Ethereum turns eight: What are the key developments? Where to go next?

The future of Ethereum has unlimited possibilities, especially as the DeFi industry on Ethereum begins to combine with traditional industries, which has changed the financial industry to some extent.

Original title: "Ethereum has been around for 8 years. What remarkable achievements has it made? What major changes will it have?"
Written by: Sanli

According to the news, the Ethereum mainnet will be upgraded to London on August 5. It is worth noting that last week was the 6th anniversary of the birth of the Ethereum blockchain, and the price of ETH has also shown a continuous upward trend in the past week.

Ethereum has grown for nearly eight years since the Ethereum white paper began to circulate in late 2013. Initially, it was only seen as a solution to the limitations of Bitcoin's scripting language, with the goal of becoming a deployment and execution platform for smart contracts. However, after eight years of growth, it has now become the king of the public chain with new ambitious goals.

Data shows that as of July 30, Bitcoin ranked 9th in the world in terms of market value, with a market value of approximately RMB 4.177 trillion. Ethereum ranked 47th in the world in terms of market value (it once rose to 14th in the world at its highest point), and its current market value is RMB 1.629 trillion. Although it is less than half of Bitcoin’s market value, Ethereum’s total circulating market value is second only to Bitcoin in the field of encrypted assets.

At the same time, more and more institutional investors choose Ethereum as an investment target, and the on-chain ecosystem is booming. Both developers and investors have high expectations for it. Ethereum innovatively uses smart contract technology to push blockchain applications to a new level, but the higher the status, the greater the responsibility, and more and more problems are exposed and need to be solved. Every technological upgrade and progress of Ethereum has attracted much attention.

How is Ethereum progressing at this stage, where will it go next, and what difficulties might it face?

Ethereum 2.0 is about to be released, and technological upgrades bring hope

The "DeFi fever" has led to a significant increase in the transaction volume on the Ethereum network, resulting in network congestion and slow transaction speeds. The main purpose of Ethereum 2.0 is to improve the scalability of Ethereum, that is, to increase the processing speed. Vitalik Buterin once said that ETH2.0 can achieve 100,000 transactions per second, which is 1,000 times higher than the existing version, making Ethereum a real computer, which is full of expectations.

So, let’s first review the entire ETH2.0 plan that was announced before. This plan is divided into the following four phases: Phase 0: Beacon chain; Phase 1: Sharding; Phase 2: Smart contract; Phase 3: Off-chain state storage; Phase 4: Sharding contract.

The picture comes from the Internet

So what is the current progress? In recent times, the most popular thing is the Ethereum London upgrade, which is expected to be launched on August 5, including the following five Ethereum Improvement Proposals (EIPs):

EIP-1559: It adds a base fee to every transaction on the Ethereum blockchain. The second aspect is that the fee is no longer paid to miners;
EIP-3198: Extend the user experience improvements of EIP1559 to smart contracts. Transactions using smart contracts should no longer be charged extra fees.
EIP-3529: Eliminating or reducing refunds through EIP-3529 will make the network more stable;
EIP-3541: Mainly lays the foundation for future updates, reserving some space within the network to create new types of smart contracts;
EIP-3554: EIP-3554 has become a standard part of Ethereum hard forks, delaying the difficulty bomb until December 1, 2021.

As part of the Ethereum 2.0 release roadmap, the London hard fork has been implemented in various test networks, and it is worth looking forward to the next one. In a speech titled "What will be released after Ethereum enters 2.0?", Vitalik Buterin said that the basic technical vision of Ethereum is to try to improve quickly in the short term and stabilize in the long term. In the future, Ethereum will focus on decentralization by layer 1, and layer 2 will carry out a lot of innovation, so as to make the Ethereum protocol simpler and more convenient to use.

There are two important things about Ethereum 2.0:

One is to move the Ethereum blockchain to a proof-of-stake algorithm (PoS), which would allow it to work without expending a lot of computing power and electricity.

The second is sharding, which creates a large number of parallel blockchains that process transactions independently but are connected by a common network and operating history.

