The Merge is a remarkable event, however, it is the first of five prime upgrades coming to Ethereum. Let's explore Ethereum Roadmap and see what the future holds.
The gaping pit separates the knowledge and understanding of the markets between experienced investors, or at least those who have been active in crypto for more than one cycle, and the ones who are new to the game.
The question arises, how to find the middle ground in understanding the concept between those two parties?
Being on a crypto Twitter space for quite some time, I have seen countless uses of a rocket emoji. 🚀
Additionally, To The Moon is, without a doubt, an iconic phrase in crypto, especially during bull markets. It is striking how the experience changes our perception, even of such small things as phrases. The new ones believe it to be true while the old players see it as an opportunity to find exit liquidity and make a decent profit.
The dichotomy in perception and market experience is stunning.
However, both groups seem to be familiar with the rocket emoji and the moon phrase. So why not use them to create a metaphor?
As we have all agreed on the familiarity with the rocket icon, let us use it to create a metaphor describing the path of Ethereum.
After all the hardships and improvements over the past seven years, the rocket has to go through a series of five major upgrades before reaching its *almost* final state. *Almost*, because the development will happen all the time, just at a slower pace in comparison to the five prime upgrades.
Throughout this process, the rocket will evolve multiple times to become faster, more efficient, leaving historical overload along the way. However, as Vitalik once stated, even after the first two upgrades, Ethereum might thrive for decades as an ecosystem. What will Ethereum be capable of after the whole series of updates then?
Let us break down the five stages of upgrades into digestible metaphorical pieces.
Ethereum whitepaper was released on November 27th 2013, and the project entered the Sale Phase on July 22nd 2014. The Public Sale lasted for 42 days, until September 2nd, during which you could buy ETH with BTC.
After raising funds and seeing the initial interest in the project, it took almost a year of arduous work to bring Ethereum to life as the first block, the genesis block, was produced on July 30th 2015, at 03:26:13 PM UTC.
Shortly after that, a black swan event took place...
What happened in June 2016 split the Ethereum community into two opposing camps, the purists and the progressive types. The division happened due to the infamous DAO Hack when over 3.6 million ETH was drained by a malicious actor who, according to Laura Shin, has been finally found.
Such a disastrous incident meant not only the potential loss of investors' funds but was also a huge existential threat to such a young project like Ethereum in its early days.
In the aftermath of the hack, the community decided, by on-chain voting, that Ethereum should perform the reorg and go back to the state of chain from before the hack. The decision meant the stolen funds would be restored on the blockchain as if nothing had happened.
The Purists, on the other hand, claimed it was against the rules of blockchain principles, even considering the fact, that the malicious actor exploited the vulnerability in The DAO smart contracts. They claimed the chain should not be reorganized and the price for the mistake shall be paid. This stance made it impossible to bridge the gap between the two groups and led to a Hard Fork and the creation of Ethereum Classic.
Additionally, the debate also revolved around the basic principles of blockchain technology which is said to be immutable and censorship-resistant, making the discussion a little bit philosophical.
After the heated debates, on July 20, 2016, at block 192,000, the Ethereum hard fork was implemented.
From that moment, the initial Ethereum community split into two opposing camps with different visions of what Ethereum should be in the future.
The aforementioned events and debates led to the creation of Ethereum Classic (ETC), sticking to the PoW consensus mechanism and Ethereum (ETH), which aims to become the most robust PoS blockchain and the backbone of the crypto industry.
A similar parting of ways might take place after the Merge, where Ethereum will transition to the PoS consensus mechanism, leaving the backbone of the PoW mechanism – the miners – unemployed. However, it is a consideration for another article as there are multiple scenarios at play, and in order to gain a non-biased vision, at least a couple of them shall be discussed.
You might have heard about various EIPs across Ethereum history. But what is EIP to begin with?
EIP stands for Ethereum Improvement Proposals – in short, upgrades on the Ethereum blockchain. While some EIPs are less significant, there have been a few which became game-changers for the Ethereum ecosystem. Let’s dive into some of those.
