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The purpose of this report is not to introduce Ethereum to the cryptocurrency, but rather to determine its current potential, future possible increase or decrease in the importance of the market, and present the data provided by the public EHS blockage activity research.

The report was created thanks to the cooperation and involvement of the group CyberKrypto. If you are just starting your adventure with cryptocurrencies, CyberKrypto is a great place to start learning and to get advice from real cryptocurrency veterans.

Thank you also for Tomasz Drwięga z Parity, for checking the report and correcting any factual errors.

The report "ETH 2.0 - paving the path towards a decentralized future" is the property of a person with a pseudonym stokarz. It is forbidden to appropriate the fruit of my work, copying or making changes to the document. The report is available in public distribution and is educational material, so I encourage you to spread it and share it with people interested in the market and cryptocurrency technology. The report is in no way an investment advice. Investing in the cryptocurrency market, due to its fluctuations, involves huge risks.

Decentralization is a powerful slogan. Although observing nature, it is difficult to see patterns of functioning, which we could give decentralized status, it turns out that this form of action has extraordinary properties in large-scale systems. This is particularly evident in the case of human clusters, as well as the technology created by us. Replacing the hierarchical management structure, its decentralized version - dispersal of resources, decision-making and finally power, makes such systems gain unique features: no possibility of introducing unwanted changes, through one malicious organization, high security resulting from the need to attack decentralized infrastructure, or equal opportunities, regardless of origin, race, sex or other human characteristics. They are useful in an environment in which an exemplary participant can not show confidence. For various reasons. Perhaps he wants to remain anonymous, because his real identity would reveal that he is a political coincident, thus eliminating him from participation.

Last ten years, the time when it was created and effectively worked Bitcoin showed that decentralized systems are great for finances. Although attempts to create free, even and safe digital money have lasted since the beginning of the 90 years, it has only been used by Satoshi Nakamoto factor of decentralization and drastic limitation of the need for individual trust caused that the global and open information network, which is the Internet, constantly growing in strength and drastically changing our lives, received a tool for exchanging values ​​within it. What seemingly may seem like a trifle, was the cornerstone for a new kind of economy. We are able to observe its first steps today, and we will see a flowering in the next decade.

To better understand the phenomenon of cryptocurrencies, we must go back thousands of years and embrace our perception of a much broader horizon of events. Since our brains have become powerful enough to understand the idea of ​​transactions between individuals of the same species - in this case, homo sapiens - we have often wanted to possess the objects and goods of our "neighbor" from the tribe. But how do I exchange the fruits of my own work, into an object created by someone else? The introduction of a universal measure of abstract value, the possibility of valuing goods and later services, was for mankind the achievement of the measure of the discovery of fire. With the moment of exchanging the first shell of the kauri, serving the former human settlements as currency, for the commodity, the process of forming what we today call modern economics began. The unification of the measures of value, this peculiar unwritten social contract, was the cause of our global development.

We already know, therefore, how powerful money is and what role it has played in our history. We will now look at modern times.

The drastic development of the Internet, which falls on the 90 XX century to modern times, reveals an extraordinary jump in the speed of progress made by humanity. However, until now the internet was significantly limited. It allowed us to transmit information, but the transfer of value was still in the hands of the traditional financial system, along with centralized institutions that have been wielding full power over money for decades. Even services such as Paypal or modern online payment systems from Mastercard still remained in the hands of one central authority. The body that has the ability to interfere in finances - withdrawal of the transaction if it is inconsistent with the company's policy or censoring people from specific countries. The Internet needed a tool that would make the value - money, be sent anonymously, democratically, and people who support the network will have a clear economic initiative to send a transaction - no matter what their origin is.

And that's what Bitcoin is. Money for the Internet.

However, development and innovation do not like stagnation. Bitcoin has been, is and will continue to be a great digital currency that every person on Earth can use. But Bitcoin is up to money and only money. It has been programmed and this task is fulfilled. It soon turned out, however, that Bitcoin opened the gates to the new branch of science, which are, in general, cryptocurrencies. Being at the interface between economics, computer science, mathematics, market psychology, distributed systems - interdisciplinary - the inventors of this world very quickly came to the right conclusions that the technology known from Bitcoin can be applied to other problems.

That's exactly what happened in 2014, at the initiative Vitalika Buterina Ethereum (ETH) was created. Ethereum is a public, distributed computing platform using blockchain, with the ability to create smart contracts and decentralized applications - dApp. Quoted today at 26 billion USD and processing 900 thousand per day project transactions, huge changes await, resulting from five years of research and testing. The second version of Ethereum, simply called ETH 2.0, will bring a host of technical improvements to the cryptocurrency that will speed up the network, increase potential scalability, and allow Ethereum to become a real global computer.

