The COVID-19-induced quantitative easing across global markets was in full swing by the end of 2020 and early 2021, resulting in a nearly year-long mega-bull run. During this time, the price of Ether climbed over tenfold, reaching a high of more than $4,800.
Following the end of the euphoric bullish phase, a difficult cool-down period was aggravated by the UST-LUNA crash, which occurred in early 2022. This reduced Ether’s price to $800. In the third quarter, the market saw a good rebound led by the Ethereum Merge story, which provided a ray of hope.
The transition to an eco-friendly proof-of-stake (PoS) consensus process was a significant step forward. The event also lowered post-merge Ether inflation. ETH peaked at more than $2,000 in the run-up to the Merge on September 15, 2021. The positive momentum, however, evaporated rapidly, turning the Merge into a buy-the-rumour, sell-the-news event.
A similar positive opportunity may emerge in Ether as the impending Shanghai upgrade, scheduled for March 2023, draws market attention. The upgrade will allow withdrawals from Ethereum staking contracts, which are now locked. The improvement will significantly lower the danger of ETH staking.
Shanghai Upgrade of ETH Network:
The Shanghai improvement to the Ethereum network will center on facilitating user withdrawals of Ether (ETH). This upgrade, slated to be live in March, will allow users to access currencies staked on the network as part of the September switch to proof-of-stake consensus.
The engineers intend to offer a public test network for the Shanghai upgrade by the end of February to fulfill the March deadline. During recent core developers call, it was decided not to include the Ethereum Virtual Machine Object Format (EOF) in the upgrade due to worries that it would cause the deployment to be delayed. The Shanghai upgrade prioritizes ensuring the smooth implementation of the withdrawals feature.
Some are anticipating rivalry between LSD and the Shanghai update of the Ethereum network, which is expected in March 2023. (Liquid Staking Derivatives).
What Is Expected of this Upgrade?
With the Shanghai update of ETH network, following are expected by the users:
Major investors and others looking to liquidate their holdings could increase the market’s selling pressure.
Users who have not yet staked their ETH will move it to Liquid Staking Derivatives (LSDs). Investors may transfer their newly unstaked Ethereum to Liquid Staking Derivatives (LSDs) to take advantage of higher returns and more decentralized financial features. This may inspire creative solutions and innovative ways of using the area.
Another possibility is that staking behavior will remain unchanged, and players will not destake.
Tezos is a blockchain formed with the aim of creating a digital commonwealth, a community with shared goals and interests which has finally launched after months of delays.
Tezos holders will make decisions and govern the blockchain together by voting in new protocols. It’s similar to Ethereum in that it’s a smart contract platform, but it contains key feature differences like formal verification, a built-in governance system, and the Delegated proof of Stake consensus mechanism.
Interestingly, the network doesn’t have to fork to upgrade, which is arguably unique to Tezos, something that could prevent civil war-esque situations like the one which divided the Bitcoin community recently.
People can make suggestions for protocol upgrades which can then be voted on by the entire community and then either ignored or adopted, putting more power in the hands of the community.
The idea here is to foster evolution and development without the need for a hard fork. Proposed amendments accepted by stakeholders can include payment for individuals or groups that include the protocol, which means that community developers could actually get paid for working on the network in a decentralized way, incentivizing them to make continuous improvements.
This is a security measure which mathematically proves properties about programs like smart contracts, which can help avoid costly bugs and related issues.
Delegated/Liquid Proof of Stake
So, with Proof of Work we have miners solving cryptographic puzzles in order to verify new blocks of transactions and enter them into the blockchain. This is an extremely expensive and energy-hungry process, but when a network is big enough it’s also very expensive to attack. Some people argue that PoW will lead to centralization over time due to the increased difficulty of mining transforming it into a specialist field where only major operations with expensive mining hardware can compete.
Proof of stake, on the other hand, is far more environmentally friendly. To participate, validators (not miners) stake a certain amount of cryptocurrency – the higher the stake, the higher the chance of being selected, and the selection is performed pseudo-randomly.
If selected, they then validate blocks, with the understanding that their stake and their transaction rewards will be lost if they attempt bad practice. Arguably this is more centralized than a PoW network in its infancy, but less centralized than an advanced PoW network ran by high-end mining operations.
Delegated Proof of Stake, on the other hand, takes this concept a step further.
It’s similar to proof of stake – however, instead of randomized selection based on stake size and other factors, bakers are voted in by the community. In fact, Tezos’ form of consensus is an even more bespoke form of DPoS called ‘Liquid Proof of Stake”.
Token holders stake their tokens and approve transactions (this time they’re called bakers!). With Tezos, the bakers must have a 10,000 token stake as well as a bond (a security deposit). Again, dishonest action will result in the deposit being lost, while the reward is 5% of the stake a year.