EIP-721 – A standard interface for non-fungible tokens (NFT), also known as deeds. In other words, EIP-721 introduced NFT technology to the Ethereum blockchain distinguishing three main use cases:
While most of you might associate NFTs with profile pictures and CryptoPunks, the technology of Non-Fungible Tokens is far greater than any of us can imagine, as we are only beginning to learn what is possible.
If you wish to learn more about NFTs and the concept of Metaverse, I highly encourage you to take a look at the following article, where I discuss the future vision of NFTs and Metaverse according to the icon and leading mind of the NFT space - Punk 6529.
EIP-1559 – aka London Fork - One of the most hyped EIPs of all time. EIP-1559 changed the long-term value of Ether (ETH) by introducing a fixed-per-block network fee that is burned, meaning Ether began to be burned on a block basis. The more Ethereum is used, as a blockchain, the more Ether is burned*.
*It is an oversimplification of the burning thesis as there are reasonable arguments to be made, cooling off the “future burn hype” and deflationary ETH thesis.
EIP-3156 – The introduction of Flash Loans. It is one of the EIPs that significantly impacted the DeFi industry by introducing the possibility to process a single-asset flash loan. In other words, a user can borrow funds without any collateral, use it to his advantage and return it in the same transaction. It is a game-changer mechanic in the DeFi space, even more so if we take into account that most of the trades are performed by bots, even in the traditional world of finance, aka TradFi.
EIP-4400 – Also called EIP-721 Consumable Extension, is an EIP introducing a new role for NFT usage, defined in EIP-721. NFTs have other utilities than sheer ownership. You can use them, e.g. as a Land/Parcel and allow various addresses to build something on top of it by paying a commission. In other words, it is the upgrade which laid the foundations for the evolution of NFTs in the future.
EIP-3675 – The long-awaited upgrade to Proof of Stake on Ethereum Mainnet.
EIP-4337 – Account Abstraction, i.e. users' operations will go to the separate mempool (memory pool, i.e. a pool of awaiting transactions/actions), simplifying the overall maintenance of Ethereum by avoiding the changes to be made for the consensus-layer protocol.
EIP-4444 – Removing the need for historical data to be downloaded and stored by the Validators as the historical data is not needed to validate new blocks. A huge step toward the vision of having a Validator node on a smartphone, in contrast to having at least 1TB disc space to store the data today.
The full list of EIPs can be accessed here – https://eips.ethereum.org/
Ethereum is entering the phase of acceleration in development and introduction of significant changes, as presented by Vitalik himself during the recent EthCC event in Paris.
The forecasted slowdown of the system’s capabilities growth will not be a sign of less interest in developing the network. It underlines the amalgamation of the rapid and groundbreaking changes that are about to take place in a short span of time, in contrast to an average development pace that will occur afterwards.
Below are the names of the Ethereum Upgrades in the order of estimated implementation:
While the names might sound funny at first, those words bear a significant meaning if we put them in the context of a metaphor. Also, it is a lot easier to memorize the names and associated upgrades.
Let us recap the metaphor from the beginning of the article.
Okay, okay, but what are those upgrades going to change? Why should I care?
Well, if you put your money into an asset you have little or no knowledge of, it is pure speculation. You cannot call yourself an investor, as investing is a conscious decision based on preceding research.
Also, it is fascinating to see the groundbreaking changes taking place in real-time, isn't it?
Okay, now that we see the context, it is easier to link the upcoming changes to their meaning and the effects they will have on the Ethereum blockchain.
*Sharding itself is a separate and multi-phase upgrade, whereas The Surge is a part of it.
After having established what are the upcoming upgrades, let us dive into them separately and discuss the changes they will introduce.
The long-awaited transition from PoW to PoS is finally going to happen after being postponed five times over the course of previous years.
One of the main implications of switching to PoS is the decrease in ETH issuance. There are plenty of different estimates of how much the issuance will drop, stemming from a 40% up to 90% decrease. The truth is, currently, about 13,000 ETH is created daily to support miners in PoW. Once we go to PoS, all that ETH issuance will drop. Instead, we will have Validators in PoS issuing about 2000 ETH per day, which might go up to about 5000 ETH in the future. Still, it is a significant drop in ETH daily supply.
