Ethereum 2.0 — The Road To Constantinople And Beyond

Update January 14, 2019. Be careful of new “forks” on Ethereum. They may possibly be a scam, if they request your private key or ETH payment to redeem.

Update January 19, 2019. Due to security concerns, Ethereum Constantinople has been delayed. The activation is expected to take place at block number #7280000.

The next system wide upgrade for the Ethereum network called Constantinople will be implemented in 2019 (originally set for 2018). It is also called as “Ethereum 2.0” or the “New Ethereum”, software version 3.5, part of the release called Metropolis. There is a lot on the line with the success of the Ethereum project, and these are the upgrades to scale the network. The Constantinople upgrade is scheduled for block #7080000. There will actually be three forks in the beginning of 2019 and this includes Constantinople. The two other forks are “hard forks”, meaning they will create a new cryptocurrency. These are Classic Vision and Ethereum Nowa. ETH holders should get an equivalent of those coins in their digital wallet after the fork, if supported by the wallet or digital exchange.

You can keep track of the block number on Etherscan.io

Problems “On The Block”

The main problem of blockchains for commercial general purpose use is scaling. Bitcoin can do a maximum of 3–7 transactions per second. Ethereum can do upwards from 15–30 transactions per second. That is not enough when compared to mainstream finance institutions. According to Visa their VisaNet can process 150 million transactions every day and is capable of handling more than 24,000 transactions per second. The Ethereum network will need to find the balance of the “blockchain trilemma” of scalability, security and decentralization.

The “failures” of Ethereum are not really failures, like what some critics would say. Ethereum is still a work in progress, so it has not yet failed. Many are basing Ethereum’s failure on the market price, but there is really a strong disconnect between the speculated prices and the technical developments behind it. What will determine the project’s success are the upcoming upgrades to the network. If they will finally deliver what Ethereum’s developers have proposed, then this will be a breakthrough. The theoretical concepts in scaling Ethereum are about to be tested and we are going to see this in the coming months.

The 5 EIP Proposals

There will be 5 main EIP (Ethereum Improvement Proposal) introduced in Ethereum 2.0.

#1. EIP 145: This introduces bitwise shifting, as EVM opcodes. This more efficient way of coding can reduce the cost of gas and number of instructions required.

#2. EIP 1052: Optimization of large scale code execution.

#3. EIP 1283: This is based on EIP 1087 and introduces a pricing method for storage to developers.

#4. EIP 1014: This is Vitalik Buterin’s upgrade proposal for a scaling solution that is based on state channels and “off-chain” transactions.

#5. EIP 1234: This reduces the block mining reward from 3 ETH down to 2 ETH. This will also delay the “difficulty bomb” for 12 months.

Ethereum is being developed as a platform for DApp (Decentralized Applications) which are going to provide an ecosystem for smart contracts. This is Vitalik’s vision of programmable money that was not possible in the original Bitcoin protocol. The problem with Ethereum’s network speed has been a limiting factor to DApp developers. It is further compounded by fees and lack of commercial applications being developed. People are using ETH to transfer value and the only major DApp prior to 2019 has been C_ryptoKitties_.

C_ryptoKitties, a popular DApp on the Ethereum network (Source: cryptoKitties.co)_

In order for Ethereum to succeed as a cryptocurrency, it needs both liquidity and utility. People have to spend ETH and businesses have to accept it as a form of payment. One reason many companies are thinking twice about ETH is the slow speed of the network. Payments are processed much faster by current electronic payment systems that are not cryptocurrency, so blockchains are not faster by default. What makes a blockchain based payment system ideal though is the instant transfer of value as a peer-to-peer electronic payment system that is cryptographically secured.

In late 2018 there had been a lot of FUD regarding Ethereum. This led to a loss of confidence among holders and we saw how prices fell sharply. In the beginning of 2019 ETH has seen a rally as prices went from a low of $83 to $150 (as of January 2, 2019). Now you may have read EIP 1234 is going to reduce the block reward for ETH. The block rewards will be decreased from 3 to 2, which will decrease new ETH supply. In the long run, analysts are looking at this as a bullish trend. That is some good news after plenty of negativity in the latter part of 2018.

