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The purpose of this report is not to introduce you to kryptowaluty which is Ethereum, and determining its current potential, future possible increase or decrease relative to the market and presentation of data provided by the study of public ETH blockchain activity.
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 need to go back thousands of years and embrace a much wider horizon of events. Ever since our brains grew powerful enough to understand the idea of transactions between individuals of the same species - in this case, homo sapiens - we often craved for the possessions and goods of our "neighbor" in the tribe. But how do I exchange the fruits of my own labor for 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 an achievement equal to the discovery of fire. With the exchange of the first kauri shell, which was used by ancient human settlements as a currency, for a commodity, the process of forming what we now call modern economy began. The unification of measures of value, this peculiar unwritten social contract, was the cause of our global development.
So we already know how powerful money is and what role it played in our history. We will now look at modern times.
The drastic development of the Internet from the 90s of the twentieth century to the present day shows an extraordinary leap in the speed of progress made by mankind. However, until now, the internet has been very limited. It allowed us to transmit information, but the transmission of value was still in the hands of the traditional financial system, with centralized institutions that had had full power over money for decades. Even services like Paypal or Mastercard's modern online payment systems still remained in the hands of one central authority. An authority that has the ability to intervene in finances - to reverse a transaction if it is inconsistent with the company's policy or to censor people from certain countries. The Internet needed a tool that would make it possible to send value - money anonymously, democratically, and the people operating the network would have a clear economic initiative for sending transactions - no matter what their origin was.
And that's what Bitcoin is. Money for the Internet.
However, development and innovation do not like stagnation. Bitcoin was, is, and will continue to be a great digital money that anyone on Earth can use. But Bitcoin is money and nothing but money. It was programmed this way and it does the job. However, it quickly turned out that Bitcoin opened the gate to a new branch of science, which is generally - cryptocurrencies. Being at the crossroads of the fields of economics, computer science, mathematics, market psychology, distributed systems - interdisciplinary - the inventors of this world very quickly came to the correct 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 take a look at the upcoming ETH 2.0 update, consider its strengths, weaknesses, consequences, and potential threats. We will look at the real uses of Ethereum, the scale of adoption, and the growing day-to-day market competition.
I invite you on a journey towards a decentralized future. storkman
About the author
I analyze and research the market and cryptocurrency technology. My reports are of a private opinion and do not constitute investment advice. I do analyzes any cryptocurrencies on requestI am also involved in various types of projects in the field of cryptocurrencies.
For cooperation purposes, please contact me:
E-mail: stokarzlol@gmail.com
Telegram: @start
I invite you to familiarize yourself with my previous reports:
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
- Ethereum
- Summary of ETH 2.0
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 to Ethereum.
- Plasma and State Channels will enable Ethereum to scale off-chain (off the main chain).
- ZK-STARKS and Zether will allow the privacy features known from Zcash and Monero to be introduced into Ethereum.
- Ethereum has the largest group of active developers of any similar cryptocurrency.
- There are currently no clear indications that any of the similar cryptocurrencies in the field of smart contracts and decentralized applications may be taking the place of Ethereum.
- Please note that it will take at least 3 years to fully introduce Serenity.
- Ethereum is also exposed to several serious potential threats - high inflation, protocol sabotage by miners, or the inability to introduce the assumed technologies into the 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 is that the total capitalization of an asset is so far one of the best measures of its importance as well as adoption. Ethereum (ETH) is now honored in second (2nd) place on the total capitalization charts, being valued at $ 26 Billion at a price of $ 256[1] for art. The real daily volume is $ 334 million, according to OnchainFX data[2]. ETH-based derivatives, 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[3]. These data illustrate the declining interest in the Ethereum cryptocurrency from the market side.
The Ethereum network is based on the POW (Proof of Work) protocol, in which miners validate transactions, reaping the economic benefit of block rewards. The average block reward is 2.1 ETH[4]. 5 blocks are mined daily, which gives us 900 ETH. In addition to transaction fees, miners have a daily income of approximately $ 20 million (not including hardware costs). These data are of particular importance in the context of the planned migration from the POW protocol to more efficient POS and the elimination of miners from the ETH chain, which we will discuss in a later chapter.