In this report, we will look at the upcoming ETH 2.0 update, we will consider its strengths, weaknesses, consequences, and potential threats. We will look at the real applications of Ethereum, the scale of adoption and growing market competition day by day.

I invite you on a journey towards a decentralized future. stokarz

About the author

I deal with the analysis and market research and cryptocurrency technology. My reports are private and do not constitute investment advice. I do the analysis any cryptocurrencies on requestand I'm also involved in various types of cryptocurrency projects.

For cooperation purposes, please contact:

E-mail: stokarzlol@gmail.com

Telegram: @start

I invite you to familiarize yourself with my previous reports:

Neo - Smart Economy

Stellar (XLM) - A critical state of network centralization

Lisk (LSK) - discovering the potential of Sidechain technology in decentralized applications

Zcash (ZEC) - solving the cryptocurrency privacy puzzle

Key conclusions of the report

  • ETH 2.0 - Serenity will make Ethereum faster and the network will gain more bandwidth, while increasing decentralization and the resulting high level of security.
  • Serenity will introduce technologies such as Casper, Sharding and eWASM in Ethereum.
  • Plasma and State Channels enable Ethereum to scale the off-chain (except the main string).
  • ZK-STARKS and Zether will allow Ethereum to introduce the privacy features known from Zcash and Monero.
  • Ethereum has the largest group of active developers from all similar cryptocurrencies.
  • At present, there are no clear premises indicating the potential occupation of Ethereum by any of the similar cryptocurrencies in the field of smart contracts and decentralized applications.
  • It should be taken into account that the full implementation of Serenity will take at least 3 years.
  • Ethereum is also exposed to several serious, potential threats - high inflation, sabotaging minutes by miners or the inability to introduce the assumed technologies into a real network environment.

Overall project evaluation:

8/10

Ethereum

The purpose of this report is not to enter the cryptocurrency as it is Ethereumand determining its current potential, future possible increase or decrease in the importance of the market and presenting the data provided by the study of public activity blockchaina ETH. To the reader who has not had any more contact with cryptocurrencies, I recommend that you first read the foundations of Ethereum and then read the report. The Internet is full of great studies about the basics of ETH.

The general consensus of the cryptocurrency community assumes that the total capitalization of a given asset is, for the moment, one of the best measures of its importance, as well as adoption. Ethereum (ETH) currently occupies the honorable second (2) place in the lists of total capitalization, being valued at 26 billion USD, at 256 USD[1] for art. The real daily volume is 334 million USD, according to OnchainFX[2]. Derivative instruments based on ETH, in particular the ETH Quanto Perpetual product from Bitmex, remain the second-most-traded instrument on the cryptocurrency market. Their daily volume is 366 million USD[3]. These data illustrate the growing interest in the cryptocurrency of Ethereum from the market.

The Ethereum network operates on the basis of the POW (Proof of Work) report, in which miners validate transactions, thus benefiting from economic benefits in the form of block rewards. The average prize from the block is 2.1 ETH[4]. 5 900 blocks are extracted daily, which gives us 20 296 ETH. In addition to transaction fees, the daily revenue of miners is approx. 5 million USD (excluding hardware costs). These data are of particular importance in the context of planned migration from the POW protocol to a more efficient POS and elimination of miners from the ETH chain, which we will discuss in the next chapter.

ETH 2.0 is not a classic forks, but a completely new, independent network. Abandoning the current system and migrating to its more improved version is associated primarily with low performance and the inability to scale on-chain in ETH 1.0 (ETH 1.0 is the colloquially used name of the current system, in opposition to the planned changes and upgrades, which were collected under the name ETH 2.0). POW provides an extraordinary level of network security, and is also a great foundation for decentralization. Decentralization is not just an empty marketing slogan in this case, but a network feature that provides resistance to errors, attacks and censorship attempts from centralized decision-making bodies, such as government bodies. Nevertheless, the tests showed[5]that the ETH network under the leadership of the POW protocol is able to process only 20 transactions per second. (It is true that the change to POS alone does not allow to increase the number of transactions - this is due to sharding.) This is a sufficient value for a global, secure billing system, as it ensures full network stability. When we want to build a distracted supercomputer, with millions of smart contracts (smart contracts), a new type of application (dApp), serving the pioneering type of digital economy (DeFi), we need something more.

Another problem that the architects of ETH want to solve is the concentration of computing power in the hands of just a few mines. According to Vitalik, POS and the low entry level of 32 ETH required to have a transaction validating node, it has a chance to increase the decentralization of the network.

Mining statistics in the BTC network

Figure 1: Mining statistics in the BTC network

Mining statistics in the ETH network

Figure 2: Mining statistics in the ETH network.