But according to the Ethereum roadmap, after the London upgrade, there will be the launch of the Optimism public mainnet, the release of the zkSync 2.0 mainnet, the Eth1/Eth2 merged product testing, and the Shanghai upgrade - which may realize the Eth1/Eth2 merged StarkNet universe stage release, decentralized zk rollup, and Ethereum upgrade to achieve validator withdrawals/post-merger cleanup. The initial plan is to complete it as early as the first quarter of 2022. Judging from the current team's continuous postponement, it may be later.

However, there is no need to wait forever. Before that, you can still transition through Layer 2 scalability solutions. Currently, multiple Layer 2 solutions have been launched, such as ZK Rollups and Optimistic Rollups, and new research methods are emerging in an endless stream, which allows us to see new expectations about blockchain in addition to market prices.

The first public blockchain, with continuous prosperity of ecological applications

In fact, after the emergence of smart contracts, the topic of when Ethereum can surpass Bitcoin has never stopped. However, apart from its value storage function as "digital gold", Bitcoin has not made any significant progress in terms of technological upgrades. For example, the Taproot upgrade carried out some time ago did not attract widespread attention, but the ecosystem on the Ethereum blockchain has been developing in full swing.

If this continues, Ethereum will develop a more grand, prosperous and vibrant ecosystem in the two years before and after the ETH2.0 upgrade is completed.

Image source: the block

When reviewing the development of Ethereum in 2020, we said that because it is open and programmable, Ethereum provides an unknown vast space full of opportunities. In fact, so far, the financial building of Ethereum has taken shape.

• DeFi: Currently, DeFi applications are still the most important part of the Ethereum network, such as stablecoins MakerDAO, usdt, lending products AAVE, Compound, decentralized trading platform Uniswap, financial derivatives synthetix, dydx, etc.

• Layer2: In addition, before ETH2.0 comes out, there will be solutions centered around Layer2, such as Raiden, Loom, Celer, Liquidy Network, and Skale.

• Wallet: Baihua has also said in previous articles that the simplest indicator of a chain’s ecology is how many wallets support it. Currently, wallets that support ETH include MetaMask, MyEtherwalle, imToken, Parity…

• NFT: In addition to this, the ecosystem mentioned earlier that has taken root this year is the creator economy of crypto art, music, and media. For example, most non-fungible tokens (NFTs) issued are purchased using Ethereum. Compared with Bitcoin, Ethereum has a larger number of transactions.

• CBDC: As early as May 2020, Vitalik Buterin said that Ethereum could become a permissionless platform for many central bank digital currencies (CBDC). If this is Vitalik Buterin's wishful thinking, then in June this year, the former head of the People's Bank of China's digital currency program also proposed that "central bank digital currencies (CBDC) will become more "intelligent" and may one day run on blockchain networks such as Ethereum."

Not only domestically, the Bank of Israel has also reportedly completed a pilot to use Ethereum technology for central bank digital currency (CBDC) under supervision.

Investment banking giant Goldman Sachs also stated in its Global Macro Research report that blockchain platforms like Ethereum could become a huge market for reliable information providers, just like Amazon is to the consumer goods market today. As he said, more and more applications in the above fields have or are constantly enriching the Ethereum ecosystem, showing a "wildfire trend."

Institutional layout, Ethereum becomes a "hot commodity"

As Ethereum's market value continues to increase and the community continues to update its technology, the DeFi ecosystem has grown rapidly. Ethereum has successfully attracted the attention of institutional investors and corporate asset allocation. Even many celebrity investors have begun to use Ethereum. At the same time, the explosive growth of NFTs has also brought new users and mainstream attention to Ethereum.

For example, in March this year, Meitu announced that it had purchased a total of about $90 million worth of cryptocurrencies, including 31,000 Ethereum, which is worth more than Bitcoin. Meitu founder Cai Wensheng said that Meitu is the world's first listed company to use Ethereum as a currency value reserve; in the same month, private jet charter operator flyExclusive announced that through cooperation with crypto payment service provider BitPay, its private charter flights and Jet Clubs have accepted cryptocurrency payments, supporting Bitcoin, Ethereum or other forms of cryptocurrency payments;

On April 29, according to the official Twitter account of the Houston Rockets, its official store already supports cryptocurrency payments such as Paypal, Bitcoin, Bitcoin Cash, Ethereum, Dogecoin, and US dollar stablecoins, etc.