ETH 2.0 is not a classic fork, but a completely new, independent network. Abandoning the current system and migrating to its more improved version is associated primarily with low efficiency and the inability to on-chain scaling in ETH 1.0 (ETH 1.0 is the commonly used name of the current system, as opposed to the planned changes and upgrades that have been collected under the name ETH 2.0). POW provides an extraordinary level of network security and is also a great foundation for decentralization. In this case, decentralization is not just an empty marketing slogan, but a network feature that ensures resistance to errors, attacks and censorship attempts by centralized decision-making units, such as government bodies. Nevertheless, tests showed[5]that the POW-guided ETH network is only able to process 20 transactions per second. (It is true that the switch to POS itself does not increase the number of transactions - it is due to sharding.) This value is sufficient for a global, secure billing system as it ensures full network stability. And when we want to build a distributed supercomputer, with millions of smart contracts, a new type of application (dApp) that supports a pioneering type of digital economy (DeFi), we need something more.
Another problem that ETH architects 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 validation node have the potential to increase network decentralization.
Figure 1: Mining statistics on the BTC network
Figure 2: Mining statistics in the ETH network.
In practice, however, the situation with POW and POS is much more complicated. The use of Proof of Work (POW) in the cryptocurrency 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 POS-based system, where only a handful of players own the bulk of the cryptocurrency. Nevertheless, ETH 2.0 seems to solve some of the problems that POS-based cryptocurrencies have faced so far.
Cryptocurrency scalability problem
Scalability is perhaps the most discussed topic in the cryptocurrency community. Various methods - block expansion, off-chain transactions - are proposed as solutions to increase the number of transactions per second without reducing decentralization (which is largely responsible for the overall network security and low vulnerability to attacks). The distributed nature of the main chain validation nodes makes even a coordinated attack on the network difficult to implement. Should such an attack be successful, the POW and the energy it uses make it incredibly expensive to undo the chain or double-spend the coins. In the case of Ethereum, an hour of attack on the network costs 130. USD[6]and we would need our own hardware infrastructure, as only 5% of the required computing resources can be borrowed from NiceHash.
We already know that while POW is suitable for systems like Bitcoin - digital money where the certainty that the transaction is transferred is more important than the number of transactions, the ETH tries to achieve a different goal. It is not a currency in the traditional definition of the term.
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.
Figure 3: An example of striving for the highest number of transactions per second - Syscoin TPS test results.
While the results may look impressive at first glance, as I prove in the archival reports on NEO[7] and LISK[8], it is impossible, at the moment, to construct truly secure and decentralized cryptocurrencies with a throughput of thousands of transactions per second. Such amounts of TPS are useless if the network is not used by users. Conclusions from the document about Stellar (XLM)[9] show that in order to increase TPS, security, decentralization, and finality are usually rejected. This behavior led to serious consequences - a week after the publication of the report, the Stellar blockchain actually crashed and was turned off[10]. This is a situation that should never happen in distributed systems. At present, it seems that a drastic increase in TPS (above the level of approx. 45 TPS) is only possible if the network is centralized. And it's not just a hypothesis - the data speaks for itself. EOS - 21 centrally managed validation nodes, NEO - less than 10, all owned or indirectly controlled by the NEO Foundation.
Scaling cryptocurrencies is difficult because each node in the network must approve each transaction and come to an agreement with other nodes.
Ethereum, led by Vitalik Buterin, intends to approach the scalability problem in a different way.
