28 trillion dollars…$28,000,000,000,000! That’s how much the US government’s national debt is, as of writing this. It’s almost doubled from $15 trillion, since 2012. If you time traveled back to 1913 and brought one dollar with you, it would have the buying power of $26.57. The USA’s inflation rate is currently at 1.7%, so it’s only going to get worse. It’s already much worse in many other countries. With the way things are now, governments and banks are in control of the currencies. This leads to inflation and unstable currencies all over the world. But what if there was a better alternative? What if the people controlled currency, instead of leaving it up to the government? What if we skipped the middle man and made our own currency that’s accessible, decentralized, and secure? One that governments couldn’t just print more of whenever they please? This is where crypto comes in. Anyone can set up a crypto wallet. There’s no cost or barriers, anyone with a smartphone or computer can create a wallet and use crypto. Wallets are anonymous, no personal information is linked to them or needed to create one.
This must sound too good to be true, right? Well it sort of is, for now at least.
With soaring Eth (Ethereum) prices, comes soaring transaction fees. The transaction fee you pay goes to the miner that successfully added your transaction to the blockchain. People who are willing to pay higher fees get their transactions added to the next block quicker. (more transactions → longer wait for transaction confirmations → people pay higher fees for faster confirmations) On top of that, every time someone makes a transaction, the blockchain gets longer. The size of the blockchain and the competitive nature of mining leads to people needing more powerful computers with lots of storage space to mine crypto. The race to get the best mining parts has even led to GPU prices going up again. Eth’s average transaction fee went from 10 cents in March 2020 to $17 USD as of writing this, with a peak of $39 USD on February 23rd 2021.
Sustaining a blockchain with proof-of-work confirmations on a large of a scale uses up a lot of energy. I’ll use BTC (Bitcoin) as an example. BTC uses proof-of-work and it’s the most competitive crypto when it comes to mining. If BTC was a country, it’s energy usage would rank 27 globally, right in between Malaysia and Sweden. That’s 139.15 TWh per year. This energy usage comes from miners running their beefy computers 24/7 to sustain the blockchain and earn BTC.
You might be wondering what this “proof-of-work” thing is all about. It’s what keeps the blockchain secure. Because a blockchain is decentralized, there’s no central server. Instead it’s made up of tons of different nodes. Each node has and broadcasts its own copy of the blockchain. Miners add new blocks and broadcast their copy of the blockchain with the new block.
Hash functions play a huge role in mining. They’re how miners do the “work” in proof-of-work. A hash function takes in one value, then spits out a completely different and random looking value. Each input will always give you the same output. It’s virtually impossible reverse this, so if you only have the output you won’t be able to find the input. One small change to the input will result in a completely different output. There is no way to predict what the output for any given input will be, the only way to find out is to run the function.
There has to be some way to confirm that each new block added by a miner is legitimate and keep all of the miners/nodes on the same page. This is done with proof of work! For a miner to add a block, it needs to be the fastest one to find a special string (a series of characters). The hash of this special string has to meet some requirements (e.g. the first 10 characters of the hash are all zeros). The only way to find these special strings is by picking one at random, putting it through a hash function, and checking if it meets the requirements. It takes a lot of computational power to find the special string, because of the sheer amount of attempts it takes to find the lucky combination of characters and the computational speed required to beat the other miners to it. But once the miner broadcasts the new block with the special string to the other miners, it’s very inexpensive for everyone else to put it through a hash function and verify it. Then the miner receives 2 brand new Ether along with all the transaction fees from that block. The miner getting paid is the last transaction added to the new block.
When other miners find out about this new version of the blockchain with the new block. Because this version of the chain is now the longest chain and other miners recognize that the transactions are valid, they start building off of it by adding new blocks. Different miners could be working on different blocks at the same time, which means they’ll have slightly different variations of the blockchain. But eventually one version will be built on the fastest and become the longest chain, and miners abandon the shorts chains. The longest chain has the most computational work into it, so everyone agrees that it’s the most trusted chain. This is why it can take a while to confirm a transaction. Once the new block has had a few more blocks added onto it, all the miners have the block on their copy of the chain so it’s confirmed.
