@ anton-dzyatkovskiiAnton Dzyatkovskii
CEO and Co-Founder of the Platinum Software Development Company. Blockchain enthusiast, blogger.
In many ways, Ethereum is a victim of its own success. Bitcoin has shown that it is possible to have viable digital money without a master, but it was the programmability of the Ethereum blockchain that created an even more important advance.
Under the guidance of its creator Vitalik Buterin, Ethereum launched a parallel financial system by harnessing the power of smart contracts.
Fast forward from the launch of Ethereum in 2015 to summer 2020. This was the time when DeFi really got going, thanks in large part to Uniswap and its many forks like SushiSwap and SpaceSwap.
The dawn of the tokenized economy had finally come when decentralized exchanges (DEXs) were introduced to be used for income farming, automated market makers (AMMs), shadow stakes, decentralized insurance protocols, and finally NFT marketplaces, the recent boom within the DeFi ecosystem.
As a result, in addition to dApps, Ethereum hosted thousands of altcoins – utility tokens, governance tokens, non-fungible tokens, and stablecoins.
The result was predictable.
Imagine an eight-lane highway suddenly inundated by millions of vehicles, creating a congested mess. Not only does it take longer to get anywhere, but you have to pay extra for the privilege of using the emergency lanes.
This resulted in consistently high transaction fees just as the popularity of DeFi protocols increased, compounded by the headlines of astronomical NFT sales, almost all of which are carried out in ETH’s cryptocurrency.
Suffice it to say that newcomers were greeted with the unpleasant surprise of congestion and high transaction fees – the worst combination possible.
Let’s be honest. Ethereum’s exorbitant gas fees are no longer sustainable. The whole purpose of DeFi was to build a decentralized infrastructure with less friction and lower transaction costs than in traditional finance.
The opposite seems to be the case, with Ethereum delaying the scalability upgrade several times. The first phase of the upgrade should begin in January 2020, which was then delayed to the second quarter and again to the third quarter of 2020.
These delays opened a window for competing, programmable blockchains. Polkadot, Cosmos, HyperLedger, Solana, and NEAR are just a few of the smart contracts challengers, not to mention the more specialized blockchain products like Wexchain and Enjin.
While they offer lower fees and faster transaction times, they all have a difficult time ahead of them as they have to compete with the massive dynamics of the established Ethereum network.
This is best illustrated by the number of developers involved in Ethereum versus all other platforms that offer intelligent programmability of contracts.
Source: Electric Capital
Fortunately, the combined performance of several development teams is back on schedule to ensure that the Ethereum network becomes scalable and sustainable. Let’s see how the ETH 2.0 roadmap aims to achieve this.
On the way to solving the scalability of Ethereum
As Bitcoin demonstrates by being constantly in the media for its power consumption, the proof-of-work consensus algorithm makes it more central, not less. The computational demands of transaction validation make nodes increasingly costly to run.
This, in turn, results in large mining companies in control of the Bitcoin network. After all, there is no comparison between the cost effectiveness of an optimized operation and individual miners in their homes. This is one of the main reasons for Ethereum’s transition from Proof-of-Work to Proof-of-Stake (PoS).
Currently, Ethereum is around 16 tps with a gas fee of $ 22. Both values are extremely unfavorable and contradict the creation of sustainable decentralized financing.
The Ethereum 2.0 upgrade should dramatically improve these metrics by following this roadmap.
Phase 0 – chain of lights
The Beacon Chain was deployed on December 1, 2020. It plays an important role in the performance of the new proof-of-stake. As PoS removes the concept of miners and replaces them with validators, it is important that validators be randomized so that they cannot be dishonestly influencing cullet.
The slashing protocol would also reduce the ETH use of validators, which become abusive. Beacon Chain was implemented after 16,384 accumulated validators, whose qualification required a minimum of 32 ETH. In total, they had deposited 524,288 ETH when this threshold was reached on December 1st. It was foreseeable that such intensive use of ETH tokens led to a price increase, while a record low in ETH offers was recorded on centralized exchanges.
Source: CryptoQuant, ETH: All stock exchange reserves
In short, Beacon Chain serves as the foundation for the transition from Ethereum to Proof-of-Stake consensus.
Phase 1 – shards and layer 2
The concept of sharding has long been present in software development and is the key element for the future scalability of Ethereum. Sharding creates multiple instances of a database so that each shard contains part of the entire database. When applied to blockchain, shards represent chains. Up to 64 of these shard chains should be used in 2021.
