboration, though there are now proposals for inter-blockchain communications. It is going to be inevitable with the thousands of blockchain projects out there. The best way for cryptocurrency to be utilized is through some form of interconnectivity that would allow atomic swaps and quick conversions.

It seems that the development community and token holders don’t exactly approve of other blockchains they don’t support. Recently, Ethereum’s founder Vitalik Buterin proposed a way to use another blockchain to provide a scaling solution to the current Ethereum blockchain. The benefits are an increase in transaction velocity that can deliver faster speeds than the current Ethereum blockchain (currently between 15 and 30 transactions per second). There was plenty of shock and disapproval of Vitalik’s proposal, even among those who work in the Ethereum development community. You can check on Twitter since that is too long to discuss about in this article.

It does sound crazy though coming from the founder of Ethereum. He could have framed it in a way to not make it sound like Ethereum’s blockchain is useless. It sounded like he was saying another blockchain should be used to scale Ethereum. In other words it seemed like he was going to replace Ethereum’s own blockchain. If that were the case, why even use Ethereum? It was taken out of context, I felt. What Vitalik actually meant is that the Ethereum blockchain can use another blockchain to help scale only as a temporary solution. Eventually Ethereum 2.0 will resolve the scaling issue by gradually shifting from PoW to PoS as the consensus mechanism on the network.

What made Vitalik’s statement more unpopular was the proposed blockchain he had mentioned which was Bitcoin Cash. According to Vitalik, the proposal was meant to be a sort of fix for Ethereum until its developers have finished working on Ethereum 2.0. He wrote about this in a post on the Ethereum Research Forum you can read more about from this link. The author is without a doubt Vitalik Buterin himself. Does it really make sense? Let me discuss what the explanation for using Bitcoin Cash was from Vitalik’s own research.

The benefit of using Bitcoin Cash’s blockchain are its larger block size. Larger blocks can hold more transactions and thus the potential to increase the transaction rate per seconds. What Vitalik likes about the Bitcoin Cash blockchain is the higher data throughput it produces at 53.3 KB/sec compared to Ethereum’s 8 KB/sec. According to Vitalik, the Ethereum blockchain will be used as the computation layer while Bitcoin Cash provides the data layer.

Another thing about Bitcoin Cash that Vitalik likes is the lower transaction fees per byte. One reason for using Bitcoin Cash is that it has lower transaction fees since they have larger block sizes to process more transaction volumes. That makes more efficient use of bandwidth since you can process more transaction per unit of time or seconds. At the moment, transaction fees may have stabilized for many cryptocurrency but they can still be high. It would make sense for Ethereum to use a lower transaction fee for their blocks in order to save users on gas.

One problem with Bitcoin Cash though is since it is a fork based on Bitcoin, it requires the same 10 minute block propagation time. This is where the community really criticized Vitalik for proposing Bitcoin Cash. Aside from that, some also pointed out that there are inherent flaws with the Bitcoin Cash blockchain that would make Ethereum susceptible to these vulnerabilities. Vitalik actually suggested that using the Avalanche pre-consensus algorithm could improve block propagation times on the Bitcoin Cash blockchain. With that in place, Vitalik then explains:

“If these techniques become robust for the use case of preventing double-spends, we could piggy back off of them to achieve shorter finality times …..”

It also seems that Vitalik had no problem with the 10 minute block time propagation since Avalanche pre-consensus is complicated to implement.

“Though this technique may be too complex to implement in practice, and we may want to just settle for being okay with 10-minute block times for a full general-purpose VM until eth2 comes out.”

It is true that Vitalik proposed Bitcoin Cash as a temporary solution to Ethereum scaling. Bitcoin Cash is not replacing Ethereum, this was just a proposal to address current limitations in their blockchain. The Ethereum 2.0 blockchain will eventually implement PoS using the Casper protocols and sharding.