So, it’s a smart contract/DApp platform with on-chain governance and self-amending capabilities that bypass contentious hard forks.
Sounds good, right? So why the long wait?
Lawsuits and Controversies
Founders Kathleen and Arthur Breitman had a major falling out with Johannes Gevers, the head of the Tezos Foundation, regarding who would be in control of the project. Supposedly it was legally necessary to appoint an independent party as foundation head under Swiss law, but when they appointed their former acquaintance Gevers the Breitmans found that he was more interested in a power grab than playing ball, according to them.
Tezos then experienced significant delays over legal disputes between the founders and various parties. it was claimed that Tezos was violating US securities law by selling unregistered securities, for example.
Distributed Ledger Systems (DLS) sued over the intellectual property rights after receiving seed capital from Tim Draper in exchange for a 10% stake. DLS retained property rights over the source code, with the plan being that the Breitmans would set up an official foundation and buy out DLS along with the IP rights.
Part of the ICO contract stated that the Breitmans and Draper were due 8.5% of all ICO funds and 10% of circulating currency, but this became a source of conflict between the project and DLS.
Remember the lawsuit over securities? Yeah, so did the SEC and Tezos, the latter of which either opted or was forced to suddenly introduce KYC measures, something which never goes down well in any community, especially in Tezos’ case when the ICO was already a year old.
“During the Tezos Foundation’s donation period in July 2017, there was no blockchain ecosystem or industry consensus on this subject. As the blockchain ecosystem and industry has matured over the past ten months, it has become a best practice to verify that contributors meet basic KYC/AML criteria.”
Here’s the thing about Tezos – it actually has a really strong use case. That’s not to say that it’s guaranteed to be a success in the highly volatile and unpredictable world of cryptocurrencies, but it certainly has a lot of the groundwork laid out and was actually due to launch months ago before all the legal issues set things back. The mainnet launched on September 20, and now the question on everyone’s minds is, can Tezos actually compete with Ethereum? Is the low profile of the project actually a blessing in disguise for investors who missed the boat on the world’s first DApp development platform?
It could well be the case that Tezos is about to explode onto the crypto scene and start developing new applications along with a financially incentivized community of developers who will work tirelessly to constantly update the network as per the wishes of the userbase without ever needing to fork, something that could revolutionize blockchain networks as well as DApp development.
Of course, as always, it’s also possible that nothing will come of it and Cardano or EOS will take its place, or that Ethereum will scale before any of the newcomers make it out of the gate and reign supreme over DApp development for a thousand years.
You never know with crypto/blockchain projects, but one thing is for certain – with the genuinely innovative and groundbreaking features Tezos has implemented, building and potentially even improving upon predecessors like Ethereum, the project could well be one of crypto’s sleeping giants, and is definitely worth keeping an eye on.
Casper is Ethereum’s chosen Proof of Stake protocol, headed up by team leader Vlad Zamfir. The code is available here on Github.
The protocol implements a process the dev team claims can punish malicious elements:
The validators stake a portion of their Ethers as stake.
After that, they will start validating the blocks. Meaning, when they discover a block which they think can be added to the chain, they will validate it by placing a bet on it.
If the block gets appended, then the validators will get a reward proportionate to their bets.
However, if a validator acts in a malicious manner and tries to do a “nothing at stake”, they will immediately be reprimanded, and all of their stake is going to get slashed.
Anyone who acts in a malicious manner will get immediately punished by having their stake slashed. This is where it differs from most other POS protocols. Malicious elements have something to lose so it is impossible for there to be nothing at stake.
The protocol also designs incentives that punish miners who go offline, intentionally or otherwise (source: Blockgeeks)
Now, while it sounds like a well-thought out system, there’s the possibility that miners won’t take kindly to the penalties induced for going offline. They could lose their stake through a simple accident or power cut, meaning they have to be extra careful.
In a moment we’ll get into whether this could create a rift within the mining community, but we’re not quite done exploring Casper’s features yet.
Two Sides to the Story
Casper is actually divided into two parts:
Casper the Friendly Finality Gadget (FFG)
Casper the Friendly GHOST: Correct-by-Construction (CBC)
Casper FFG is also referred to as Vitalik’s Casper, and it’s is a hybrid POW/POS consensus protocol.
1. Today I am going to make a tweet storm explaining the history and state of Ethereum's Casper research, including the FFG vs CBC wars, the hybrid => full switch, the role of randomness, mechanism design issues, and more.
Casper is going to start off with FFG which is essentially phase one of the big move to POS. After that the project will transition into phase two, making Ethereum ready for POS.