Someone could theoretically add a block with fake transactions, but to keep this new version of the chain going, but they’d have to keep finding the special strings faster than all of the other miners combined. The only way to pull this off would be if one person/group had control over at least 51% of the mining power on the entire network. This has never happened, but it’s technically possible.
Ethereum is taking a huge step in the right direction and they’re covering all their bases: efficiency, scalability, security, and environmental sustainably. Eth2 (Ethereum 2) isn’t a new cryptocurrency, it’s a series of updates that are being built onto the existing Ethereum network. Eth2 is slowly being rolled out in phases. This will all hopefully be completed by 2022. Eth can currently handle about 30 transactions per second. Eth2 should be able to handle about 100,000 transactions per second.
Instead of miners, there’s validators and computational work is replaced by staked Ether. Validators don’t need beefy computers, because they don’t have to do so much computational work like miners do! A validator is selected at random to create a new block and other validators are selected to vote on whether or not to add the new block. The validator that created the block gets rewarded with the transaction fees from the block and new Ether, like miners do. That’s right no hashes, no special strings, and no racing to be the fastest miner to find a special hash. The Eth2 validators of our future won’t drive up the price of graphics cards either.
Well it’s simple, they each have to put thousands of dollars into what is pretty much a security deposit. If they don’t follow the rules, they lose their deposit. To become a validator, you need to stake 32 Ether. As of May 1st, 2021, 32 Ether is $91,624 USD! You can stake your Ether by sending it to a smart contract created by the Ethereum team. A smart contract is code that lives on the blockchain. The validator deposit contract, holds all of the validator’s staked Ether. If you follow the rules, you can get your Ether back from the contract when you choose to stop being a validator. Validators can earn rewards from reporting misbehaving validators and misbehaving validators will lose part of their stake. So the only profitable option that validators have is to vote correctly, create blocks with legitimate transactions, and ensure their computer is online when they’re selected to vote or propose a new block.
Each Eth miner has to store and verify their own up to date copy of the entire blockchain, from the most recent block to the first ever block. Eth2’s beacon chain and shard chains will tackle this scalability problem.
This will split Eth into several smaller chains, called shard chains. The current Eth blockchain will become 1 out of the 64 shard chains. Splitting the load between chains will make it even easier for someone to become a validator because it will require even less powerful computers. This also increases the speed and efficiency of creating and confirming new blocks.
For a new block to be created one validator will be randomly assigned to propose a new block to a chain, and a committee of at least 128 other validators will be assigned to that chain to vote on the newly proposed block.
The beacon chain is the infrastructure that keeps everything organized and in sync. It keeps track of the validators and the votes from the validator committees. While validators work on validating new blocks, beacon nodes are responsible watching the beacon chain and communicating with the validators.
Like proof-of-work, this model could be abused if someone owned 51% of all validators. This is very unlikely, because it would require someone to have invested 51% of the staked Ether. There is currently over 4 million Ether that has been staked, and I’m sure that number will continue to grow. The randomization of the voting committees and proposers makes this kind of attack even more unlikely. But even if someone attempted this, it wouldn’t be very profitable.
- Crypto is a fairly new technology that has its issues, but it’s only improving with time.
- Ethereum 2 isn’t a new currency, it’s a series of updates that will be integrated into the Ethereum network over time. It’s estimated to be fully rolled out in 2022.
- Ethereum 2 will replace mining (proof-of-work) with a more energy efficient method (proof-of-stake) that doesn’t require as much computing power.
- Ethereum 2 will split the Ethereum blockchain into 1 beacon chain and 64 shard chains.
- Ethereum 2 will be faster, environmentally sustainable, and scalable.
This is only the beginning. There’s so much more to learn about Ethereum. If you’re interested, check out some of these resources.
- Beginner friendly video explaining blockchain and proof-of-work
- What is Ethereum?
- Learn more about Eth2
- What is the Eth2 beacon chain?