In Part 1, we covered everything you need to know about the Ethereum ice age, the difficulty bomb, and the changes to Ethereum’s inflation rate set to come with October’s Constantinople update.
Now that you have a firm grasp of Ethereum’s current development status and plans for the immediate future, we can take a look at the platform’s long-term plans, particularly Ethereum’s long-awaited 2.0 update, which focuses on Casper, sharding, and eWASM.
These changes are going to completely reshape the Ethereum network and could kickstart a new wave of growth for the platform.
Let’s get into it!
Casper and the Transition to Proof of Stake
The most anticipated part of Ethereum 2.0 is likely the platform’s long-awaited proof of stake (PoS) algorithm, Casper. Ethereum’s transition to proof of stake has been prompted by two main concerns: energy waste and mining centralization.
Energy Waste in Proof of Work Mining
One of the most frequent criticisms of cryptocurrencies is the extreme energy waste that comes with proof of work (PoW) mining.
This is a mining system used by Bitcoin, Ethereum, and many other coins in which miners race against one another using powerful computers to try and find the answer to a complex computational puzzle. The first miner to solve the puzzle is given the right to add a new block to the blockchain and is rewarded with newly minted coins as well as transaction fees.
PoW mining was first implemented to add real-world economic costs for adding blocks to the blockchain. Malicious actors are dissuaded from attempting to manipulate the blockchain because it is prohibitively expensive to do so.
The problem with this system, however, is that as Ethereum and other PoW cryptocurrencies have grown larger and more valuable, so too have the costs and energy expenditures of mining operations. It’s difficult to get up-to-date numbers, but recent estimates show that the amount of electricity used in Bitcoin mining alone is nearing half a percent of the world’s total energy use per day.
Critics call this an obvious waste of energy, and it appears that the Ethereum Foundation agrees. One of the key upsides of the new Casper PoS system is that it will drastically reduce the energy costs of Ethereum mining, while maintaining or even boosting the security of the network.
As for how Casper will boost the security of the network, much of that has to do with creating a more decentralized network of miners.
In the early days of Bitcoin and Ethereum, it was possible for network participants to successfully mine new blocks using regular GPUs. As explained earlier, however, mining has become significantly more difficult over time.
This difficulty increase is due to two factors: the increasing complexity of the Ethereum mining algorithm and the advent of large mining pools.
Mining pools are exactly what they sound like—organizations that allow individuals to pool their resources together to boost their chances of successfully mining new blocks. The idea is innocent enough, but a handful of mining pools have grown so large and powerful that they now dominate the Ethereum network.
The following chart shows the effect that mining pools have had on the number of distinct miners on the Ethereum network:
As you can see, the number of distinct miners has dropped dramatically since Ethereum’s inception. Today, Etherchain estimates that the Ethereum network is maintained by fewer than 70 miners, meaning Ethereum is actually quite centralized from a mining perspective.
Mining centralization poses numerous threats to the health of a blockchain network, the largest of which is called a 51% attack. A 51% attack is a blockchain vulnerability that is present if a single mining organization (or a colluding group of organizations) controls 51% or more of the network’s hashing power. Essentially, any organization with this much control of the network would be able to manipulate the blockchain, double-spend coins and destroy the network’s integrity. Users would be at the mercy of the controlling organization and other miners would not have the power to overthrow them.
Clearly this is a problem, and it’s one of the primary reasons why having a decentralized network of miners is so important.
How is Casper Different?
As stated above, Casper is a proof of stake (PoS) mining algorithm. PoS differs from PoW in several ways.
Rather than requiring miners to invest in mining hardware for a shot at mining new blocks, PoS systems instead require miners to invest (or ‘stake’) money onto the network itself. Users interested in mining on Ethereum will be required to stake exactly 32 Ether to be added to the pool of validators. From there, the validators will be required to propose and vote on new blocks of transactions. According to Rocket Pool, “Validators are rewarded with interest on their deposits if they follow the protocol’s rules. If they act dishonestly their deposits are penalised.”
In this way, Casper will completely remove the high electricity costs that come with the existing PoW system. At the same time, Casper will also lower the barrier to entry for individuals or groups who would like to participate in Ethereum mining. 32 Ether is currently worth about $7500, which is significantly less expensive than the hardware and electricity costs required for an individual to participate in PoW mining. This drop in cost should lead to more people participating in Ethereum mining, which will in turn produce a more widely distributed network of miners.
Sharding: Ethereum’s Scalability Solution
The second major feature coming as part of Ethereum 2.0 is a scaling solution called sharding. Ethereum currently processes about 15 transactions per second (TPS), which severely limits the platform’s ability to deliver services to a large audience. Compare this to VISA, which operates at an average of 1600 TPS, and the limitations here are clear.
A big reason why Ethereum and other blockchains have such low transactions per second (Bitcoin, for example, averages about 7 TPS) is because blockchains have to process each transaction in sequence. According to Rocket Pool, “from a scalability perspective, the current Ethereum blockchain is a single pipe that all transactions have to be pushed through.” What sharding will do is essentially increase the number of “pipes”.
More specifically, sharding will allow the Ethereum blockchain to be split up into smaller pieces called shards.
Each shard will essentially be its own small blockchain running the Ethereum proof of stake protocol. Shards will be in constant communication with one another and with the main Ethereum chain, but each shard will be able to process and validate transactions independently. This structure will effectively allow the Ethereum network to process many transactions at the same time, rather than having to validate them in sequence.
Rocket Pool estimates that the potential number of shards could be upwards of 1000, which could bring Ethereum’s network speed up to about 15,000 TPS.
The final major component of Ethereum 2.0 is called eWASM. Described as a standardized “instruction-set”, eWASM will soon be integrated into Ethereum as a replacement for the existing Ethereum Virtual Machine (EVM).
The EVM allows anyone from around the world to make use of Ethereum’s decentralized applications, if given enough time and memory. It essentially ensures that applications will work for everyone.
eWASM, which is currently being developed by engineers from Google, Mozilla, Apple, and Microsoft, will act in much the same way while offering several upgrades over the EVM. According to Rocket Pool, eWASM is expected to be faster, more secure, and more portable than the EVM. eWASM also offers additional benefits, including supporting more languages beyond Ethereum’s Solidity, which should make it easier for developers to create Ethereum applications.
It should be clear that these are fundamental changes coming to the Ethereum network. Each of the above updates has the potential to greatly increase Ethereum’s speed and efficiency. Many throughout 2018 have questions whether Ethereum and its development team have what it takes to remain the number one dapp platform in the world, or if younger, sleeker platforms like EOS might simply outclass the old king. Ethereum 2.0 will be the ultimate test.
This concludes Part 2 of our two-part series on the future of Ethereum. If you read both parts, you are now up to date on what we can expect from Ethereum in the coming months and years. Part 1 described features we will see introduced in October’s Constantinople update, while the features described in this article have vaguer timelines: Casper is expected to be released some time in 2019, while sharding is set for 2020.
If you want up to date information regarding Ethereum 2.0’s development status, you can follow the Ethereum Github here.