As the name suggests, in the Proof of Stake mechanism, anyone holding ETH will be able to stake it and earn percentage rewards in ETH, not in dollars - which is a very significant difference. If you hold 32ETH, you can even become a Validator and propose blocks by running your own node*. If you hold less than 32ETH, you can stake your ETH in pools provided by Lido staking, Rocket Pool or other staking protocols that will emerge.
*Note that in order to run a node, you do not need any economic commitment aside from a computer with 1-2 TB of available data storage and an internet connection. However, without staked 32ETH, you cannot propose blocks to the network and earn protocol rewards. The ability for anyone to run a node is essential to maintaining the decentralization of the Ethereum network, hence different ways to become a validator.
**One key note to all the hyped degens looking to buy and stake ETH with all their fiat money - you have to take into account the possibility of numbers changing. Any APY or APR you see today might profoundly differ in the future. The more ETH staked, the less % reward for individuals which can drop even to 0.1% at 100/120M ETH staked.
On the note of staked ETH, The Merge will not release all staked ETH at once as it will happen after the Shanghai update, which is estimated to be introduced about six months after transitioning to PoS.
Once the Shanghai update is implemented, all validators will be incentivized to withdraw their staked ETH below the 32ETH threshold as those will not earn additional yield and will be otherwise locked for no reason.
Additionally, staked ETH will not be released at once to flood the market with liquidity but will be steadily released for about a year or longer. It all comes down to the withdrawal mechanism allowing only six validators to exit per epoch (every 6.4 minutes), limiting daily ETH withdrawal to 43,200ETH out of 14,250,406ETH* staked. This rate limit prevents a mass exodus of funds from flooding the market.
*Number of staked ETH might change.
Also, such a mechanism prevents a potential attacker from committing an offence and exiting his stake in the same epoch before having it slashed as a penalty.
Another significant improvement coming with The Merge is Single Secret Leader Election (SSLE). In short, it is unknown who will produce the next block, so a potential hacker cannot specify which validator to attack with malicious intent.
The second upgrade aims to scale the Ethereum blockchain with the use of a sharding mechanism introduced in the EIP-4844 called “Shared Blob Transactions” or, as most crypto people know it, “Proto-Danksharding”.
It is crucial to point out that The Surge sets up the scaffolding and most of the logic needed to implement sharding but does not introduce a sharding mechanism per se.
After Sharding is shipped, Layer 1 of Ethereum will only have to interpret the data, not compute it.
But what is the sharding mechanism, you might ask?
In short, data stays on-chain while the computation and storage go off-chain, increasing the bandwidth of Rollup up to, from mathematical POV, 100,000 transactions per second.
Additionally, we might think of sharding as the process of splitting a database horizontally to spread the load by distributing the burden of handling the large amount of data needed by rollups over the entire network. It does not only increase the bandwidth of transactions but also helps decentralize the whole blockchain.
Along with the introduction of Availability Sampling, which is a part of the Sharding upgrade, even minor Ethereum users will be able to become guardians of the Ethereum City by becoming Validators.
The bandwidth will increase, and the average transaction cost might decrease, but as Vitalik stated, one major change that could potentially take place in the long-term is Layer 1 becoming more and more expensive over time for an average individual user. Such price dynamic will shift the growth of the Ethereum ecosystem from building on Layer 1 to building on Layer 2 projects like Arbitrum, Optimism, StarkNet or zkSync, which does not have to be seen as something negative. It would rather resemble the restructuring of an ecosystem similar to the situation when grown-up children are taking more responsibilities from a parent.
Another significant upgrade to the network will be Proposer-Builder Separation (PBS).
To clarify the nomenclature used, we need to understand who is, or will be, a Builder and who is a Proposer in the Ethereum blockchain.
Block Proposer serves the same role as a Miner on the PoW chain. Being a Block Proposer allows you to pick and choose which transactions to include in the block by specifying transactions that are the most profitable to you, taking the advantage of Miner Extractable Value (MEV) mechanism.
If you have stumbled upon the acronym MEV before but haven’t got any interest in checking what it means, here is a short explanation.