In practice, however, the situation with POW and POS is much more complicated. The use in the cryptocurrency of the Labor Evidence (POW) has a lot of positive aspects - the high concentration of physical computing power used to create blocks in the network makes the costs of a possible attack extremely high. A monopoly on network control can also arise in a system that uses POS, where only a handful of players have the majority of the cryptocurrency asset. Nevertheless, ETH 2.0 seems to solve some of the problems that POS cryptocurrencies have so far faced.

Cryptocurrency scalability problem

Scalability is perhaps the most commonly discussed topic in the cryptocurrency community. Different methods - block increase, off-chain transactions - are proposed as solutions that are to increase the number of transactions per second, while not reducing decentralization (which is largely responsible for overall network security and low vulnerability to attacks). The distributed nature of the nodes validating the main chain makes even a coordinated attack on the network difficult to carry out. If such an attack would have a chance to succeed, POW and the energy used in it make the withdrawal of the chain or double spending of coins is unbelievably expensive. In the case of Ethereum, the hour of attack on the network costs 130 thousand. USD[6]but we would need our own hardware infrastructure, as only 5% of the required computing resources can be borrowed from the NiceHash service.

We already know that as long as the POW is suitable for systems such as Bitcoin - digital money, where the amount of transaction is more important to ensure that the transaction will be transferred, so ETH tries to achieve a different goal. It is not a currency in the traditional definition of this concept.

Projects like NEO, EOS, Stellar or Ripple actually offer an unbelievable number of TPS (transactions per second), and subsequent cryptocurrencies are promoting themselves by talking about hundreds of thousands of TPS.

Example of striving for the highest possible number of transactions per second - TPS number test results in the Syscoin crypto invoice

Figure 3: Example of striving for the highest possible number of transactions per second - TPS number test results in the Syscoin cryptographic.

Although the results may look impressive at first glance, this is how I prove in the archival reports on NEO[7] and LISK[8]it is impossible, at this moment, to construct truly secure and decentralized cryptocurrencies that achieve the throughput of thousands of transactions per second. Such quantities of TPS are not needed if the network is not used by users. Conclusions from the Stellar (XLM) document[9] show that in order to increase TPS, security, decentralization and finality of transactions are usually rejected. This behavior led to serious consequences - a week after the publication of the report, the Stellar blockchain actually failed and was switched off[10]. This is a situation that should never happen in dispersed systems. At the moment, it seems that a drastic increase in TPS (above the level of approx. 45 TPS) is possible only when the network is centralized. And this is not just a hypothesis - the data speaks for itself. EOS - 21 of centrally managed validation nodes, NEO - less than 10, all belonging to the NEO Foundation or indirectly controlled by it.

Scaling cryptocurrencies is difficult because each node in the network must approve each transaction and agree with other nodes.

Ethereum, headed by Vitalik Buterin, intends to approach the problem of scalability in a different way.

Therefore, since 2014, a number of basic researches have been conducted and the scientific theory of distributed systems and consensus protocols between nodes are being developed in order to optimize the chain in the future. In the further part of the report, we will look at the whole spectrum of new products planned at Ethereum, which are the result of hard work in the years 2014-2019. Each of these technologies is on the edge of the known - these are usually pioneer methods and systems. The reader must be aware of the exotica and the experimental nature of the proposed changes. Although hundreds of genius minds put all their energy into making everything work properly, we do not know how long it will affect the Ethereum network. There may be unplanned errors, bugs and critical imperfections in the code. All this can cause significant movements in the Ethereum stock market valuation, as each of these changes introduces high uncertainty. If, however, their introduction is successful, Ethereum has a chance to enter a completely new phase and actually become a distributed supercomputer.

The time in which changes under the name ETH 2.0 - or update Serenity - are to be introduced, is estimated for at least a few years. In an optimistic look, ETH 2.0 will be ready in 2022 year.

Launching Beacon Chain is already planned for 2019, in 2020, the first smart WASM contracts and the possibility of migration to a new chain will probably appear, eventually 2022 should be sharding. - Tomasz Drwięga, Parity.

Therefore, it will not happen overnight, but rather it will be a long and arduous process, full of tests, conflicting media reports about the functioning of the new network, as well as general uncertainty. Therefore, remember the conclusions of this report, because a fundamental understanding of the upcoming technologies in ETH and the separation of information noise will play a key role in future investment decisions.

Changes at Ethereum

ETH 2.0, called Serenity[11], it will contain technologies such as: Casper[12] FFG, Sharding, Beacon Chain and eWASM. In addition, numerous solutions of the 2nd Layer category ("second layer") arise - usually they are off-chain technologies in which most of the activity happens outside the main chain, relieving it, and then when all interactions between users are finite ( when there is a conflict between the participants, you go to the main chain, which acts as an arbitrator), the final version is transmitted to the main chain). These are ZK-STARKs, Zether, Plasma and State Channels (off-chain channels similar to the Lightning Network). All this is to make Ethereum fast, cheap to use and private.

