The Strategist

Ethereum cryptocurrency enters new phase of development

12/07/2020 - 05:02

On 1 December, a revolution took place in the world of cryptocurrencies. The Ethereum project began its transition to a new phase.
In five years of its existence, Ethereum has become the second largest crypto-currency in terms of capitalisation. Unlike Bitcoin, it was conceived not as a payment system, but as a base for decentralised services and projects. Recently, it has become difficult for the system to cope with its popularity: like Bitcoin, it is experiencing difficulties with scalability. 

On 1 December 2020, the first block of the new network was generated, which was named Beacon Chain. It is needed exclusively for testing innovations that, if successful, will be introduced into the main Ethereum network. This phase has received the number 0.

First of all, Ethereum will try to break with its Bitcoin past: the Proof-of-Work principle will be replaced by Proof-of-Stake. Previously, owners of the most powerful computers had the greatest chance of forming a new block (and thus of receiving a reward from the network); now, however, the blocks will be formed by those with the highest number of coins in their account.

Using the blockchain's terminology, the miners (those who extracted the crypto-currency) will be replaced by stackers (those who deposit money). This principle of keeping records of transactions automatically becomes the prerogative of the wealthiest members of the network.

In the next phase, the developers will start implementing a solution called sharding. This technology came to Ethereum from the database processing methodology. Sharding is the division of a database into fragments, each of which is processed by a separate server.

Now all active Ethereum members are simultaneously busy checking the same array of data on transactions that have taken place. In phase 1, however, the blockchain will be split into areas of responsibility, that is, shards.

There will be 65 such shards in the initial implementation phase. That is, there will be 65 groups of validators who will independently check transactions taking place in the network and then add them to the common blockchain. Over time, the number of shards will be increased to 1024.

This solution, as the developers hope, will allow Ethereum to solve the problem of scalability and capacity: now the Ethereum network is capable of adding (i.e. processing) about ten transactions per second, which is completely unsuitable for a large-scale project. By comparison, the VISA payment system handles 24,000 transactions per second.

Another problem is security. Attackers will now have to take control not of 51% of the capacity of the entire network, but of the same percentage of the capacity of a single shard. The task will already be 64 times easier.

Following the introduction of the shard, the development team will begin phase 1.5: merging the main Ethereum network with Ethereum running on Proof-of-Stake. And only after that, already in Phase 2, all sorts of applications and services will be deployed in the new version of Ethereum. These are both smart contracts and decentralised applications. The network will also receive a new virtual machine, eWasm, which will be responsible for executing smart contracts.