HashKey Capital: An article explaining the reasons and subsequent impact of Ethereum 2.0 changing the consensus mechanism
Editor's Note: This article comes fromChain news (ID: chainnewscom)Editor's Note: This article comes from
Chain news (ID: chainnewscom)
Chain news (ID: chainnewscom)
, author: Hao Kai, working at HashKey Capital Research, reviewer: Zou Chuanwei, chief economist of Wanxiang Blockchain and PlatON, reprinted with authorization by Odaily.
Ethereum 2.0 is an important stage in the development of Ethereum. In the long run, Ethereum 2.0 will change the consensus mechanism to benefit the development of Ethereum.
The consensus mechanism of Ethereum 2.0 will be changed from PoW to PoS, which is an important change. In order to better understand this major change, we wrote this article, hoping to explain to readers the reasons why Ethereum 2.0 changed the consensus mechanism in simple language, and analyzed the requirements and restrictions of Ethereum 2.0 for participating in Staking. In addition, we also analyzed the impact of Ethereum 2.0's change of the consensus mechanism on all participants in the ecosystem, as well as possible subsequent changes in regulatory policies.
We believe that Ethereum 2.0 is an important stage in the development of Ethereum. In the long run, the change of the consensus mechanism of Ethereum 2.0 is beneficial to the development of Ethereum.
According to the development roadmap of Ethereum, after going through the three stages of Frontier (frontier, July 2015), Homestead (homestead, March 2016), and Metropolis (metropolis, October 2017), Ethereum is expected to Enter the Serenity (Serenity) stage in 2020, that is, upgrade to Ethereum 2.0. Ethereum 2.0 has many improvements, mainly including:
The overall architecture is changed from a single chain to a multi-chain (Shard Chains);
The execution environment will be replaced by eWASM from the original EVM.
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decentralized
Ethereum is an open source public chain platform for the world, and its purpose is to become a "world computer". In order to achieve this goal, the improvement and upgrade of Ethereum must move towards the direction of becoming a public chain platform that is more suitable for building and running DApps. The consensus mechanism of Ethereum 2.0 is changed from PoW to PoS, which can better balance the "impossible triangle" problem, and try to achieve a balance among the three elements of decentralization, scalability and security.
decentralized
Decentralization is one of the core characteristics of blockchain. Originally, Bitcoin designed by Satoshi Nakamoto was a completely decentralized peer-to-peer system, and each user could use a personal computer to mine. However, as the price of Bitcoin rises, a large amount of computing power is continuously added, making Bitcoin mining more and more difficult. At present, most of the computing power of the entire Bitcoin network is controlled by several top mining pools. The only way for ordinary users to participate in mining is to choose to join the mining pool.
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It can be seen from the figure above that the sum of the computing power of the top ten Bitcoin mining pools exceeds 90% of the total network computing power, and the degree of centralization is very high. Users can mine Bitcoin with a personal computer. It is also impossible to appear.
The following graphs and tables respectively show the distribution of computing power of Ethereum and the percentage of computing power of the top ten mining pools. It can be seen that the sum of the computing power of the top ten mining pools of Ethereum is also close to the computing power of the entire network 90% of the computing power of the top five mining pools accounted for 77%.
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Ethereum computing power distribution map, data source: etherchain.org, January 22, 2020
The computing power ratio of Ethereum mining pools, data source: etherchain.org, January 22, 2020
scalability
Of course, many public chains using the PoS consensus mechanism, such as EOS and TRON, also have centralization problems. In response to this phenomenon, Ethereum 2.0 has also adopted other restrictive measures, which will be introduced later in the article.
scalability
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The usage rate of Ethereum, data source: etherscan
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safety
Performance comparison of different public chains. The PoS consensus mechanisms in the table include DPoS, Pure PoS and other such consensus mechanisms. Data sources: official websites and browsers of each public chain
It should be pointed out that many public chains using the PoS consensus mechanism have high TPS in design, but there are no developers and no users in the actual ecology. It's like building a wide road in a city, but there are no vehicles on the road. This is equivalent to a waste of resources, and this so-called high performance is meaningless. Therefore, while improving performance, Ethereum 2.0 must also pay attention to ecological construction.
safety
In terms of security, it is difficult to judge which is better, the PoW consensus mechanism or the PoS consensus mechanism. In the PoW consensus mechanism, perpetrators need to have enough computing power. In the PoS consensus mechanism, perpetrators need to have enough tokens, and the cost of doing evil is very high. At present, Bitcoin is still the most secure blockchain, and the cost of doing evil is also the highest. Therefore, security is not the reason for Ethereum 2.0 to change the consensus mechanism.