For a full understanding, we must go back and see what the general idea guiding ETH developers from the very beginning. Each of these technologies will be discussed in detail in the further part of the report.

Since Ethereum was finally presented to the cryptocurrency community in 2014, it undergoes constant changes aimed at improving the cryptocurrency and achieving its final goal. Becoming a global computer. So far, this goal has not been achieved, but the general picture of Ethereum's development that we can trace over the past years is extremely positive and encourages optimism. ETH developers, instead of rushing with unproven and unstable implementations of pioneer technologies, which have been developed since the end of 2014, use a long-term approach - small changes leading to a clearly defined, larger goal.

Update history of the main ETH protocol

Figure 4: Update history of the main ETH protocol

It has recently been recognized that the Ethereum network is ready to enter the next phase. The plan for the next few years entered the game.

For more than a year, Ethereum has started to implement major changes, fundamentally reorganizing the way the network works. Despite the fact that the leaders of Ethereum's main technical thought may be considered Vitalik Buterin, Justin Drake and Vlad Zamfir - three of those who have a significant influence on the development of cryptocurrencies (although Vlad distanced himself a bit from the project since ETH 1.0) - even they, proposing any changes, they must be approved by the general consensus of all network users. The process of implementing changes in Ethereum is the same as for most cryptocurrencies. We are dealing with the EIP system - Ethereum Improvement Proposal.

These improvements, in particular this year's hardfork Constantinople, were the introduction to ETH 2.0. The block miners reward was limited, the difficulty bomb delayed, to give more time for change - a mechanism to make digging ETH unprofitable (a long-term bomb will force the community to make changes and improvements), and numerous fixes, such as how the reduced costs of "State Channels", which are one of the main, future off-chain scalability solutions for ETH.

Presentation of improvements under hardforka Constantinopol

Figure 5: Presentation of improvements under Hardforopol hardfor

ETH 2.0 is a powerful project with a long-term vision. Why?

  • Fundamental work on the theory, and later on the code, lasted continuously since the 2014 year (when for the first time the idea of ​​migration to POS appeared for the first time - Vitalik then presented the Slasher concept[13] - ETH from Proof of Stake).
  • Testing and full implementation of ETH 2.0 will last for the next few years.
  • In order to achieve the assumed goals, the developers had to face previously unsolved problems of decentralized systems based on the POS protocol, for example: the problem "nothing at stake[14]".
Ethereum Roadmap

Figure 6: Ethereum Roadmap

Ethereum 2.0 - otherwise referred to as update Serenity, the philosophy of its base architecture contains in several main points:

  • Decentralization - to allow any person with a middle class laptop to deposit ETH and validate transactions / shards.
  • Longevity - for the network to be able to remain active even in the event that the vast majority of validation nodes would be disabled (eg if this was a deliberate action, international censorship, or a large-scale natural disaster).
  • Security and Resilience - In addition to decentralization, which drastically increases the cost of a potential attack, prepare ETH for possible threats from future quantum computers, aka. introduce a tool for rapid implementation of cryptographic protocols, which are assumed to be resistant to eg the Shora algorithm[15]. (although this is not a priority)
  • Simplicity - reducing the complexity of the system, even at the price of performance.

Ethereum is to be dispersed (as for a real global computer), the chain is to be able to stay live, even if most nodes are suddenly disconnected, mechanisms for rapid response to changing threats from the quantum computer technology are expected, which are assumed to be capable of break classic encryption, including cryptography of elliptic curves used in Ethereum. Cryptocurrency is also to be developer-friendly, simple and easy to use. The smart contract system must be intuitive and accessible to increase adoption.

Ethereum and the path towards decentralization - real conclusions

Let us assume for a moment that we have the year 2022 / 2023. Each of the improvements in cryptocurrency has been successfully implemented. How does Ethereum 2.0 look like in this case?

  • Numerous Plasma and state channels applications, as off-chain solutions, allow for quick and safe micropayments and micro-transactions, thus freeing up the main chain.
  • On-chain scalability increased almost 1000x, thanks to the division of nodes into "shardy".
  • Depositing smart contracts on the new eWASM virtual machine is cheap and fast.
  • Ethereum works fully using the Proof of Stake - Casper consensus algorithm.
  • The STARKS and Zether technology made Ethereum not only anonymous, but also gave it privacy features, thereby increasing the security of using cryptocurrency.

Though far from the optimism expressed by one of the co-founders of Ethereum and the head of the Consensys company - Joseph Lubin, saying that within two years Ethereum's capabilities will increase more than a thousandfold[16]after an extremely detailed, over two-week analysis of every, even the smallest aspect of technology that will be introduced in ETH 2.0 and ETH 3.0, I think that in the next 5 years, the Ethereum project will become the basic component of the new industry of distributed systems. Ethereum will be fast, safe, cheap and private. Without being a currency like Bitcoin or Monero, it has a chance to avoid being banned by governments, for fear of losing power over the monetary system.