MEV is what the name suggests, the value a Miner / Validator / Sequencer etc. can extract due to the capability to arbitrarily include, exclude, or re-arrange transactions within the block they produce or propose, making the Ethereum block highly value-efficient.
It all comes down to the issue of packing as much as possible in the most profitable way. Data is robust, while block storage is limited.
Builders are a new class of actors who are given the list of transactions, from the Block Proposers, in the form of a crList. The list states which transactions builders MUST include limiting their capability of block manipulation. Builders still will be able to reorder the transactions to maximize MEV, but they will not be able to exclude/censor anything. Such a mechanism will nullify one of the most negative aspects of MEV, which is the god-like power to censor and exclude users' transactions.
PBS aims to maximize the advantages and profitability of MEV to the Ethereum ecosystem, at the same time neutralizing its hindrances for users. It's a win-win scenario.
The data structure is often presented and referred to as a Tree of a particular kind. One of the most prominent examples of data trees are Merkle Trees and Verkle Trees. The difference between the two can be described in the following way – In a Merkle Tree, a parent node is the hash of its children. In a Verkle Tree, a parent node is the Vector Commitment of its children.
To put it in a simplified language, in Merkle Tree structure, to create a valid proof of a node, we need to include all Sister Nodes – nodes that share a Parent-Node – which can be a very data-consuming operation.
Verkle Trees, on the other hand, do not need to provide all Sister-Nodes. Instead, you have to provide the Path from the given node to the Root-Note along the Parent-Nodes, with a small proof validating the Path.
The two following graphs are taken from Vitalik Buterin’s blog post called Verkle trees and illustrate the path we have to follow in order to prove a given piece of data is correct and stems from the given root.
The advantage of using Verkle Trees is in producing lighter proof sizes by about 6-8 times compared to Merkle Trees, and by 20-30 times smaller compared to Merkle Patricia Trees Ethereum uses today.
The switch to Verkle trees will be, without a doubt, a great cryptographic challenge as those have been introduced by John Kuszmaul in 2018. It is not a long time to learn how to use the full potential of a given technology. Nonetheless, if everything goes well, it will be a tremendous upgrade to the efficiency of the Ethereum blockchain.
The Verge is also bringing lots of good things for decentralization with Stateless Clients allowing running Light Nodes on Ethereum.
A light node contains only the chain of block headers without the execution of any transactions or associated states of the chain it validates. When a node comes online, it will be fully stateless since it will hold zero information regarding the state of the chain. You can think of a light node as an individual verifying the titles of top-secret files without the need to know and process the contents.
The Purge will introduce the aforementioned EIP-4444 changing the game for Ethereum clients.
To proceed, we have to clarify who or what an Ethereum client is.
An Ethereum client is the software needed to allow Ethereum nodes to read blocks on the Ethereum blockchain and Ethereum-based smart contracts. A “node” is the running piece of the client software.
What will EIP-4444 introduce?
It will abolish the need for clients to store and download historical data – older than one year, as stated in the EIP description.
Hold up fellas… So it removes the history from the Ethereum blockchain? What kind of a blockchain does that? It is against the idea, isn't it?
You will be correct, to some extent, as the removal of the data from the clients, or simply removing the need to download it upon becoming a new client, does not mean the data is lost. All the historical data is going to be stored by third-party projects like The Graph, which already serves such a purpose for some blockchain projects.
Bringing up Vitalik’s simile – A blockchain is like a billboard. It shows the present information you need as you do not have to know all the advertisements from the past.
Leaving historical overload aside will be hugely advantageous for Ethereum as it will allow more people to run Ethereum clients on their machines by removing the need to download and store hundreds of Gigabytes of data.
It is another step along the road to effectively running an Ethereum client on a smartphone.
In contrast to previous stages of the Ethereum Roadmap, The Splurge might not have the main “theme” upgrade. It is more of a miscellaneous batch of upgrades with some very ambitious long-term extras like ZK-SNARKing everything, working on post-quantum blockchain security and the introduction of EIP-1559 (Burning EIP) improvements.
In case you are not familiar with Zero-Knowledge (ZK) assumptions, it allows you to provide proof of something without disclosing any crucial information.