One is that in the PoS consensus mechanism, nodes need to pledge a certain amount of tokens, and the mortgaged tokens can be confiscated for perpetrators, which is a deterrent for perpetrators.
The second is that under the current incentive system, maintaining full nodes of Ethereum does not yield benefits, and the number of full nodes of Ethereum continues to decline; while in Ethereum 2.0, the number of users who can participate in mining has greatly increased, and they are willing to maintain Ethereum The number of full-node users may also increase accordingly. From this perspective, the increase in the number of full-nodes also means that the degree of decentralization and security of Ethereum is higher.
The third is that compared to the huge energy consumption of the PoW consensus mechanism, the PoS consensus mechanism used by Ethereum 2.0 is a more environmentally friendly and green choice, and does not need to consume a lot of energy to maintain the system operation.
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Ethereum 2.0's requirements for participating in Staking
Similar to the role of miners in the current Ethereum ecosystem, the validators of Ethereum 2.0 assume the responsibility of processing transactions and packaging blocks. The work of a validator consists of proposing new blocks and attesting to blocks proposed by other validators. The validators for each block are selected by the Beacon chain from a large set of validators.
Ethereum 2.0 randomly selects verifiers through a random number generator, and the 128 selected verifiers will form a committee responsible for creating new blocks and receiving corresponding block rewards. After every 64 blocks, the beacon chain will re-select validators at random. This method of regularly and randomly selecting verifiers can prevent collusion between malicious nodes to the greatest extent.
It should be pointed out that Ethereum 2.0 is also implemented in several stages. In stage 0 of Ethereum 2.0, there is no sharding design. Starting from stage 1, sharding will be added. The beacon chain needs to provide Both elect a validator committee.
In order to avoid the centralization problems of other public chains that adopt the PoS consensus mechanism, Ethereum 2.0 greatly reduces the threshold for ordinary users to participate in Staking. Ethereum users only need to mortgage 32 ETH through smart contracts to become validators. At the same time, 32 ETH is also the upper limit for each account to participate in Staking. If the number of ETH held by the user is greater than 32, the excess balance will not bring any benefits, then the user must allocate these ETH to different accounts. Requires that the benefits of centralized participation be minimized. Moreover, Ethereum 2.0 does not have high requirements for hardware, and ordinary personal computers can meet the requirements.
The following two tables are the super node votes of EOS and TRON respectively. It can be seen from the table that the top ten supernodes all have more than 1% of votes. Although the number of votes is not equivalent to holding these tokens, ordinary users certainly do not have the funds and resources to get so many votes. The only way for them to participate in block production is to choose to join the Staking pool. Obviously, although these public chains also use PoS-like consensus mechanisms, their centralization problems have become very prominent.
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TRON super node votes, data source: tronscan
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Comparison of ETH, EOS and TRON, data source: Block Explorer, Coin Metrics, DApp.com, February 6, 2020
It can be seen that Ethereum far exceeds EOS and TRON in terms of the number of addresses, number of DApps, daily activity and market value. At the same time, a report released by Electric Capital in 2019 shows that the number of developers in the Ethereum community is more than any other public chain. More than 4 times the number of developers. It is the huge advantages and acceptance of Ethereum in the blockchain field that give Ethereum the confidence to believe that even with strict restrictions on Staking, there will still be a large number of users willing to participate.
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Market value and number of developers of blockchain projects, data source: Electric Capital
For public chains using the PoS consensus mechanism, the more tokens users participate in staking, the higher the perpetrator's cost of doing evil, and the safer the entire network will be. The same is true for Ethereum 2.0. The more validators in the ecosystem and the more ETH mortgaged, the safer Ethereum will be.