Therefore, numerous basic research has been carried out since 2014 and the scientific theory of distributed systems and inter-node consensus protocols is being developed for future chain optimization. Later in the report we will look at the entire spectrum of novelties planned in Ethereum, the result of intensive scientific work in 2014-2019. Each of the mentioned technologies is on the edge of what is known - these are usually pioneering methods and systems. The reader must be aware of the exotic and experimental nature of the proposed changes. While hundreds of brilliant minds put all their energies into making things work as expected, we don't know how the long-term impact this will have on the Ethereum network. You may encounter unplanned bugs, bugs, and critical imperfections in your code. All of this can cause significant movements in Ethereum's stock market valuation as each of these changes introduces high uncertainty. However, if their introduction is successful, Ethereum has a chance to enter a whole new phase and actually become a distributed supercomputer.
The time in which the changes under the name ETH 2.0 - or the Serenity update - are to be introduced, is estimated at at least several years. On a positive note, ETH 2.0 will be ready in 2022.
The launch of Beacon Chain is planned for 2019, in 2020 there will probably be the first WASM smart contracts and the possibility of migrating to a new chain, finally sharding should appear by 2022. - Tomasz Drwięga, Parity.
So it will not happen overnight, but rather a lengthy and arduous process, full of tests, conflicting media reports about the functioning of the new network, as well as general uncertainty. Therefore, keep in mind the conclusions of this report because a fundamental understanding of upcoming technologies in ETH and the decoupling of information noise will play a key role in future investment decisions.
Changes at Ethereum
ETH 2.0, called Serenity[11], will include technologies such as: Casper[12] FFG, Sharding, Beacon Chain and eWASM. Additionally, numerous solutions of the 2nd Layer category are created (called "second layer" - usually these are off-chain technologies, in which most of the activity takes place outside the main chain, relieving it, and then when all interactions between users are finished ( when there is a conflict between the participants, it goes to the main chain, which acts as an arbiter), 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 the full understanding, we need to step back and see what the overall thought has been for ETH developers from the very beginning. Each of these technologies will be discussed in detail later in this report.
Since Ethereum was finally introduced to the cryptocurrency community in 2014, it has been undergoing constant changes to improve the cryptocurrency and achieve its final goal. Become a global computer. So far, this goal has not been achieved, but the overall picture of Ethereum's development over recent years is extremely positive and optimistic. ETH developers, instead of rushing with unproven and unstable implementations of pioneering technologies that have been developed since the end of 2014, use a long-term approach - small changes leading to a clearly defined, larger goal.
Figure 4: Main ETH protocol update history
The Ethereum network was recently recognized as ready to enter the next phase. The plan for the next few years has come into play.
For over a year, Ethereum has started implementing major changes, fundamentally reorganizing the way the web works. Despite the fact that the leaders of the main technical thought of Ethereum can be considered Vitalik Buterin, Justin Drake and Vlad Zamfir - three of the people with a significant influence on the development of cryptocurrency (although Vlad has distanced himself a bit from the project since ETH 1.0) - even them, they must be approved by the general consensus of all network users when proposing any changes. The process of implementing changes to Ethereum is the same as for most cryptocurrencies. We are dealing with the EIP system - Ethereum Improvement Proposal.
These improvements, especially this year's Constantinople hardfork, were the introduction to ETH 2.0. The reward for block miners has been reduced, the difficulty bomb has been delayed to allow more time to make changes - a mechanism to make ETH mining unprofitable (the bomb is intended to even force the community to make changes and improvements in the long run), and numerous fixes have been added, such as such as reduced cost "State Channels", which are one of the major future off-chain scalability solutions for ETH.
Figure 5: Presentation of the Constantinopol hardforce improvements
ETH 2.0 is a powerful project with a long-term vision. Why?
- Fundamental work on the theory, and later on the code, continued uninterruptedly since 2014 (when the idea of migrating to POS first appeared - Vitalik then presented the concept of Slasher[13] - ETH with Proof of Stake).
- The testing and full implementation of ETH 2.0 will continue over the next few years.
- In order to achieve the assumed goals, developers had to face previously unresolved problems of decentralized systems based on the POS protocol, such as: the problem of "nothing at stake[14]".