ETH 2.0 - Serenity

Serenity will introduce the POS system - Proof of Stake to Ethereum. It eliminates miners, and the role of validators of transactions is taken by people who have a certain amount of the unit of a given cryptocurrency. In this case, it is Ether. If you want to be one of the "watchdogs" of the network - for which you get a small reward - you must deposit the required cryptocurrencies in a special smart contract.

POS analogy may be placing a deposit on a bank deposit - only that we must remain active

Figure 7: POS analogy may be placing a deposit on a bank deposit - only that we must remain active

The very initial plans of Ethereum developers assumed that the required deposit would be 1500 ETH, or 427 thousand. USD at the current market price. However, this took place many years ago, and it was not expected that the price of Ethereum would increase so much. A new idea, based on the theory of games, assumes the requirement to deposit 32 ETH in order to be able to confirm transactions. Less than 10 thousand USD sounds definitely better

Comparison of the old and the new development plan

Figure 8: Comparison of the old and the new development plan

0 phase[17]

That will come into effect this summer[18], zero phase, starts the ETH to POS migration process[19]. A completely new chain called Beacon Chain will be created. It will be independent of ordinary ETH. The first developers and enthusiasts will be able to convert their Ethereum cryptocurrency to its equivalent in Beacon Chain and start placing in POS. Nevertheless, I do not recommend doing it, because until the 2 phase, which can begin even in two years, we will not probably they had access to our ETH. Yes, we will receive prizes, but it will be impossible to liquefy your ETH, because it will be blocked in a smart contract in the Beacon network. One-way ticket. ETH from the original chain will be damaged.

ETH 1.0 will use Casper FFG[20] - Friendly Finality Gadget. FFG is not a full version of POS, but rather a technically complicated hybrid between POS and POW. Developed by Vitalik Buterin, in the zero phase, it will serve as a technology that ensures the finality of sent transactions (the finality means that the transaction can not be theoretically reversed during the potential attack).

Ethereum Developer Portal

Figure 9: Source - Ethereum Developer Portal

phase 1[21]

There are not many new products waiting for us in this phase. The first, preliminary implementations of sharding technology are planned - that is, sharing all data and transactions on the blockchain into smaller parts that can operate independently of each other and at the same time.

Model of blocking in blockchain

Figure 10: Blockchain sharding model

Sharding ultimately aims to change the way nodes receive and send information about transactions and smart contracts among themselves. It is theorized that thanks to this, even when a significant part of validation nodes becomes "malicious", being a real threat to the stability and further functioning of a given blockchain, shards will allow such specific grouping of nodes that despite malicious participants, it will be possible to reach global consensus. The problem with sharding is that if we divide blockchain into parts - shardy and then assign all "malicious" users to one shard, they can successfully attack the network. To avoid this, it is assumed to introduce a mechanism that would allocate validators to shards in a completely random and both deterministic and transparent manner. But this is an extremely difficult task, so the current plan of developers is to build the so-called Randomness Beacon based on Verifiable Delay Functions (VDFs).

Figure 11: A consensus model when nodes are divided into groups. Stellar (XLM) uses a similar solution

In the 1 Phase, the main Ethereum chain will still function. The prizes will be paid to both miners and BETH people (ETH transferred to Beacon Chain) at Beacon Chain. Initially, therefore, there will be a drastic inflation jump. This is a serious threat, especially for investors (although it will not be liquid assets, it may cause a small panic). If there is no new demand for Ethereum, then temporary high inflation can beat Ethereum's price. Despite this, the models assume that inflation will begin to decrease to the level of 0-1%, along with a slow quenching of mining and POW as well as migration to POS. If I were to make predictions about this subject, I would say that the growing euphoria associated with new technology will effectively erase the concept of high inflation from human consciousness and demand will outstrip the growing supply. Although I can be completely wrong.

Figure 12: Objectives of the 1 Phase

phase 2

The phase II, initially planned for 2021, is the time when Ethereum will finally (hopefully) shine. What can we expect?

  • Transitions to full POS - Casper CBC[22].
  • Sharding on the main chain.
  • Changes of the current Ethereum virtual machine to a new, better version of eWASM.

If the plan is successful, in two years, the Ethereum miners will be able to see at most the museum. The second phase means Ethereum several times faster[23]with smart and affordable smart contracts. If Ethereum manages to make smart deals ultimately cheap, this will outweigh most of its competitors *.