The Road Ahead

A visual graph of my view on the Ethereum roadmap.

Constantinople will be a significant start on the Ethereum roadmap for 2019. The upgrades will introduce the Casper protocol that will transition Ethereum from PoW (Proof-of-Work) to PoS(Proof-of-Stake). This will not immediately replace PoW, but rather we are going to see a hybrid system with both running at the same time. This will allow miners time to move from PoW to PoS with a delay on the difficulty bomb. Once activated, the PoW mining in Ethereum will become more difficult in order to shift incentives toward PoS.

Ethereum developers will then move towards a “Beacon Chain”. This is meant to be a coordination layer with the existing main network and the new features of the network, but has not yet been built. This will bring a PoS blockchain to the Ethereum network as the new consensus protocol. One thing the Beacon Chain was designed to manage is a new feature for Ethereum scaling called “sharding”.

Sharding will split the network into independent groups of nodes called shards. This will split the network load so that the main network will not have to bear the load of all transactions. Instead shards will redistribute the computing load of the Ethereum network to allow it to scale. The downside to this however is network security because it can also lead to attacks on each shard. This is why the implementation is very crucial for maintaining that balance of security with decentralization and scalability. It is also important to keep the shards coordinated, as function of the Beacon Chain, in order to maintain the state of the blockchain’s consistency.

Also in the works is optimizing the code for the EVM (Ethereum Virtual Machine) as specified in EIP 145 and 1052. The optimization introduces us to bitwise shifting, which is meant to improve network efficiency. Bitwise shifting is like a shortcut in bytecode that doesn’t rely on complex arithmetic operations. That will allow faster processing of decentralized applications. As we have seen in the past, when a lot of users are on the Ethereum network it can easily slow to a crawl. Optimization in code will allow more efficient use of computing resources. That in turn can also save developers and users on the costs of computing on the Ethereum network.

Replacing the EVM with the eWASM aka “Ethereum Flavored WebAssembly” is also a part of the plan. One of the reasons why this is advantageous is due to faster code execution of smart contracts. EVM uses 256 byte word sizes which is not efficient in real world applications. WASM is also being used in other cryptocurrency projects like EOS and Cardano.

For developers, a revamped gas price structure is welcomed. EIP 1283 will implement better costs for smart contracts. This will be done by breaking down the contract changes that have been written in Ethereum’s memory storage. Since this does not affect any state changes on the blockchain, no gas is spent thus cutting costs for developers.

There are other proposals for scaling the Ethereum network, called Layer 2 or “off-chain” solutions. We have Plasma, a Layer 2 solution that is based on smart contracts implemented on child chains. There is also Raiden, which is the Lightning Network equivalent of Ethereum. These solutions are being designed to work with the Ethereum framework. Should these prove capable, then it will be great for investors as well.

Proof-of-Work has provided blockchains with security. With “off-chain” solutions, there will be more responsibility on the user since they no longer have the consensus mechanism the main network provides. Since the shift is toward Proof-of-Stake, it will now require good faith among block validators by locking an amount of ETH (their stake). Should they have malicious intentions, the ETH they staked will be lost so this is sort of like a deposit of their trust in a trustless system.

The perfect use case for ETH “off-chain” solutions are for micro-transactions, like buying a cup of coffee. (Photo Credit Vicente Tabora Photography)

In other related news, there have been talks about Ethereum futures contracts. Institutional investors would bring a boost to the Ethereum ecosystem, but regulators are reviewing just how digital assets like ETH are different from BTC. It is a question of whether these assets are a security or commodity. Once that has been determined then there should be clarity.

If the Ethereum project successfully implements these upgrade features, then Serenity comes next. That is another name for Ethereum’s next release and this time it will run on a purely PoS consensus protocol. These are all part of what will make Ethereum a faster decentralized computing platform. Implementing it is the important step. Hopefully this won’t be the “Fall of Constantinople” because that would be the failure of Ethereum. Success or a favorable outcome leads us to the road from Constantinople to Serenity. Not so fast quite yet, there is still a long way to go.

Note: Constantinople is expected to be implemented between 1/16/2019–1/18/2019 at block #7080000.