vitalik buterin ethereum

Vitalik Buterin on Designing Ethereum | Bankless Podcast

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Key Takeaways

  • Ethereum 2 phase 0 has already undergone testing and is close to release
    • Phase 0 is Proof of Stake, phase 1 is Data Sharding, and phase 2 is Execution Sharding
  • “We believe that the base layers of the new internet should be an open thing that is expected for regular to be able to participate in” – Vitalik Buterin
    • Thus, it’s important for Ethereum to not have supernode dependence
  • Truly decentralized governance mechanisms always give the same output regardless of political disagreements, any centralization is an attack vector
  • Proof-of-Work (PoW) has the advantage of a higher miner churn rate and reduces the possibility of long-term capture. By contrast, a staker today can remain a staker forever. That said,
    • Development pace is likely to slow down as the mining industry matures
    • Holders with smaller amounts can form staking pools, compared to a substantial initial miner investment
  • “The biggest way that we can be sure about what our values are is just by talking about them” – Vitalik Buterin
    • Ethereum embeds its values into code, people can then freely opt-in
      • The applications you use express your values
  • Because of limited on-chain capacity, Bitcoin’s eco-system may become gated by Bitcoin banks
    • Layer 2 solutions are inevitable, the question is will they be centralized or decentralized

Intro

Ethereum 2.0 is Coming

  • Eth 2 phase 0 has already undergone testing and is close to release
    • As promised, phase 0 shifts to a Proof-of-Stake (PoS) consensus mechanism
    • Phase 1 introduces sharding capability
  • In terms of application scalability, combining Sharding and Rollups will allow for a transaction throughput of 100,000 TpS
  • “Both an end to mining and an introduction to a stake based consensus, and ultra-high scalability are both going to be within the hands of Ethereum users I think much sooner than people think” – Vitalik Buterin

What Ethereum 2.0 Brings About

  • PoS drastically reduces energy waste and miner-centralization risks of Proof-of-Work (PoW) systems
    • Additionally, it strives to be increasingly open and democratic for both users and stakers
  • Sharding is a scalability solution that increases on-chain transaction throughput 15 TpS up to 100K TpS, depending on application and phase
    • Scalability is essential for Eth to be a publicly accessible, open, global architecture without centralized intermediaries
      • The alternative is a few powerful actors participating in a master network with the rest of users limited to side chains

Where Eth 2.0 Doesn’t Compromise

  • First and foremost, “The principle that we don’t want to have supernode dependence” – Vitalik Buterin
    • Supernodes lead to a smaller number of participants who can collude to enforce their own rules
    • Instead, Ethereum should be fully operational just as a collection of consumer laptops, without the need for a supercomputer
  • “We believe that the base layers of the new internet should be an open thing that is expected for regular to be able to participate in” – Vitalik Buterin

On Designing Open Systems

  • “Trying to take a more centralized path is the sort of thing that works well in the short term, but it ends up really biting you in the long term” – Vitalik Buterin
  • Truly decentralized governance mechanisms always give the same output regardless of political disagreements
  • The market can sustain a limited number of decentralization focused chains
    • That said, chains that stick to that path will be successful

PoS and Sharding

  • PoS and Sharding were part of the Ethereum social contract since 2015
    • The DAO fork cemented this contract, and opposition moved to the ETC chain
  • In this post from 2014, Vitalik explores hard problems in cryptocurrencies and PoS as a way forward
    • 5 years later, he revisited those problems and progress made on each
  • In 2017, data availability proofs allowed shorter blockchains to be secured even with a dishonest majority, this is significant for sharding security
    • In other words, a 51% attacker still can’t force an invalid chain

Ether Monetary Policy

  • The Ethereum white paper proposed a stable issuance schedule of 16M Eth/year, forever. This was based on several assumptions:
    • Security requires continuous currency issuance
    • PoS was still uncertain
    • To reduce wealth concentration among early participants
  • Since then, the Eth community became convinced that PoS was both feasible and necessary
    • As a result, Ethereum moved to a ‘minimum viable issuance’ philosophy
      • PoS reduces Eth issuance by providing more or equal security with the same Eth issuance

PoS and Ether distribution

  • Inventing completely neutral distribution mechanisms for cryptocurrencies is extremely hard
    • PoS and PoW remain the only credibly neutral distribution mechanisms. That is, they involve no human intervention
  • While neutral, PoS distributes to existing holders, not new, so it isn’t a distribution mechanism
    • This pays holders to secure the network but doesn’t help wide currency distribution
  • In any case, new distribution components are bound to face resistance before getting accepted

Mining Critiques

  • The accessibility of mining from 2010 to  2013 was a major appeal of Bitcoin, this has changed with the move to AISCs
    • Any PoW system ultimately moves to AISCs and becomes harder to access by retail
    • “The dream of PoW being an egalitarian distribution model just slowly suffocated and died over the last few years I guess” – Vitalik Buterin
  • Ethereum deliberately designed its PoW algorithm to be AISC resistant, with the goal of preserving the egalitarianism of Eth mining
    • As a result, GPU based mining remains viable today, even if likely to get AISCed in the future
    • “I think Bitcoin mining is basically plutocratic already. For Ethereum mining, realistically, it’s only a matter of time” – Vitalik Buterin