Imagine having a sealed room with only one exit and having to prove you can open the door and enter the room. Without anyone seeing you entering the password or even entering the room, you can exit the room via the only exit, which will be the proof of having the password to open the seal.
The possibility of Zero-Knowledge proof usage in the real world is astounding as we have to disclose sensitive information on almost every step we make in the bureaucratic world of today. It would not only improve the time efficiency of administrative work but would also be a huge improvement toward fraud protection and would minimize the risk of data leaks which are more common than most people imagine.
While the vision of Zero-Knowledge use cases is fascinating, the technology is still in its infancy. It is hard to estimate how much time it will take to develop and learn how to use Zero-Knowledge technology properly, but we see bold attempts made by zkSync or StarkNet, to build Layer 2 projects on Ethereum with the use of Zero-Knowledge proofs.
Taking a closer look at those projects and engaging with them might lead to gaining valuable experience and may turn out to be quite profitable in the future.
While listening to Bankless talk with Vitalik about the Endgame for Ethereum, I heard a great depiction of ZK in reference to an old Snake game.
Let’s think of Ethereum as the Snake. The more data it consumes, provided by the users, the longer it gets making it harder to operate. With ZK technology, the snake would just need a small proof that it *indeed* has a body attached to its head. The details of the body would not be needed to operate effectively.
In short, we would have just a head of a snake, and the whole body would be ZK-SNARKed, assuring the head everything is safe and sound.
One of the aforementioned ambitious upgrades coming in The Splurge is “Post-Quantum Everything”, as described in the Ethereum Roadmap posted by Vitalik on Twitter.
Without a doubt, quantum computers pose a huge threat to blockchain technology in its current state of security. The risk comes from an immense surge in the computing power quantum machines will possess, making it possible to change the state of blockchain, attack it, or simply obliterate it if needed or wanted.
While most of the crypto industry is focused on the current trends, some blockchain projects like Algorand or Ethereum are working on quantum-resistant solutions, trying to be one step ahead.
On the note of quantum resistance, it might be achieved with the use of Zero-Knowledge Proofs of a particular kind, as there are different versions of ZKP using various cryptography solutions. We will take into consideration two types of ZKPs – zk-SNARK and zk-STARK.
While the acronyms might be easy to remember, there is a little more to them in terms of meaning.
Just one letter bears a huge difference in how the technology can be applied. In short, STARK does not need a safe or trusted environment by relying on collision-resistant hash functions; hence it can be transparent. On the other hand, SNARK is designed to work in a trusted environment of a given protocol where the interaction between the prover and the verifier is limited to exchanging one proof.
While it is said zk-STARK proofs are currently estimated to be quantum resistant, zk-SNARKS are considered by some to be vulnerable to quantum attacks.
As stated before, Zero Knowledge is still in its infancy and might develop by A LOT in the future, possibly making zk-SNARK proofs quantum resistant.
What is more, zk-SNARK proofs are said to be quantum vulnerable due to the elliptic curve cryptography in their polynomial commitments. That is why projects like Redshift, created by zkSync, are using zk-SNARK proofs but with hashing mechanism instead of utilizing elliptic curves, making it *possibly* quantum resistant.
To conclude, it is hard to state whether some Zero Knowledge technology is quantum-resistant as it is hard to battle-test it without having quantum computers available at hand. We can only come up with assumptions concerning particular projects as to their quantum resistance. Moreover, ZKP technology is developing all the time, making progress and changing past assumptions just as zkSync did with Redshift, making their zk-SNARK solutions possibly quantum resistant.
The Ethereum Roadmap is an attempt to upgrade a blockchain that grew immensely over the last years, making it an impressive endeavour due to the sheer magnitude of a project.
Ethereum will change significantly in the upcoming years, and it might be the greatest evolution we will see in the whole crypto industry for years to come.
As Vitalik himself stated, just with The Merge and The Surge completed, Ethereum can thrive for decades. Where Ethereum will be after successfully completing its roadmap and what it will be capable of, we can only wonder.
All of the above is written on the assumption that nothing breaks along the way, but let’s be like current Rollups – Optimistic.
Till next time!
Isn't it funny how day by day nothing changes, but when you look back everything is different?