Figure 6: Ethereum Roadmap
Ethereum 2.0 - otherwise known as the Serenity update, the philosophy of its core architecture includes several main points:
- Decentralization - to allow anyone with a mid-range laptop to deposit ETH and validate transactions / shards.
- Longevity - so that the network would be able to remain active even in the case when the vast majority of validation nodes would be turned off (e.g. if it 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 the rapid implementation of cryptographic protocols which are assumed to be resistant to e.g. Shor's algorithm[15]. (although this is not a priority)
- Simplicity - Reducing system complexity, even at the cost of performance.
Ethereum is therefore to be distributed (as befits a real global computer), the chain is to have the ability to stay live even if most nodes are suddenly disconnected, there are to be mechanisms to quickly respond to changing threats from quantum computer technology, which are assumed to be capable of break classic encryption, including elliptic curve cryptography used in Ethereum. The cryptocurrency also aims 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 to decentralization - real conclusions
Let's assume for a moment that the year is 2022/2023. Each of the cryptocurrency improvements has been implemented successfully. What does Ethereum 2.0 look like then?
- Plasma's numerous applications and state channels, as off-chain solutions, allow for fast and secure micropayments and microtransactions, thus not burdening the main chain.
- On-chain scalability has increased by almost 1000x by dividing nodes into "shards".
- Depositing smart contracts on the new eWASM virtual machine is cheap and fast.
- Ethereum works to the fullest with the Proof of Stake - Casper consensus algorithm.
- STARKS and Zether technology have made Ethereum not only anonymous, but also made it private, thus increasing the security of cryptocurrency use.
Although I am far from the optimism expressed by one of the co-founders of Ethereum and the CEO of Consensys - Joseph Lubin, who said that in two years the possibilities of Ethereum will increase over a thousand times[16], after an extremely detailed, over two-week analysis of each, even the smallest aspect of technology that will be introduced in ETH 2.0 and ETH 3.0, I believe that in the next 5 years, the Ethereum project will become a staple component of the new distributed systems industry. Ethereum will be fast, secure, cheap and private. Not 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 a POS system - Proof of Stake to Ethereum. It eliminates miners, and the role of transaction validators is taken over by people who have a certain number of units 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 receive a small reward - you must deposit the required cryptocurrencies in a special smart contract.
Figure 7: A POS analogy may be to place a deposit on a bank deposit - only we need to stay active
The very initial plans of the Ethereum developers assumed that the required deposit would be 1500 ETH, or 427 thousand. USD at the current market price. However, it happened many years ago and the price of Ethereum was not expected to rise so enormously. The new idea, based on the theory of games, requires a deposit of 32 ETH in order to be able to confirm transactions. Less than 10 USD sounds much better
Figure 8: Comparison of the old and new development plan
phase 0[17]
That will come into effect this summer[18], phase zero, starts the ETH to POS migration process[19]. A completely new chain called Beacon Chain will be created. It will be independent of the regular ETH. Early adopters and enthusiasts will be able to convert their Ethereum cryptocurrency into its Beacon Chain counterpart and start staking at POS now. Nevertheless, I do not recommend doing this, as we will not be until Phase 2, which may begin in two years probably have access to the ETH we have. Yes, we will receive rewards from staking, but it will be impossible to liquidate the ETH we have, because it will be blocked in a smart contract in the Beacon network. One-way ticket. The ETH from the original chain will become corrupted.
ETH 1.0 will be used by the 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 phase zero it will serve as a technology ensuring finality in sent transactions (finality means that the transaction cannot theoretically be reversed during a potential attack).
Figure 9: Source - Ethereum Developer Portal
phase 1[21]
There is not much news in this phase. The first, preliminary implementations of sharding technology are planned - that is, dividing all data and transactions on the blockchain into smaller parts that can operate independently and at the same time.
