Erik Weijers, 4 months ago
With the Ethereum Merge coming up, it's good to learn about the bigger picture: the roadmap. What are the next steps of Ethereum's upgrades and what is the end goal? In short: 100,000 transactions per second, without giving up decentralization. Founder Vitalik outlined the entire roadmap recently. Spoiler: every step rhymes with Merge....
According to Buterin, who unfolded the plans at an Ethereum conference in Paris in July 2022, Ethereum will be about 55% finished after the Merge is complete. But then what's left to do? The higher goal is to dramatically increase capacity without ultimately turning Ethereum into a centralized database. This requires all sorts of crafty ways to outsource and compress data storage.
The Merge and the rest
The Merge is probably the most important milestone because it replaces Ethereum's entire "engine": the consensus mechanism. On the outside, users may not notice a difference between before and after the Merge. But the Merge is like keeping the chassis of a car intact while replacing the combustion engine with an electric one. The biggest possible change under the hood.
All the steps that follow the Merge are less fundamental but no less important; for they have to do with scalability. They ensure that Ethereum can process many more transactions. To stay in the comparison with the car, those improvements have to do with revving up the engine.
The Ethereum Merge refers to the merging of the current Ethereum blockchain and the chain that is now running in parallel: the Beacon chain. This Beacon chain, which is based on Proof-of-stake (PoS), will become the main chain after the Merge. It will so to speak swallow up the old chain, including its entire transaction history. Miners are no longer needed and Ethereum will consume more than 99% less energy. Users won't notice - at least if everything goes according to plan. It's been a ginormous project, in the works for seven years.
The reason Ethereum proponents are calling Ether "ultra-sound money" is that Ether will become deflationary after the Merge. Not only will the issuance of new ETH decline, but the nature of the coin issuance will be fundamentally different. After the Merge, Ethereum will move from a mine-and-dump economy to a stake-and-hold economy. Whereas miners have to sell sooner or later to pay their bills, stakers benefit from staking as many ETH as possible: after all, compounded interest makes one wealthy.
Until the Merge, the block reward for miners is about 13,000 Ether per day. After the Merge, the new amount of ETH drops to just 1,500 per day. This 90% reduction corresponds to roughly three Bitcoin halvings. Hence, this change is also called the triple halving. Subtract from that the roughly 8,000 ETH burned per day, and your napkin calculus will tell you that the amount of existing ETH will decrease by roughly 1-2% per year.
Also from an investor's perspective, Ethereum will become fundamentally different after the Merge. Ethereum can become a source of passive income for anyone. Both retail investors and ... possibly institutional investors? Staking Ether becomes like an "internet bond" with the lowest risk of all Layer 1s.
Work on the Surge will begin after the Merge and its completion is expected in 2023. The letter S in Surge refers to Sharding: the parallel switching of 64 blockchains, or shards. Think of the word Surge as a compound of Scaling and Urge: the urge to scale to a greater transaction capacity. In doing so, not all information can be crammed onto a single blockchain. Otherwise, the amount of data would skyrocket and no one will be able to run an Ethereum node anymore: bye bye decentralization.
Of all 64 shards, the Beacon Chain - as the name suggests - will be the beacon. Because Ethereum can now "process in parallel," it distributes the burden among the shards and the total number of transactions that can be processed becomes much larger.
These shards will give Ethereum more capacity to store and access data. Most likely, they will not process transactions but will take on the role of data warehouses, while the Beacon chain will become the "factory production line".
Multiple types of sharding
Several techniques are possible to make sharding workable. It is not yet certain what the final solution will look like. But the so-called Danksharding is now the dominant proposal. Danksharding is named after the developer who proposed it, whose first name is Dankrad.
Danksharding works with "data availability sampling," a technique that allows nodes on Ethereum to verify large amounts of data by sampling just a few pieces of it. An efficiency measure, in other words.
Danksharding is tailor-made for the rollup era. It paves the way for a future where much cheaper (and faster) layer 2 networks can flourish. Rollups, like sidechains, take the pressure off Ethereum by performing transactions on a separate, layer 2 chain. Transactions are "rolled up" on the rollup chain, bundled, and then "posted" to Ethereum. Unlike sidechains, rollups derive their security from the Ethereum mainnet.
The Verge phase introduces Verkle trees, another way to address the problem of scalability. In Buterin's view, the Verge becomes "great for decentralization."
Verkle trees is a pun on Merkle trees. That's a tool for ensuring reliable encryption by turning blocks of information into long strings of code. The most recent blocks of information, or leaves, are grouped into branches. These then trace a string of numbers, known as the Merkle root, which contains all previous information. Merkle trees are already used in Bitcoin and Ethereum. Verkle trees, according to Buterin, are a powerful upgrade to Merkle proofs and allow for much smaller proof sizes.
Verkle trees, in short, make it possible to store a large amount of data by showing a short proof of any piece of that data, which in turn will be verified by someone who only has a root of the tree. This process makes proofs more efficient. And that, in turn, allows users to be network validators without having to store large amounts of data on their hard drives.
The Purge is about bringing back, or "purging", excessive old data from the Ethereum blockchain. Again, this is about limiting the burden on users who want to be validators and do not have a huge amount of storage capacity.
Ethereum clients will be required to discard data older than a year after the Purge. This should minimize chain clogging and allow many more transactions to be processed. Buterin expects Ethereum to be able to process 100,000 transactions per second by the end of this phase.
It is still an open question in which place the old data will be stored. Just because the data are not recent does not mean they are not important for all kinds of apps. Where do all those hundreds of gigabytes of essential transaction data go? One possibility is Arweave, the protocol created with the goal of enabling decentralized, century-long data storage. Arweave currently already stores the complete blockchains of Solana and Avalanche, among others.
The Splurge is all about the "fun stuff," according to Buterin. It is still unknown what tricks will be conjured up after the previous four steps are completed. At that point, Ethereum will have achieved its main goals and can indulge in additional improvements.
Also read: History of Ethereum hard forks
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