Along with the full POS, one more problem will be solved that torments this type of cryptocurrency. What to do when some of the nodes enter offline. Until now, it has been impossible to detect whether it has happened specifically, or whether a larger group of nodes censor information coming from a minority, and thus tries to obtain a larger portion of rewards from staking for themselves. Thus, Casper CBC introduces a system of penalties, thanks to which such behavior becomes economically unprofitable. Casper, therefore, forces the nodes to behave honestly in relation to the network and its participants. Otherwise, the network takes away some of Ether's deposits deposited in smart contracts.

It is impossible to deny that the architecture of the new Ethereum, despite assurances about the pursuit of simplicity, seems to be extremely complicated. And yes, in the initial phase of the transformation of the protocol, this is how it will be. The following image shows graphical visualization of blocks and dependencies between them in ETH 2.0.

Figure 13: Diagram of block operation in Ethereum 2.0.

Second Layer, off-chain solutions

The optimistic view of the future of Ethereum is also driven, to a large extent, by a group of technologies to transfer traffic from the main chain to less secure but faster channels outside of it. As with the Lightning Network known from Bitcoin, off-chain technologies do not affect the main chain either negatively or positively. They are independent of him, neutral. If they fail, mainchain will not suffer. If they turn out to be successful, and users trust technology, liquidity and adoption will come, they will become a strong complementary tool to the project. Let's list some of them now:

  • Plasma
  • State Channels
  • ZK-Starks
  • Zether

Plasma

Sidechain built according to architecture similar to Merkle Tree (Tree Hash, Tree of Abbreviations). Using Plasma, any user could open his "channel", create his side chain, by which he would move some of the traffic normally performed on the main chain, outside the network.

Figure 14: Visualization of the Plasma functioning

The types of interactions that can occur within or between side chains are, among others: microtransactions, smart contracts or local applications (used only by a group of users who would then transmit the final image of the side network to the main chain - one could imagine a school project built on one from Plasma channels, then, eg at the end of each day, data would be sent to the Ethereum mainnet, where it would be secured and available, for a group of users, from anywhere in the world). It is difficult to estimate the scope of human creativity in the face of such technology - perhaps my predictions are completely wrong, and Plasma will be used for completely different purposes.

State Channel

It is actually a two-way discussion channel[24] between users or the user and the service (machine). The messages take the form of transactions such as "I want to buy a beer for 3 $" or "I want to rent this TV channel for an hour for 5 $". Participants sign each information, making it impossible to negate a series of transactions later.

These transactions take place entirely outside the main block network and only between participants. Which means that they are cheap and very quick to make compared to standard blockchain payments. However, there may be security problems - if we detect an irregularity, we can refer to the main chain, but to do this, we must be, theoretically, all the time on-line when the channel is open. In practice, it is anticipated that for a small fee, it will be possible to provide such monitoring to the third party.

Figure 15: State Channel Model at Ethereum

Idea state channels is simple - enter only the data that is absolutely necessary in the main chain. Although I am of the opinion that the amount of data sent to the blockchain has to be reduced (because of costs - that is why simple cryptocurrencies, such as Bitcoin, serving only one type of activity: payments, are in my opinion the best use of cryptography and blockchain), I think that State Channels solutions, they are an unnecessary complication and should be included in external applications compatible with Ethereum. In no other scenario, these channels are not secured by the main network - only the final introduction of information on the Ethereum blockchain makes them have anything to do with cryptocurrencies.

ZK-Starks[25] and Zether.

Improvement of technology known from Zcash cryptocurrency. It allows you to reduce and optimize the size of transactions, while making them fully private. Thanks to this cryptographic construct, as a user, we are able to confirm that we have certain information without disclosing it to the addressee.

Along with Zether[26]- a new kind of smart contract, which makes the balance of our address is not visible, thus making transactions private, these technologies have a chance to introduce the feature of real privacy to Ethereum. If it succeeds, then the cryptocurrencies like Zcash and Monero, known until now only for their privacy, may lose their meaning (although in the report "Zcash - solving the cryptocurrency privacy puzzle" I prove that Zcash is not private at the moment by using too many non-private addresses type "T" and should not be used for this purpose). Especially if Ethereum manages to scale - what can not be said about Monero.

Summary of Serenity

I believe that it would be a mistake to underestimate the potential of Ethereum and the group of developers working on the ecosystem. Something that seems almost impossible to us today - like effective on-chain scaling, perhaps it is not really difficult to solve. Will Ethereum succeed? I do not know, but I intend to bet on the probability of success. A thorough analysis by Serenity showed that this is not just the introduction of a new funny and useless invention. We are dealing with science in a beautiful form and, hopefully, an effective implementation of theory in practice. If it fails, well - Ethereum we will remember as the largest and most expensive technological playground in the world.

There are high chances that from 3 to 5 years, Ethereum will have privacy features, you can scale the activity of on-chain users, and smart contracts will become affordable. In the next chapter, we will look at network activity and determine what threats may prevent Ethereum in implementing its plans. We will also find out who traps Ethereum on his heels, wanting to be the first to be called a global computer.

