Ethereum 2.0 – A Possible Mishap?

My younger cousin would always look forward to cooking a meal she previously cooked that didn’t turn out well. For every time she was ready to come up with her next best shot, it seemed like it was her next worst hit. Sadly, she came to a theory that; 75% of our much anticipated project don’t usually come out the way they are possibly anticipated for.

What if this turns out to be the story with the long awaited and much anticipated Ethereum 2.0? What if it doesn’t pop up the way we all expect it to? What if it comes with a whole lot of charade that questions it’s reliability or scalability? What if it comes and the larger community brings up a comparison with the former and actually prefer it? What if we all just get stuck hoping it would be better and it ever doesn’t turn out to? Let’s read on some more and see some likelihood of a frown after the expected launch targeted to be on December 1.

First, The Ethereum’s Story

Launched in 2015, founded by Vitalik Buterin this cryptocurrency has since then been able to find it’s pitch among its contemporaries and has risen to the point of shoving shoulders with the almighty Bitcoin. This currency comes as the most used decentralised network facilitating the exchange of value, the building of decentralized applications (Dapps), and creation of other open permissionless systems. 

Ethereum 1.0 is being sought to be standardized, laying blocks of improvement upon it especially as regards it’s scalability and security. To this effect came the need for an upgrade to Ethereum  2.0. Ethereum 2.0, otherwise called “Serenity” is a simple term to define an upgrade or improvement upon Ethereum 1.0

According to a blog post from the Ethereum Foundation, v. 2.0  is set to launch on December 1, with the criteria for the launch being that; there needs to be 16,384 validators on the network by November 24, each staking 32 ETH, for a total of 524,288 ETH.

Its development is staged to be on three phases which are;

  • Phase 0

Phase 0 is planned to launch in 2020, with Phases 1 and 2 to materialize in the year closing following 2020. This is the “Beacon Chain” implementation phase. This  Chain stores and manages the registry of validators, and will implement the Proof of Stake (PoS) consensus mechanism for Ethereum 2.0. However, this doesn’t stop the running of the original Ethereum PoW chain as both will run concurrently ensuring data continuity.

  • Phase 1

This second phase is targeted for 2021. The major improvement of this phase is the integration of shard chains. Shard chains are scalability mechanisms in which the Ethereum blockchain is “split” into 64 different chains, which allows for parallel transaction, storing and processing of information. Shard chains will expand Ethereum’s capacity to process transactions and store data. It is designed to handle several times more data than Ethereum 1.0 that even at its most conservative estimate its throughput will be 64 times more enabled compared to v.1.0.The shards themselves will gain more features over time, rolled out in multiple phases.

  • Phase 2

The third phase lacks clarity for now as compared to the preceding phases named above. It is likely to launch in 2021 or 2022. This phase will involve adding ether accounts and enabling transfers and withdrawals, implementing cross-shard transfers and contract calls, building execution environments so that scalable applications can be built on top of Ethereum 2.0. It would make provision for allowing  Ethereum 1.0 chain into Ethereum 2.0 so that PoW can finally be turned off. Though, more improvements are already planned for after Phase 2 is complete. 

What We Expect

  • We Expect a Change From (P.o.W) to (P.o.S)

There will be a change or an upgrade of  Chain from PoW to PoS. The PoS has an advantage of being more energy-efficient than PoW. It decouples energy-intensive computer processing from the consensus algorithm making it to be that lots of computing power to secure the block chain are not needed. Aside from energy efficiency, PoS offers lower barriers to entry, and stronger crypto-economic incentives.

  • We Expect Faster Transactions

The introduction of the shard chain is like adding another lane to upgrade Ethereum from a single lane road to a multiple lane highway. More lanes and parallel processing leads to much higher throughput. This thus allows for a substantial boost to capacity, since transactions can be processed simultaneously instead of consecutively.

  • We Expect Greater Security.

The development of Ethereum 2.0 is devised with security in mind. Majority proof  of stake networks have a small set of validators, which allows for a more centralized system and decreased network security. This version 2.0 requires a minimum of 16,384 validators, making it much more decentralized hence more secure. These are just a few amongst other features promised and expected.