Not only have institutions begun to allocate Ethereum, many investors have also expressed optimism about its development, making it a "hot commodity."

Mark Cuban, owner of the NBA Dallas Mavericks, said that compared to Bitcoin, Ethereum has greater development potential in the future because Ethereum has more application areas than Bitcoin. Michael Saylor, CEO of MicroStrategy, also said that the crypto market can be divided into crypto assets and crypto applications. Bitcoin is the leader in crypto assets, while Ethereum will be the leader in crypto applications.

According to CoinShares' "Weekly Digital Asset Fund Flows" report, as Ethereum fund trading volume soared, many institutions sold Bitcoin and increased their accumulation of Ethereum and other altcoins. Ethereum accounted for more than half of the funds flowing into altcoin investment products.

However, it is worth noting that there are not many institutions in the world that use or allocate cryptocurrencies, and even if they do, they will choose Bitcoin. Because generally speaking, there are still only a few institutions that allocate cryptocurrencies. In addition to compliance requirements, it is more because the volatility of Bitcoin prices is too large and they need to bear greater risks. Ethereum has greater volatility than Bitcoin due to reasons such as "unlimited total amount, frequent upgrades, and low value storage properties".

But in the long run, Bitcoin technology is rarely updated and upgraded, and performance improvement is difficult. It is likely that its future positioning for a long time will be "digital gold" as a store of value. The future of Ethereum has more unlimited possibilities, especially DeFi on Ethereum has changed the financial industry to some extent and started to combine with traditional industries. There will be more and more applications, and after the price rises, the problems of liquidity and volatility will be solved, and institutions will be more likely to invest in Ethereum.

Ethereum’s current problems are unresolved, where will it go in the future?

Behind Ethereum's glamorous market value status and large ecosystem, there are still many problems that need to be solved.

First, in terms of technology, the difficulty bomb has been postponed again and again. It was postponed from July to December this year, and it is still unknown whether it can be launched. As the Ethereum ecosystem grows, the actual implementation of the difficulty bomb mechanism becomes more and more difficult. If the interests of all parties cannot be balanced, the entire network may be frozen or even collapsed.

Secondly, although most people have high expectations for ETH2.0, this new plan is also subject to many controversies. V God said in an AMA not long ago that even if a perfect solution to merge ETH1.0 and ETH2.0 is available in March 2021, he and his team will still have to wait until the end of next year to start, because they need to spend a lot of time to convince all parties in the community to accept the new plan.

After all, it is very difficult to persuade vested interests to abandon their own interests and balance the interests of all parties. For example, the EIP-1559 protocol was opposed by miners. It destroyed the Base fee that originally belonged to the miners' mining income and no longer left it to the miners. According to the current proportion of Ethereum transaction fees in miners' income, EIP-1559 will greatly reduce the miners' currency-based income.

At the same time, Ethereum’s plan to change the POW mechanism to a POW/POS hybrid consensus mechanism is likely to lead to disagreements in the community and cause forks, which will harm the existing ecosystem.
In addition, the market's enthusiasm for DeFi has put pressure on Ethereum's transaction fees and scalability, and Ethereum 2.0 is nowhere in sight, causing many people to lose patience and turn to emerging things such as NFT and the Metaverse, losing some users.

Over the past 8 years, as V God said, Ethereum has almost died many times. If it wants to develop into a world computer and a platform for decentralized applications, maintain the world's second largest cryptocurrency market value, and challenge BTC's position, it must continue to innovate and explore new technical solutions. To borrow a sentence from materialist dialectics: The future of the development of things is bright, the road is tortuous, and new things will inevitably defeat old things. I hope that the future of Ethereum will be the same.

summary

The development speed of the digital age is staggering, and many people are not even prepared, but the problems exposed by the digital age will not stop. As the next "visible and tangible" new technology after the Internet, the Ethereum platform in the blockchain has been given great expectations, but also carries huge responsibilities and pressures. After all, the next challenge of Ethereum may also be a challenge for the entire crypto market.

Perhaps, it is not so important to eagerly peek into the future of Ethereum. After all, too much mystery and greatness are full of imagination because of the "unknown". What do you think of the present and future of Ethereum? Feel free to share your views in the comment area.