Ethereum - Statistics

Ethereum has the most active developers on a monthly basis.

Figure 16: Developers working on ETH Core.

In total, 216 average people work on all initiatives related to Ethereum (remember, this is a public list of people introducing changes to Github - this statistic does not count also developers from projects such as: Parity Technologies, Loom Network or OmiseGo, who also build technology for Ethereum).

Figure 17: Number of developers actively working on Ethereum.

For comparison, one of the leading competitors of ETH - EOS, has an average of 36 developers working on the project, of which 15-20 develops the main EOS Core protocol.

Figure 18: EOS developers

From month to month Ethereum seems to attract more and more software engineers, which is confirmed by this statistic:

Figure 19: Increase in the number of developers throughout the year. The data comes from January 2019 year.

In March this year, Ether's volume flowing through decentralized applications reached its highest value in history (data measured in ETH, not USD!):

Figure 20: Distribution of the monthly ETH volume in dApp.

However, technologies from the new field of decentralized finance - DeFi - seem to enjoy the greatest interest. The total ETH volume flowing through the DeFi projects looks as follows:

Figure 21: ETH in dApp - source: Delphi Digital

Market sentiment is very positive:

Figure 22: Sentiment in relation to the total market capitalization of ETH - Delphi Digital

The only statistics recording a drastic drop are funds collected this year, using ICO. This is largely due to the fact that the role of ICO has been taken over by IEO - the sale of tokens for new projects using cryptocurrency exchanges.

Figure 23: Funds collected by ICO on ETH

ICOs have a total of 2.6 million ETH in their vaults.

Figure 24: ICO funds for ETH

The value of transactions sent in ETH (measured in USD), despite the fall in the fair valuation of Etheru in the 2018 year, remains at a stable level.

Figure 25: Value of transferred transactions measured in USD

All these statistics show a healthy increase in interest in the project, as well as the growing real use of projects from new sectors such as DeFi. Ethereum ranks second in terms of overall network activity (the total network activity consists of the number of transactions, volume and several other factors), just behind Bitcoin. None of the statistics speaks of decreasing interest or migration of users to other projects - quite the contrary.

Competition for Ethereum

Hyperledger Fabric

In my opinion, blockchain from IBM has no chance to evolve beyond a relatively small, private network for selected organizations. IBM entering cryptocurrencies is everything that this community wanted to avoid. Thanks to Fabric, we can create tokens, but only in specific situations.

R3 Corda

Corda R3 is actually just blockchain-inspired software, designed primarily for banking applications. There is no lack of any decentralization features, which means that you can not talk about trust in the network. Corda can issue tokens, but again - only in predetermined circumstances.

EOS

As has been discussed without end, the platform controlled by the 21 group of nodes validating all transactions is, in simple terms, shitcoin. The group can collude and censure if they so desire. Governments and other well-supplied entities can bribe them or force them to act against their will and against the good and safety of people using the platform. This group is able to reverse previously sent transactions[27]that is why there is no question of any trust and effective use of this cryptocurrency.

The initial assumption was that if the block manufacturers started to act against users, they would be voted on and finally deprived of their roles - this was supposed to be the point at which the EOS would become decentralized. Unfortunately, there is no good way to detect that the nodes are in collusion or have been damaged or forced to act improperly.

Cosmos

It is impossible to deny that Cosmos is made up of solid engineers. However, Cosmos focuses on enabling the interoperability of various platforms (cross-chain atomic swaps). And it does not seem that there will be a lot of interoperability between platforms in the next few years, in addition to allowing tokens to move back and forth.

Dfinity

Since Dfinity is currently a closed system, controlled by a small number of investors and token holders, I do not take them into account in this statement. If the source code becomes open-source, I will be able to conduct a separate analysis.

This analysis increasingly directs us to one important question. Is anyone really able to jeopardize Ethereum's current hegemony in the smart contract, dApp and DeFi market? Let us now look at some dangerous scenarios in which Ethereum becomes the victim of its own success.

Threats to the project

  • The war between miners and developers - a conflict aimed at a serious delay of ETH migration to POS, so mining would continue to be profitable.
  • Unlimited MAX SUPPLY cryptocurrencies.
  • High inflation during the introduction of POS awards at Beacon Chain.
  • Inability to introduce technologies established in Roadmap Serenity.
  • Information overload of the network along with the increase of the popularity of the project - delaying solutions that increase the scalability of the network could cause serious clogging of the network.
  • Maintain the ETH 1.0 network until the ETH 2.0 is fully launched.