What We May Get

Whatever has got advantages also has got to have some disadvantages too. We may turn out to see certain things that might just impede on the enjoyability of the v.2.0. Few experts and analysts state the likely problems that may arise out of this upgrade;

  • Model Complexity

The complexity of this model can become a strain at some point. An inexperienced user that doesn’t understand the stakeout is vulnerable to assaults of theft, loss of funds or unrecoverable funds from the network, scams, key withdrawal e.t.c 

  • PoW, More Decentralized than PoS

Ethereum is as earlier stated, the most widely used decentralized app. However, through the introduction of this upgrade, there becomes the need to wonder if it will remain so. The original PoW chain is more decentralized thus seeking to bring up PoS somehow, questions the issue of a stronger decentralization.

This is because,  In a PoW system, the chain security is closely knitted to limited resources that exist in the outside physical world. This has nothing to do with the virtual blockchain. So, automatically, it means the security of the chain becomes distributed among a larger group of  anonymous people of which none of the groups have absolute power over the definition of the system .

  • Security Vulnerabilities of the System

The option availability of staking ETH via a staking pool by an  external party poses similar risk to storing your crypto assets on the exchanges.

Vulnerabilities of the system and minor coding mistakes are likely frailties of this new system. Any security hole in the code is liable to attract hackers. Hence, Paolo Ardoino, the chief technology officer for Bitfinex cryptocurrency exchange, asserts that the Ethereum 2.0 blockchain is likely to be feasted by hackers. In his words;

The ETH 2.0 was developed with the greatest security. Therefore, it can take a few years for the ETH 1.0 to be fully integrated, as a bidirectional bridge between the two chains can create weak points and facilitate chain hacking. 

 

  • Too risky to stake

The more people are getting interested in becoming validators and setting up staking nodes on the ETH 2.0, the more there are lesser returns. The Ethereum roadmap states that the staking rewards can be as low as 1.56% per year.

Even though rewards can still be gotten, the inclusion of Price  volatility  into the picture, poses a risk of losing more than actually earned. While funds are stored in staking nodes, validators might not be able to withdraw their funds and sell them on an open market in time in the case of major price plunge or market dips. The decrease in ETH price can easily mitigate all the returns validators made from the staking rewards so far in an instant.

  • Concerning the Sharding Chains;

Alexey Akhunov, an independent researcher and software developer for Ethereum states that Ethereum 2.0 will spawn a physically sharded system of 64 linked databases. Optimizing the communication between shards in this environment, may pose an even greater challenge to network scalability than a transaction bottleneck.

  • Two Choices for Miners

This change or shift from Proof of Work to Proof of Stake will no doubt, affect Ethereum miners. Once the PoS consensus renders PoW mining obsolete, it’s miners will be left with selling their equipment at discounted prices. Thus, there is either a choice to use remaining funds to buy up ETH and continue being stakers but this time, on the PoS network or entirely opt out of the business.

  • Provision For Higher Exit Rate

The idea of joining staking pools can create the risk of exit scams. When enough virtual resources have been pooled together by these scammers, they simply shut down their nodes and flee with funds of innocent investors. 

  • High  Staking Requirement

Another risk is the fact that stakers will have high requirements. Since this is so, to ensure an  eligibility for transaction validations, there becomes a need to freeze funds.

  • Loss of Funds

Token s from the original network can be burned and replaced with new ones from the updated chain. However, the core of the technical details is that the DApps remain operational and do not experience any changes until they are manually switched to 2.0 thus there becomes a risk that the update will fail. According to Konstantin Kladko, a SKALE network developer, believes that in such cases, there is no way to transfer back, which means that validators are prone to losing 50% of their money once the transition is complete. 

  • Effect on Coin Price

The crypto community discussion concerning the U.S. regulators recognizing ether as collateral poses a risk to the price of this coin. This is because of the likely negative impact it can have on the future of the project, as we see in the case of the TON blockchain platform. However, irrespective of whether the SEC makes a decision or not, any judgment made is likely to result in lengthy testing procedures that will inevitably affect the price of the coin.

Just Say to Your Nerves; “Be calm”..

Ever felt disappointed at some point before? Of course, yes. Well, if that’s the case, I trust it isn’t  a wonderful feeling.

All we can ever do is to keep anticipating the best. Irrespective of the inherent risks involved, this evolution no doubt, is crucial to the blockchain industry. While we keep our fingers crossed, we only have to keep hoping that it can only get better. 

If it happens that we get the best out of our expectations, bravo to Buterin and his team but if it happens otherwise, we will shift our gaze and let it focus on the already attained positive goals of Ethereum 2.0 while we work on its loopholes. 

Needless to say, it will have proven something right; and that is, my little cousin’s theory after all……

 

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