Ethereum continues to be the poster child of why you shouldn’t radically change your protocol if you want serious users. The long-awaited (and delayed) launch of “Ethereum 2.0” is expected to begin in early December, but there are signs that there may be further setbacks, due to the complex nature of the changes.
The key issue with Ethereum 2.0 is that it changes the mining model from its five-year proof-of-work (PoW) based algorithm to one that uses proof-of-stake (PoS). Not only is this a serious technical challenge to implement, but it also completely changes the business model for processing transactions.
This means that Ethereum not only faces unexpected technical hitches, but is taking a big leap into the unknown with PoS. In addition to the various potential problems associated with PoS, there is also the question of how willingly the old PoW miners will give up their existing profit model. They knew it would be coming for some time, but even delaying the change a few more months could make a difference to their income.
Exchange of miners for validators
Proof-of-stake works by replacing “miners” with “validators” to process transactions. Each validator must block a certain amount of the blockchain’s native currency unit (ETH in this case) to qualify, and the higher the stake the greater the likelihood that that validator will process a transaction (and demand the block reward for doing so).
To qualify as a validator, participants must deposit a minimum of 16384 32-ETH amounts into the deposit agreement address one week before the scheduled activation, or “genesis event”.
Ethereum developer Ben Edgington described the program as such:
“To activate genesis at this time, there must be at least 16384 repositories of 32-ETH validators 7 days before December 1. Otherwise, genesis will be activated 7 days after this threshold has been reached (whenever it can be ). “
This is a total of 524,288 ETHs required in the deposit agreement address by November 24 to activate Ethereum 2.0 on the scheduled date of December 1. At the time of going to press, the address contains only 57,953 ETH, well below the required total. Maybe there will be a big rush in the coming weeks, but there is no guarantee.
How proof-of-stake works … and how proof-of-work is at stake
The theory holds that those who hold the largest stakes in the monetary unit therefore have a greater “stake” in ensuring that the network gains value, because their investment will be worth much more in the long run. PoS is also preferred by some because processing machines don’t have to consume as much energy as they do by solving PoW puzzles to validate blocks, and the misconception that this energy is somehow “wasted” by processing blocks on PoW networks, such as Bitcoin.
Indeed, there are several good reasons to believe that PoS is less secure than PoW and leads to perverse economic incentives. It effectively rewards the already wealthy further by putting their interests ahead of those without such large stakes. There is also the potential to cheat the system if a particular interest group decides to pool resources, even temporarily. A validation address can have a great deal at stake, but because their power is based only on the amount of money it holds, it is unknown who actually owns / controls that money.
Slightly similar situations are possible with the proof of work, but it is much more difficult to accomplish. A large PoW processing operation also requires a large investment, but it is much clearer who controls that investment. Since PoW requires a more complicated technical infrastructure and associated professional conduct than simply raising money for validator deposits, it could be said that PoW processors actually have more at stake than… PoS stakers.
Whenever it can be
In any case, this is not really the kind of change that should take place on a blockchain network that has been in operation since 2015 and claims to be the largest and most used smart contract / blockchain platform. Even in the early “hobbyist” stages of a blockchain’s life this would be a big change. But on Ethereum in 2020, there is a lot more (if you forgive the expression) at stake. In reality, fundamental change like this shouldn’t happen at all.
Can you imagine being a huge multibillion dollar company or a large government institution reading this and wondering when, or if, the fundamental functioning of your crucial applications will change? It would be unthinkable if such a change happened in the way the internet works, so why would you do it on a blockchain?
An important promise made by Bitcoin BSV is that the protocol’s ground rules and economic incentives are “set in stone”: transactions and applications that work today will work in 100 years or more. This type of guarantee of stability is essential to gaining the trust of the large entities that Bitcoin seeks to attract. On Ethereum at the moment there is only uncertainty.
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