PoS vs PoW

  • To remain profitable, miners have to keep up with the latest equipment breakthroughs. As a result, PoW has the advantage of a higher miner churn rate and reduces the possibility of longterm capture
    • By contrast, a staker today can remain a staker forever
    • That said, the development pace is likely to slow down as the mining industry matures
  • Staking requires a minimum of 32Eth, a significant purchase that may limit future access and increase centralization
    • However, holders with smaller amounts can form staking pools. Whereas mining requires a substantial investment in hardware and infrastructure
  • Rewards under a PoS mechanism are lower in an absolute sense. That is, the more people participate, the less eth is issued
  • PoW is more susceptible to 51% and spawn camping attacks
    • The only way out of a spawn camp attack is to change the PoW algorithm, but then all the miners are broken, attacker or not
      • Additionally, you can change the algorithm once; a second spawn camp attack kills the network.
    • By contrast, PoS allows a minority coordinated, user-activated soft fork in case of a 51% attack
    • “The economics are just incredibly unfavorable to an attacker in a way they just aren’t in a PoW context” – Vitalik Buterin

Ethereum Values

  • “The biggest way that we can be sure about what our values are is just by talking about them” – Vitalik Buterin
    • Beyond agreement on fundamental values, research and engineering can satisfy different priorities
    • Ethereum embeds its values into code, people can then freely opt-in
  • The applications you use express your values
    • For instance, UniSwap started as an easy to use decentralized exchange on Ethereum. In 2020, it overtook even some major centralized exchanges
  • Staking is a declaration that you are a citizen of the Ethereum network
    • Ease of validation is healthier for the ecosystem. To this end, Eth 2 will have a simpler and lighter client compared to Eth 1

Sharding

  • Sharding research started in pursuit of an efficient on-chain scaling algorithm, akin to a Quicksort sorting algorithm
  • “It was fairly obvious right from the beginning that everyone validating every transaction is the simplest and dumbest thing that you can do”
    • “The key is to move away from everyone validates to a smaller number of randomly selected actors validate” – Vitalik Buterin
      • ‘Trust, but verify’ becomes ‘Trust, but probabilistically verify’
      • For instance, every node is assigned a different shard every block
  • A shard is a logical subset of the blockchain to which nodes are assigned to, it’s not a cluster of nodes
    • Nodes can be part of 1 or more shards
  •  Sharding has to be resistant to 1% attacks
    • That is, an attacker concentrates a small hash power into breaking a specific subset of the chain
  • Fraud proofs is key to enabling on-chain scalability
    • However, Fraud proofs assume the network is working sufficiently quickly to allow every transaction to pass through a Sentry (validating) node
      • Sharding implementation reduces assumptions introduced by scaling techniques

Rollups

  • Rollups don’t cancel Sharding
    • Phase 1 of Eth 2.0 is sharding, each network participant only needs to download and verify a small portion of the data
    • Rollups allow sharding without the need for fraud proofs, something that was inconceivable two years ago
  • A Rollup-centric Ethereum roadmap is a pragmatic solution that considers where Ethereum is and what it needs
    • Namely, gas prices are still high enough to kick out entire classes of applications
    • Rollups is the available and realistic technology to alleviate scaling issues
      • “Rollups are the game” – Vitalik Buterin
  • Phase 0 is Proof of Stake, phase 1 is Data Sharding, and phase 2 is Execution Sharding
    • Phase 1 enables Rollups on top of Sharding, massively increasing scalability
      • Eventually, different rollups will use different shards
  • In his post Ethereum Enhancers, Not Ethereum Killers, Mathew Finestone discusses how a Rollups focused roadmap positions Eth 2 to cooperate with projects that otherwise would be competitors

Composability

  • It is relatively easy to support asynchronous cross-shard communication. However, synchronous cross-shard operations are trickier, also known as the Train-hotel problem:
    • If you have a train ticket booking contract on shard A and a hotel booking contract on shard B, then how do you book the train and the hotel in a way that ensures that you are booking either both the train and the hotel or neither?
    • This is easy is if both contracts were on the same shard
      • Step 1: book the train
      • Step 2: book the hotel
      • Step 3: if either fails, revert
    • Yanking is a simple protocol for the synchronous cross-shard transaction. It represents the permission to book a particular seat as a separate discrete contract
      • Step 1: Create a separate contract for the seat
      • Step 2: Do the same on the hotel side
      • Step 3: Move both contracts to your shard
      • Step 4: Book both, or revert if either fails
    • This is a safe approach because the commit only happens in the final steps
  • The alternative is for some rollups to focus on high-value applications with higher gas prices and other rollups on lower fee applications with no synchronous connections to high-value stuff

Using the Second Layer

  • Almost every single has announced some sort of second-level or roll-up system
    • “It definitely will be the case that users primary base is going to be generally an L2 system”
      • “I think in the long run there may well even be users that just go years using Ethereum without ever touching L1 and without ever setting up an account inside L1” – Vitalik Buterin
  • L1 will be used to move between different L2 or if some L2 breaks, or if it makes sense for an application to register on L1 with satellites on the L2 side
    • For instance, a token issuance registry on the base chain and users depositing and using tokens on L2 systems

On Bitcoin

  • Because of limited on-chain capacity, Bitcoin’s eco-system may become gated by Bitcoin banks
    • This will force users will have to transact through a third party like Coinbase or permissioned consortium chains
  • Layer 2 is inevitable, the question is will it be centralized or decentralized

EIP 1559

  • EIP 1599 was originally created as a fee market improvement proposal that reduces transaction fee volatility and dynamically adjusts the block size
    • The goal is to fix issues such as users having to pay high transaction fees or wait for an unknowable time before a transaction is processed
  • The fee burning property ensures eth is required to pay for transactions on the Ethereum blockchain
    • Additionally, it counterbalances Ethereum inflation
    • It also removes the miner’s incentive to manipulate the fee in order to extract more fees from users
  • Eth 2.0 has its own version of EIP 1599 built-in
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Notes By Mostafa Khaled

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