Figure 10: Sharding model in blockchain
Sharding is ultimately to change the way nodes receive and send information about transactions and smart contracts among themselves. It is theorized that thanks to this, even if 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 for such a specific grouping of nodes that, despite malicious participants, it will be possible to reach the global consensus. The problem with sharding is that if we divide the blockchain into shards and then allocate all "malicious" users to one shard, they can successfully attack the network. To avoid this, it is assumed to introduce a mechanism that would make assigning validators to shards in a completely random, deterministic and transparent manner. But it is an extremely difficult task, so the current developers' plan is to build the so-called Randomness Beacon based on Verifiable Delay Functions (VDFs).
Figure 11: Consensus model when nodes are divided into groups. A similar solution is used by Stellar (XLM)
In Phase 1, the main Ethereum chain will continue to function. Prizes will be paid to both miners and BETH stackers (ETH transferred to Beacon Chain) in Beacon Chain. Initially, therefore, there will be a drastic jump in inflation. This is a serious threat, especially for investors (although they will not be liquid assets, it may cause a small panic). If there is no new demand for Ethereum, a temporary high inflation could lower the price of Ethereum. Nevertheless, the models assume that inflation will start to decline to the level of 0-1%, along with the slow decay of mining and POW and migration to POS. If I were to make predictions about this, I would say that the growing euphoria about the new technology would effectively wipe out the notion of high inflation from people's consciousness, and demand would outstrip supply. Though I may be completely wrong.
Figure 12: Objectives of the 1 Phase
phase 2
Phase two, initially planned for 2021, is the time when Ethereum will (hopefully) begin to 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, we will be able to see the Ethereum miners at most in the museum. The second phase means several times faster Ethereum[23], with efficient and affordable smart contracts. If Ethereum can finally make smart contracts cheap, it will outclass most of its competitors *.
Along with the full POS, one more problem plaguing cryptocurrencies of this type will be solved. What to do when some of the nodes go offline. Until now, it was impossible to detect whether it happened on purpose, or whether a larger group of nodes censored the information coming from the minority, and thus tried to win a larger portion of the stacking reward for themselves. Casper CBC therefore introduces a system of penalties that make such behavior economically unprofitable. So Casper forces the nodes to be fair to the network and its participants. Otherwise, the network takes away some of Ether's deposits made in smart contracts.
It cannot be denied that the architecture of the new Ethereum, despite its claims to pursue simplicity, appears to be incredibly complex. And yes, in the initial phase of protocol changes, this will be the case. The image below shows a graphical visualization of blocks and their relationships in ETH 2.0.
Figure 13: Diagram of block functioning in Ethereum 2.0.
Second Layer, off-chain solutions
The optimistic outlook on the future of Ethereum is also driven, to a large extent, by a group of technologies designed to shift traffic from the main chain to less secure but faster channels beyond it. As in the case of Bitcoin's Lightning Network, off-chain technologies do not negatively or positively affect the main chain. They are independent of it, neutral. If they fail, the mainchain won't suffer. If they prove successful and users trust the technology, liquidity and adoption will come, they will become a powerful complementary tool to the project. Let us now list a few of them:
- Plasma
- State Channels
- ZK-Starks
- Zether
Plasma
Sidechains built according to architecture similar to Merkle Tree (Hash Tree, Shortcut Tree). Using Plasma, any user could open their "channel", create their own side chain, by which they would take some of the traffic normally done on the backbone outside the network.
Figure 14: Visualization of Plasma functioning
The types of interactions that may occur within or between the side chains include: 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, and then, e.g. at the end of each day, the data would be sent on the mainnet of Ethereum, where it would be secured and available to 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 - maybe my predictions are completely wrong, and Plasma will be used for completely different purposes.
State Channel
It is in fact a two-way discussion channel[24] between the users or 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 $ 5 for an hour." Participants sign each piece of 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 they are cheap and very quick to make compared to standard blockchain payments. However, there can be security issues - if we find something wrong, we can refer to the main chain, but to do so we must, in theory, be online all the time while the channel is open. In practice, it is anticipated that for a small fee it will be possible to commission such monitoring to a third party.