The block reward of Ethereum 2.0 is the driving force for users to participate in Staking. Ethereum will issue additional tokens through block rewards. In the stage of the PoW consensus mechanism, ordinary users are unable to participate in mining by themselves, and the interests of currency holders will be lost due to the additional issuance of ETH; after adopting the PoS consensus mechanism, ordinary users can participate in mining. Staking can offset the losses caused by the additional issuance of ETH. In order to attract more users to participate in Staking, Ethereum 2.0 links the validator's annual rate of return to the amount of mortgaged ETH. When the amount of mortgaged ETH in the system is small, the annual rate of return of the verifier will be high, and as the amount of mortgaged ETH increases, the annual rate of return of the verifier will decrease.
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ETH additional issuance, data source: EthHub
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The inflation rate of ETH, data source: etherscan, calculated on January 1st of each year
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miner
Impact of Ethereum 2.0
The influence of Ethereum in the blockchain field is very large. The change of Ethereum 2.0 from the PoW consensus mechanism to the PoS consensus mechanism will have an impact on all participants in the ecosystem, including miners, node service providers, exchanges and regulators, etc. .
miner
The changes in the Ethereum 2.0 consensus mechanism have the greatest impact on miners. Although Ethereum 2.0 will not immediately stop PoW mining and will allow the two chains to run parallel for a period of time, the difficulty of subsequent mining will gradually increase, prompting miners to give up mining, and eventually Ethereum will completely switch to a PoS consensus mechanism. At that time, the mining machines held by the miners, the mines constructed and other equipment will not be able to play a role in the Ethereum ecosystem.
There are three possible paths for miners to choose next:
One is to completely abandon mining and follow Ethereum 2.0 to find a position in the new gameplay, and miners will suffer great losses;
The second is to use current mining machines and equipment to mine tokens like ETC (Ethereum Classic) and leave the Ethereum community;
Node service provider
Ethereum 2.0 is an opportunity not to be missed for all PoS node service providers, and it is also a very big challenge.
As can be seen from the table below, compared to the popular projects of PoS node service providers such as EOS, TRON, Tezos, and Cosmos, the market value of Ethereum is larger than the sum of the market value of these projects, and Ethereum 2.0 will directly become the project with the highest market value. PoS project, and there will be a lot of users participating in Ethereum Staking in the future. Therefore, Ethereum 2.0 is an opportunity that cannot be missed for all PoS node service providers.
Market cap of popular PoS projects, data source: CoinMarketCap
exchange
At the same time, node service providers also need to provide different services to different customers. For large customers who hold a large amount of ETH, service providers need to help large customers allocate ETH to multiple different accounts; for small customers who hold less than 32 ETH, service providers need to help small customers to merge. For node service providers with large scale and good reputation, these tasks can be realized in a centralized way; for small service providers, smart contracts need to be used to attract users. Moreover, there is fierce competition among node service providers. Therefore, Ethereum 2.0 is a big challenge for all PoS node service providers.
Regulatory Authority
exchange
Regarding Ethereum, the U.S. Securities and Exchange Commission (SEC) once clearly stated that ETH is not a security digital currency; in Singapore, Japan and Europe, ETH has always been regarded as a payment digital currency or application digital currency. ETH faces very little regulatory policy risk.
thinking and summarizing
However, after the consensus mechanism of Ethereum 2.0 is changed, the attitude of regulators towards Ethereum may change. In November 2019, Heath Talbert, chairman of the U.S. Commodity Futures Trading Commission (CFTC), said that they were conducting a reassessment analysis with the SEC on a potential transaction for Ethereum 2.0. If Ethereum 2.0 is evaluated as a security digital currency, it will have a major impact on ETH and the entire digital currency market. Of course, the Ethereum team will also express its favorable views on this issue.
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thinking and summarizing
There are many improvements in Ethereum 2.0, and the change of consensus mechanism from PoW to PoS is one of the important changes. Improving the degree of decentralization of the entire system and improving scalability are the main reasons for Ethereum 2.0 to change the consensus mechanism.