With FFG, every 49 blocks will still be PoW but the 50th block will be a “PoS checkpoint” where finality is assessed by the miners/forgers.
Finality basically means that when a process or transaction has been completed, it’s irreversible.
The CBC protocol will see the network position itself to make the change to PoS smoothly. But why?
The Advantages are pretty clear.
The enormous energy consumption of Proof of Work is crazy and posing a real threat to the environment. From a more local standpoint, advocates of PoS claim that it is more decentralized and helps improve scaling opportunities, economic efficiency, and rarity – Ethereum will become a rarer commodity after Casper is implemented due to mining incentives. Blocks will soon be rewarded with 0.82 ETH as opposed to 3 ETH which will reduce the inflation rate.
The Disadvantages – Mining Incentive
The only potential problem foreseeable, at the moment, is the potential for miners to abandon ship, potentially turning to Ethereum Classic (ETC), the orignal Ethereum PoW protocol requiring miners to validate transactions.
The issue with the Proof of Stake protocol is that miners don’t play the same role as they do in Proof of Work – miners running ASIC mining rigs or computers kitted out with top of the line GPUs working overtime to crack complex algorithms in order to validate block transactions and receive rewards aren’t required here, with a democratic system of validators taking their place. Is there a possibility that members of the Ethereum community will switch over to the ETC team in order to preserve that role? Yes, it’s a distinct possibility – the question is, how many?
Two weeks ago redditor called beezer0005 stated:
“Not a single care with miners. Lol, if you’ve been following eth, they actually don’t care with miners. The reason casper is always delayed is simply it’s not ready yet.”
Another user called FaceDeer said:
“If the miners want to keep mining the PoW fork, but the users have moved over to the PoS fork (because it’s got significant improvements in how it functions for users), that’s fine. The miners can have their irrelevant little fork that nobody is interested in paying them to secure. It won’t affect the PoS fork in the slightest.
In fact, I’d say it’d be a good thing to have them keep the PoW chain running for a little while just in case PoS suffers an unforeseen catastrophic failure right after launch. PoS will be a big and complicated upgrade, the old PoW chain would serve as an emergency backup in that case.
Comments like these speak to the potential rift growing into the Ethereum community which already fractured recently with a hard fork leading to two prominent cryptocurrencies.”
The Developer’s Outlook
Vitalik Buterin has previously warned against a war on Ethash mining and ASIC mining within the Ethereum community.
“Worst case scenario is basically like that Bitmain controls a very large portion of the Ethereum network for some period of time,” Buterin added. “This is not Bitcoin, right? Miners are not in control here. If there comes a day when they have majority hashpower and try to use it for evil, then it will basically just speed up Casper development.”
Casper is seen by the team as a means to decentralize the network and take the power from the hands of those capable of shelling out millions for state of the art crypto-mining farms and facilities with hundreds of GPU or ASIC rigs churning away to grant the owners a disproportionately influential voice in the community when it comes to voting and validating transactions. The move is designed to discourage the possibility of mining cartels taking over and positioning themselves to carry out a 51% PoW attack, as we have seen in many PoW coin networks recently like Bitcoin Gold.
It’s not going to make the miners happy to see a reduction in block reward, and yes, many of them may leave by Casper FFG in advance of their role being completely changed as opposed to applying for validator roles in the upcoming PoS system. Casper may prove to be a success in the Ethereum network, or it may prove to be yet another divisive element that splits the community yet again.
However, with the multitude of problems being faced by PoW coins recently – all I can say is that Casper is worth a shot.
There are two main methods usd to mine cryptocurrency – proof of work, the original method outlined in the Bitcoin white paper, and proof of stake, the ambitious upstart trying to take it all over.
Proof of stake is becoming more widely used, and was arguably popularized by Ethereum when the platform switched from PoW after last year’s hard fork. To understand PoS we need to understand PoW first, so lets do that.
What is Proof of Work?
Blockchain is such a Big Deal largely because the information a blockchain system stores is distributed across a wide network of computers that all have to “agree” on the information. In order to alter the information, you need to have access to every node, which makes hacking or censoring the blockchain ledger pretty much impossible – even moreso when the nodes are in different countries.
With the PoW method, powerful computers called mining nodes use GPU or CPU power to solve complex math problems, basically trying to guess a certain number. Bitcoin for example uses SHA-2 (secure hashing algorithm 2), a set of crptographic hash functions that need to be solved by the mining nodes.
Yes, it’s complicated – the main thing to remember is that the mining nodes are actually verifying transactions when they try to solve the puzzles. This is what I mean when I say the nodes need to “agree”. Once a certain amount of nodes have come across the same transaction enough times, it becomes verified and the transaction is entered into a new block of data – when enough transactions are queued, the block is entered into the blockchain, and life goes on.