Figure 15: Model State Channel on Ethereum
The idea of state channels is simple - only enter completely necessary data into the main chain. Even though I am of the opinion that the amount of data sent on the blockchain needs to be reduced (for cost reasons - which is why simple cryptocurrencies like Bitcoin only serve one type of activity: payments are in my opinion the best use of cryptography and blockchain), I think that State Channels solutions, are an unnecessary complication and should be counted among third party Ethereum compatible applications. After all, these channels are not secured by the main network in any scenario - 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 the technology known from the Zcash cryptocurrency. It allows you to reduce and optimize the size of transactions, while making them completely 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 type of smart contract that makes the balance of our address invisible, thus making transactions private, these technologies have a chance to introduce the feature of real privacy to Ethereum. If it succeeds, the importance of cryptocurrencies known only for their privacy, such as Zcash and Monero, may lose their importance (although in the report entitled: "Zcash - solving the mystery of cryptocurrency privacy", I prove that Zcash is not currently private due to too high use of non-private addresses type "T" and should not be used for these purposes). Especially if Ethereum manages to scale - which cannot be said about Monero.
Summary of Serenity
I think it would be a big mistake to underestimate the potential behind Ethereum and the developer group that is working on the ecosystem. Something that seems almost impossible to us today, such as effective on-chain scaling, may not actually be difficult to solve. Will Ethereum succeed? I don't know, but I'm going to bet on the probability of success. Serenity's careful analysis has shown that this is not just the introduction of a new funny and useless invention. We are dealing with science in its beautiful form and hopefully with an effective implementation of the theory in practice. If it fails, well - we will remember Ethereum as the largest and most expensive technological playground in the world.
Chances are high that over the course of 3 to 5 years, Ethereum will have privacy features, it will be possible to scale on-chain user activity, and smart contracts will become affordable. In the next chapter, we will look at network activity and determine what threats may prevent Ethereum from implementing its plans. We will also find out who is on the heels of Ethereum, wanting to be the first to become a global computer.
Ethereum - Statistics
Ethereum has the most active developers on a monthly basis.
Figure 16: Developers working on ETH Core.
A total of 216 people on average work on all Ethereum-related initiatives (remember, this is a public list of people introducing changes on Github - this statistic also does not include developers from projects such as Parity Technologies, Loom Network or OmiseGo, who are also building 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 only 15-20 develop the main EOS Core protocol.
Figure 18: EOS developers
Month by month, Ethereum seems to attract more and more software engineers, which is confirmed by this statistic:
Figure 19: Growth in the number of developers over the year. The data is from January 2019.
In March of this year, the volume of Ether flowing through decentralized applications reached the highest value ever (data measured in ETH, not USD!):
Figure 20: Distribution of the monthly ETH volume in dApp.
However, the technologies in the new field of decentralized finance - DeFi - seem to be the most popular. The total volume of ETH flowing through DeFi projects is 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 statistic that shows a drastic decline is the funds collected, this year, using ICOs. This is largely due to the fact that the role of ICOs has been taken over by IEO - the sale of tokens for new projects via cryptocurrency exchanges.
Figure 23: Funds raised by an ICO on the 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 drop in the price of Ether in 2018, remains stable.
Figure 25: Value of uploaded transactions measured in USD
All these statistics show a healthy growth of 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 (overall network activity consists of the number of transactions, volume and several other factors), right behind Bitcoin. None of the statistics show a declining interest or migration of users to other projects - quite the opposite.
Competition for Ethereum
Hyperledger Fabric
In my opinion, blockchain from IBM has no chance of evolution beyond a relatively small, private network for selected organizations. IBM getting into cryptocurrencies is all that this community wanted to avoid. Thanks to Fabric, we can create tokens, but only in strictly defined situations.
R3 Corda
Corda R3 is actually just blockchain-inspired software, primarily intended for applications in the banking sector. Corda lacks any features of decentralization, which makes it impossible to speak of trust in the network. Corda can spend tokens, but again only under predetermined circumstances.
