Ethereum continues to be the poster child for why you shouldn’t fundamentally change your protocol if you want serious users. The long anticipated (and delayed) rollout of “Ethereum 2.0” is set to begin at the start of December, but there are signs there could be further setbacks, due to the complex nature of the changes.
The key issue with Ethereum 2.0 is that it switches the mining model from its five year-old proof-of-work (PoW) based algorithm to one using proof-of-stake (PoS). Not only is that a serious technical challenge to implement, it also completely changes the economic model for processing transactions.
What that means is Ethereum not only must deal with unexpected technical hiccups, but it’s taking a big leap into the unknown with PoS. As well as the various potential problems associated with PoS, there’s also the matter of how willingly the old PoW miners will give up their existing profit model. They’ve known it was coming for some time now, but even delaying the change a few more months could make a difference to their income.
Swapping miners for validators
Proof-of-stake works by replacing “miners” with “validators” to process transactions. Each validator must lock in a certain amount of the blockchain‘s native currency unit (ETH in this case) to qualify, and the larger the stake the more likelihood of that validator processing a transaction (and claiming the block reward for doing so).
To qualify as a validator, participants must deposit a minimum of 16384 32-ETH amounts into the deposit contract address a week prior to the planned activation, or “genesis event.”
Ethereum developer Ben Edgington described the schedule as such:
“To trigger genesis at this time, there must be at least 16384 32-ETH validator deposits 7 days prior to December 1. If not, genesis will be triggered 7 days after this threshold has been met (whenever that may be).”
That’s a total of 524,288 ETH required in the deposit contract address by November 24 to activate Ethereum 2.0 on the planned 1st December date. At press time, the address holds just 57,953 ETH—well short of the required total. Perhaps there will be a big rush in the next few weeks, but there’s no guarantee.
How proof-of-stake works… and how proof-of-work stakes
The theory goes that those with larger holdings of the currency unit therefore have a greater “stake” in ensuring the network gains value, because their investment will be worth a lot more in the long term. PoS is also preferred by some due to the fact that processing machines don’t have to consume as much energy as they do solving PoW puzzles to validate blocks, and the misconception that this energy is somehow “wasted” processing blocks on PoW networks, like Bitcoin.
In fact, there are several good reasons to believe PoS is less secure than PoW, and leads to perverse economic incentives. It effectively further rewards the already-wealthy, putting their interests before those without such large holdings. There’s also the potential to game the system if a particular interest group decides to pool resources, even temporarily. A validator address may have a large stake, but since their power is based only on how much money it holds, there’s no knowing who actually owns/controls that money.
Somewhat similar situations are possible with proof-of-work but it’s a lot more difficult to accomplish. A large PoW processing operation also requires a large investment, but it’s a lot clearer who controls that investment. Since PoW requires a more complicated technical infrastructure and associated professional conduct than simply fronting up money for validator deposits, it could be said PoW processors actually have more at stake than… PoS stakers.
Whenever that may be
In any case, this is really not the sort of shift that should be happening on a blockchain network that’s been running since 2015, and makes a claim to being the biggest and most widely-used smart contract/blockchain computing platform. Even at early, “hobbyist” stages of a blockchain’s life this would be a big shift. But on Ethereum in 2020, there’s a lot more (if you’ll pardon the expression) at stake. In reality, a fundamental change like this should not be happening at all.
Can you imagine being a huge, multibillion-dollar corporation or a large government institution, reading this and wondering when, or if, the fundamental operation of your crucial applications will change? It would be unthinkable if such a change happened to how the Internet works, so why would you do it to a blockchain?
One important promise Bitcoin BSV has made is that the basic rules and economic incentives of the protocol are “set in stone“—transactions and applications that work today will work 100 years from now, or beyond. That sort of stability guarantee is essential to gain the trust of the large entities Bitcoin seeks to attract. On Ethereum at present, there is only uncertainty.
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