As a result, network traffic is sharded, eliminating the need for costly and energy-intensive hardware to run sharded nodes. However, you cannot manage transactions and smart contracts, only data. This is where Layer 2 rollups come into play, especially Optimistic Rollups, which are used to run intelligent contracts on a large scale in OVM – Optimistic Virtual Machine, which is compatible with EVM.
Ethereum’s dApps are all based on the Layer 1 network. Layer 2 would add to scalability and sustainability by performing out-of-chain transactions and creating cryptographic evidence that is then sent to chain shards. Overall, these two mechanisms – sharding and layer 2 – should accelerate the network transaction time of Ethereum by up to 100,000 tps.
Phase 1.5 and Phase 2.0
In Phase 1.5, planned for 2022, the proof-of-work will be completely replaced by the proof-of-stake, with Ethereum’s blockchain becoming one of the shard chains that is the only one capable of smart contracts without the use of Handle Layer 2 protocols. This process is known as docking and it ensures that all users’ ETH funds are left untouched.
Depending on the performance of the transition, Phase 2.0 refers to a potential upgrade of all 64 shard chains so that they are fully executable. That means they could handle both transactions and smart contracts.
Metis and the Casper Network
Now that you have a clearer picture of how Ethereum works and what its upgrades mean, it’s time to take a look at Metis. This protocol aims to use the Layer 2 network to implement Web 3.0. This is also known as the Semantic Web and is the next generation of the Internet. Machine learning and big data are used to create a smarter and more pluggable internet when using metadata.
In fact, Metis makes creating a decentralized (DAO) platform just as easy as creating an email. All you need to do is enter the DAC (Decentralized Autonomous Community) name, logo and description.
On the other hand, the Casper network is much broader in scope and potential. It is an ambitious project that seeks to combine the main features of blockchain technology in the context of DeFi and dApps:
Unlike other projects, which are forks of existing blockchains, Casper relies on the proof-of-stake mechanism when building smart contracts. This is based on the original Casper CBC (Correct-By-Construction) consensus protocol. One of the main attractions of Casper is its support for WebAssembly (WASM), a programming language already used by 30 million developers worldwide. In contrast, it is estimated that only 200,000 developers are familiar with Solidity, Ethereum’s primary coding language.
In addition to WebAssembly, Casper also supports Rust, Assembly, Script, and other languages that can be compiled to WASM. With a drastically smaller pool of developers, Casper should speed up the process of creating dApps. More importantly, Casper’s gas fee model aims to address Ethereum’s current issues – fee volatility, as shown in the previous graph.
By stabilizing gas charges in the face of the highest grid usage, Casper immediately becomes attractive to users and developers burned out by ETH’s exorbitant gas charges.
Relationship between Casper and Ethereum
Not many blockchain enthusiasts know that the Ethereum network should be switched to Proof-of-Stake (PoS) even before its official introduction in summer 2015. There are two implementations of PoS, both designed for Ethereum:
- Casper CBC – Correct-by-Construction under the direction of Vlad Zamfir
- Casper FFG – Friendly Finality Gadget led by Vitaleum Buterin, co-founder of Ethereum
Ethereum 2.0, which is expected to be completed in the course of 2022, represents the Casper FFG version. In contrast, Casper CBC should be considered Ethereum 3.0 in around 4 to 6 years. In other words, all of the ETH 2.0 phases explained above are Casper implementation phases.
To get around such a long implementation process, it is important to understand the role of the Metis protocol.
Metis and Casper work together
Both Metis and Casper are in place to make creating and using dApps scalable and user-friendly. Metis is concerned about the ease with which dApps can be developed while Casper serves as an infrastructure that offers high throughput and low fees with high security.
Even if Casper doesn’t support WASM through Solidity more often, the technical know-how to create a dApp or DAC is only part of the equation. The more important part is the translation of real usage scenarios into a decentralized environment. This is where Metis excels as a DAC mediator by using Optimistic Governance and other tools to build trust between decentralized communities:
- Crowd sourcing
- Gig economy
- Sharing economy
- Open source platforms
- Volunteer platforms
In summary, after starting Casper’s public CSPR token sale on March 23rd, well before Ethereum 2.0, Casper will get a glimpse into Ethereum 3.0. Thanks to its Solidity transpiler, it is a future-proof solution that makes the migration easy.
While one cannot expect the Casper network to grow larger than Ethereum due to the network effect, the emerging PoS blockchain should be viewed as another valve to divert the congested traffic away from Ethereum. It’s a win-win for both Ethereum and Casper users and developers.
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