EOS
As has been discussed endlessly, the platform controlled by a group of 21 nodes validating all transactions is basically shitcoin. The group can collude and censor if they so wish. Governments and other well-resourced entities can bribe or compel them to act against their will and against the welfare and safety of those using the platform. This group is able to reverse previously sent transactions[27], so there is no question of any trust and effective use of this cryptocurrency.
The initial assumption was that if block makers started working against users, they would be voted on and eventually stripped of their roles - this was going to be the point at which EOS was becoming decentralized. Unfortunately, there is no good way to detect that nodes have colluded or have been damaged or forced to malfunction.
Cosmos
It cannot be denied that Cosmos is made up of reliable engineers. However, Cosmos is focused on enabling cross-chain atomic swaps. And there doesn't seem to be much interoperability between platforms in the next few years, other than allowing tokens to travel back and forth.
Dfinity
As Dfinity is currently a closed system, controlled by a small number of investors and token holders, I do not include them in this chart. If the source code becomes open-source, I will be able to do a separate analysis.
This analysis leads us more and more to one important question. Is anyone really able to threaten Ethereum's current hegemony in the smart contracts, dApp and DeFi markets? Now let's look at some dangerous scenarios where Ethereum becomes a victim of its own success.
Threats to the project
- War between miners and developers - a conflict aimed at seriously delaying the migration of ETH to POS, so that mining continues to be profitable.
- Unlimited MAX SUPPLY cryptocurrencies.
- High inflation with the introduction of POS prizes in Beacon Chain.
- Inability to implement the technologies assumed in the Serenity Roadmap.
- Network information overload with the growing popularity of the project - delay in solutions that increase network scalability could cause serious clogging of the network.
- ETH 1.0 network maintenance until ETH 2.0 is fully operational.
Summary of ETH 2.0
The changes that await Ethereum are interesting. However, however new technology as well as the growing statistics on the use of cryptocurrency do not excite us, we should take into account the possibility of further delays in work on the fundamental protocol and potential errors. A scenario where miners sabotage the chain, or there is an inability to determine the upper limit of the Ethereum supply - while this may be healthy for the network and its development in the long term, a potential investor needs to keep these things in mind. Ethereum 2.0 is facing a tough test, during which the basic economic forces and the market will verify that the protocol is ready for global adoption. It's 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 in the cryptocurrency market over other projects offering the possibility of programming smart contracts. So far, none of the projects presented as Ethereum competitors have introduced anything that could threaten the ETH status.
stokarz
Channels on the Telegram platform where I am active (@stokarz):
[1] Coinpaprika ETH data:
[2] OnchainFX Real Daily Volume. In its analysis, OnchainFX only takes into account the volume from the 10 largest and most trusted exchanges that do not use wash-trading practices.: https://messari.io/onchainfx
[3] BraveNewCoin ETH Quanto 24h Bitmex date:
[4] Vlad Zamfir. Against Vitaliks fixed supply eip.
[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
[8] LISK - Discovering the potential of sidechain technology in decentralized applications.
[9] Stellar - Consensus report.
[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? :
[12] Partially explained Casper specs:
[13] History of Casper. Part I - Slasher:
[14] Understanding Proof of Stake: The nothing at stake Theorem:
[15] Shor's factorization algorithm. How quantum computers can break standard encryption:
[16] Joseph Lubin. Ethereum will expand 1,000. Invest in Blockchain.
[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:
[23] A complete guide to Ethereum 2.0:
* A quote for 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] Ethereum State Channels: https://blog.stephantual.com/what-are-state-channels-32a81f7accab
[25] ZK STARKS for Ethereum blockchain:
[26] Zether: Towards Privacy in a Smart Contract World:
[27] EOS Reverses Transactions: https://cointelegraph.com/news/eos-reverses-previously-confirmed-transactions-as-pundits-decry-centralization
