Ethereum 2.0, double stake or exit? Focus on the upgrade that can change everything

Proof of Stake Coming Soon – Launched since 2015, network consensus Ethereum (ETH) provided by the mechanism proof of work. However, once the network was launched, Ethereum developers expressed their desire to change the consensus mode from proof of work to proof of stake. As we approach this important transition, let’s turn to events come along as well compromise inherent in these changes.

Ethereum and the pursuit of scalability

Network Ethereumlike many other blockchains, is facing important scalability problem. In its current form, the network is unable to handle the growing mass of transactions taking place on the network. To solve this problem, the developers have developed a number of updates aimed at significantly improving network performance.

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The Merge: Moving to Proof of Stake

Among these updates, we find the long-awaited transition from proof-of-work to proof of stake. Indeed, as we saw in the introduction, this transition has been on the minds of developers since the network launched in 2015.

However, given the complexity of its implementation, this transition was repeatedly postponed over the years. Finally, this will take the form of an update called “Confluence”seeking to link the Proof-of-Stake consensus layer on the beacon chain to the Ethereum execution layer, namely the existing ecosystem of decentralized applications.

Currently no no official date to deploy The Merge. However, the developers are hoping to roll this out in the second half of 2022.

However, we note an important point: Merger Won’t Improve Ethereum Performance. After all, the transition to Proof of Stake will have almost no effect on the scalability of the network. However, this will be the cornerstone for rolling out other updates that will impact performance.

Sharding: multiplicity of blockchains

In the blockchain world, there are 2 main methods to improve network performance:

  • in vertical scalingthe purpose of which is to increase the individual power of networked computers;
  • in horizontal scalingthe purpose of which is to increase network bandwidth by increasing the number of computers that make it up.

So update sharding it’s a technique horizontal scaling. In practice, this aims to divide network into many sub-blockchains called shards, as explained in the CoinShares report:

“Sharding allows you to increase the overall throughput of a protocol without increasing the computational needs of the individual computers running it. In other words, Ethereum will be able to process a lot more information while relying on relatively random users to provide distributed computing power through regular consumer computers. »

Compromises of these updates

Obviously, like all solutions, proof of stake and sharding require certain compromise. Let’s take a closer look at these trade-offs based on an analysis conducted by CoinShares.

Segmentation trade-offs

One of the main trade-offs of sharding is in the area decentralization. Indeed, the horizontal scalability method tends to reduce the decentralization of the network.

Indeed, one of the main characteristics of a decentralized blockchain is the ability for a network participant to recheck all transactions that have taken place on the network. Thus, the participant can take advantage of the network without must trust other members.

As we have seen, sharding aims to split a blockchain into many other blockchains. Thus, the power as well as the bandwidth required to check all the data increases dramatically as the number of shards increases.

“The result is a reintroduction of trust, as all users who are now unable to verify all the shards (or one huge blockchain) must trust other users to tell them the truth about what happened on the shards. blockchain they can no longer afford for self-verification). »

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Proof of Stake Tradeoffs

Trust minimization

Proof of Stake implementation includes need to trust again other members of the network.

In the case of proof of work, miners use electricity to secure the network. Simply put, this expense guarantees to other members that the minor will not no economic incentive act maliciously because it will result in a loss of electricity cost.

If the stake is confirmed, validators contribute 32 ETH to staking. However, the rate depends on intrinsic value to the Ethereum network, as opposed to electricity, which is an external value for blockchains.

“This is a problem if a new or returning user is faced with a choice between multiple conflicting blockchains presented to them by an attacker. Since it costs nothing to create a PoS blockchain, otherwise unscrupulous participants can create and massively present from the outside valid false stories. »

Centralization

Networks in Proof of Stake also do compromise for resistance censorship.

For a proof-of-work blockchain, an attacker must capture 51% network capacity be able to censor transactions. In the case of PoW, miners must use hardware as well as electricity to carry out the attack.

“In a PoW system, miners need to consume a resource external to the system, as well as external capital (hardware). This can be achieved without the knowledge of most miners, which means that there is a mechanism by which the censor can lose his place as the majority of miners. »

In the case of proof of stake, this return to equilibrium by entry does not exist for the actor that is fighting the majority validator. Thus, when the validator manages to hold majority position having more ETH at stake than others, protocol impossible to dislodge. Indeed, as time goes by, his stake only increases and establishes his majority position.

The only one decision to this type of attack is social consensus. Therefore, the community must agree to deploying a hard fork aimed at thwarting the attacker.

“That’s just another way of saying centralized management of a special committee, which is by definition the opposite of decentralized. »

CoinShares report

Conclusion

As you have already understood, the blockchain ecosystem and the blockchain trilemma are, after all, just a story of compromise.

The blockchain trilemma.
The blockchain trilemma.

One side, Ethereum goes wide performance gain and solve part of the trilemma by scalability improvement. On the other hand, this improvement will come at the expense of security and decentralization.

Clearly, risk appetite differs between individuals and networks. This means that proof-of-stake limits can be increased or decreased depending on various parameters specific to each blockchain. For example, to carry out a censorship attack on Ethereum, a validator or group of validators must own more than 34% of the network.

At present, the chain of lighthouses has 380,000 validatorsfor more than 12 million ETH bet. These malicious users should have 4 million ETH, or $8.5 billion.with. However, once the attack is carried out, it is highly likely that the price of ETH will collapse. This will lead to irretrievable losses for the attackers.

As always, for an attack to take place, the result must be more profitable than the means involved in its implementation.

Furthermore, Developers Ethereum networks continue to operate on reducing these trade-offs through various mechanisms.

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