Summary of ETH 2.0

The changes Ethereum is waiting for are interesting. However, although new technology, as well as increasing statistics on the use of cryptocurrencies, would not make us excited, we should consider the possibility of further delays in the work on the fundamental protocol and potential errors. The scenario in which miners sabotage the chain, or the inability to determine the upper limit of supply of Ethereum - although it may be long-term healthy for the network and its development, the potential investor must have the above things in mind. Ethereum 2.0 is waiting for a hard test, during which the basic economic forces and the market will verify whether the protocol is ready for global adoption. It is also important to keep in mind how experimental technology we are dealing with. Nevertheless, based on the results of the report, I believe that Ethereum will maintain its crushing dominance on the cryptocurrency market in relation to other projects offering the possibility of programming intelligent contracts. None of the projects that are presented as competitors of Ethereum has so far introduced anything that could endanger the status of ETH.

stokarz

Channels on the Telegram platform on which I give (@stokarz):


[1] Coinpaprika ETH data:

https://coinpaprika.com/

[2] OnchainFX Real Daily Volume. OnchainFX in its analysis takes into account only the volume from 10 the largest and most trusted exchanges, not using wash-trade practices: https://messari.io/onchainfx

[3] BraveNewCoin ETH Quanto 24h Bitmex data:

https://bravenewcoin.com/data-and-charts/exchanges/169/markets

[4] Vlad Zamfir. Against Vitaliks fixed supply eip.

https://medium.com/@Vlad_Zamfir/against-vitaliks-fixed-supply-eip-eip-960-18e182a7e5bd

[5] Ethereum 2.0 - A complete guide: https://medium.com/chainsafe-systems/ethereum-2-0-a-complete-guide-d46d8ac914ce

[6] Pow attack costs. https://www.crypto51.app/

[7] NEO - Smart Economy

https://pl.scribd.com/document/407692118/NEO-RAPORT-by-stokarz

[8] LISK - Discovering the potential of sidechain technology in decentralized applications.

https://pl.scribd.com/document/411082413/Lisk-LSK-RAPORT-by-Stokarz

[9] Stellar - Consensus report.

https://pl.scribd.com/document/408530443/Stellar-Konsensus-RAPORT-by-stokarz

[10] Stellar blockchain goes offline: https://cointelegraph.com/news/stellars-blockchain-briefly-goes-offline-confirming-the-project-lacks-decentralization

[11] Serenity. What will it bring? : Serenity, What will it bring? :

https://blog.goodaudience.com/waiting-for-serenity-what-will-it-bring-3144f4f19c1c

[12] Partially explained Casper specs:

https://medium.com/@barnabe/partially-explained-casper-cbc-specs-86d055fd0628

[13] History of Casper. Part I - Slasher:

https://medium.com/@Vlad_Zamfir/the-history-of-casper-part-1-59233819c9a9

[14] Understanding Proof of Stake: The nothing at stake Theorem:

https://medium.com/coinmonks/understanding-proof-of-stake-the-nothing-at-stake-theory-1f0d71bc027

[15] Shora factorization algorithm. How quantum computers can break standard encryption:

[16] Joseph Lubin. Ethereum will expand 1,000. Invest in Blockchain.

https://www.investinblockchain.com/joseph-lubin-ethereum-will-expand-1000x-in-just-2-years/

[17] Ethereum Roadmap Phases: https://docs.ethhub.io/ethereum-roadmap/ethereum-2.0/eth-2.0-phases/

[18] The Future of Ethereum: A Scaling Roadmap to Casper, Plasma and Sharding: https://blockexplorer.com/news/ethereum-scaling-roadmap-casper-plasma-sharding/

[19] Ethereum POS: https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ

[20] Casper FFG Whitepaper: https://arxiv.org/pdf/1710.09437.pdf

[21] Mango Research: Ethereum Roadmap Update: https://www.mangoresearch.co/ethereum-roadmap-update/

[22] Casper CBC and formal verification:

https://medium.com/layerx/cbc-casper-and-formal-verification-1954cbd1d971

[23] A complete guide to Ethereum 2.0:

https://medium.com/chainsafe-systems/ethereum-2-0-a-complete-guide-d46d8ac914ce

* The cost of depositing smart contracts in various cryptocurrency projects can be found in the report: "LISK - Discovering the potential of Sidechain technology, in decentralized applications".

[24] State Channels Ethereum: https://blog.stephantual.com/what-are-state-channels-32a81f7accab

[25] ZK STARKS for Ethereum blockchain:

https://docs.ethhub.io/ethereum-roadmap/layer-2-scaling/zk-starks/

[26] Zether: Towards Privacy in a Smart Contract World:

https://docs.ethhub.io/ethereum-roadmap/layer-2-scaling/zk-starks/

[27] EOS Reverses Transactions: https://cointelegraph.com/news/eos-reverses-previously-confirmed-transactions-as-pundits-decry-centralization

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