Now, this all consumes quite a lot of energy. In fact, Bitcoin mining alone currently consumes more electricity than the nation of Denmark, and it’s becoming even more expensive. Miners can’t do this for free, and they don’t – they get rewarded for each block added to the chain. Bitcoin currently rewards miners 12.5 BTC for every block.
In theory, the process is community based and decentralized. The idea is that anyone can mine, so no one entity is controlling the hash rate and deciding which transactions do or don’t go through. In practice, it’s more complicated – mining pools actually control a significant percentage of the Bitcoin hash rate, leading to concerns that it’s not as decentralized as advertised. On to proof of stake.
Proof of Stake
PoS is a game changer, although it’s not without its own issues.
With PoS, currency isn’t mined with computer power. The system requires users to prove that they own a certain number of crypto tokens in order to create a new block. Essentially, the more funds you have, the more likely you are to be randomly (well, “pseudo-randomly”) selected to be the creator of the next block, and because its such a different system its often referred to as “forging” instead of mining. Your wealth is the stake in the currency.
With newer currencies, the tokens are created at the launch and the number is fixed. Generally the forgers are rewarded with transaction fees instead of rewards. To do validate transactions and add new blocks to the chain, a forger has to “stake” their own funds, like a deposit. This is designed to keep them honest and provide a reason for them to mine the right transactions.
Because the token amount is fixed, the system doesn’t really have a way of distributing coins at the launch of the system, and there are two ways around that. One is to pre-mine coins, launch with an ICO, and sell the pre-mined coins in exchange for contributions. This works fine, although the community is really not fond of pre-mined currencies as a general rule. If the development team end up in possession of a disproportionate amount of tokens they can very easily manipulate the market by “pumping and dumping”, suddenly buying/selling large amounts to cause the price to rise or crash and capitalizing through trading.
The other way is to simply begin with the proof of work system to get things going and then switching over to proof of stake, which is what Ethereum did. That’s a basic run-down of how it works. Ready to dig a little deeper?
Here’s the thing. It would be very uncool, to say the least, to just select people based on the size of their wallet alone. The more you have, the more you get? That’s the kind of thing many community members are trying to escape by turning to crypto. Allowing the rich to control the show would result in total centralization, which is a no no.
Yes, you need to have funds you can stake in order to get your block reward, but the process can be randomized as well through randomized block selection. With randomized block selection, the stake size and the hash value are both factors. The stake sizes are public and users can generally predict which user will forge the block.
Coin Age based selection chooses forgers based on the how long the stake has been in the user’s possession. Actually, the number of days the coins have been held is multiplied by the number of coins being staked! Coins have to be held for 30 days before they can be staked, and users staking higher numbers of coins that they’ve had for a long time stand a better chance of winning. After forging a block, the coin age is reset to zero and the user has to wait another 30 das before forging more blocks to aid decentralization.
The longer you wait to create a block, the higher your chance of being awarded one becomes, creating a relatively fair system. Because users have to hold currency to create blocks and verify transactions, a 51% attack where a group takes over more than half the network to control the decision making process would be very difficult and expensive.
These systems charge transaction fees to pay for the operation of the blockchain, and typically these fees are rewarded to forgers instead of new coins. The PoS system is significantly more environmentally friendly. Energy costs are lower, and the users don’t need fancy mining rigs stuffed with graphics cards worth thousands of dollars to create blocks, which is something the gaming community will be happy to hear.
Because it’s cheaper to run a node this way, more people are able to afford it, which contributes to decentralization as well.
Dash, Neo, and Stratis all use PoS. EOS, on the other hand, uses DPoS – Delegated Proof of Stake. This is a variation that allows the commnity to vote for delegates called Witnesses, members of the community selected to create blocks. With this system, voting power is determined by stake size, which isn’t very decentralized. The more money you have, the more power you have. Just like in real life!
Which one is more decentralized?
Unfortunately, you could argue that true decentralization isn’t possible with the methods mentioned above. While PoS is better in many ways (efficient, cheap, etc), both systems benefit and incentivize the rich. PoW mining costs scale over time, meaning it gets more difficult and expensive to operate a mining node. This will result in more nodes bowing out as time goes on, leading to a smaller number of more powerful nodes (and by nodes I mean warehouses full of millions of dollars worth of equipment), and a more centralized system.
PoS isn’t so dramatic, but the issue remains. While the system doesn’t outright grant whales block creation rights every time, they can afford to stake more money for longer and leave funds untouched for the required 30 days, putting more power in their hands.
Both systems are have centralized elements, and some projects like Peercoin and Hcash are working on hybrid PoW/PoS systems to try and combat this problem.