Last year brought an unprecedented wave of enthusiasm and attention to cryptocurrencies, in general. Although the focus of many major media outlets and water-cooler conversations with coworkers tended to center on Bitcoin’s meteoric rise, Ethereum also gained considerable traction. While some proponents of a prolonged bear market have declared a crypto bubble that popped in January, there are many reasons to believe the long term outlook for Ethereum is strong. As 2018 progresses, several ambitious updates are in store for Ethereum. While it may be worth looking at each one in detail eventually, the goal here is to provide a broad overview of the big picture.
Ethereum’s Casper Algorithm and Shift to Proof-of-Stake (PoS)
Right now, both Bitcoin and Ethereum work using a Proof-of-Work (PoW) consensus model, which relies on mining. Many other cryptocurrencies also rely on this type of consensus. While Proof-of-Work is effective in terms of creating an incentive for the network participation necessary to keep blockchains up and running and secure, it also has some downsides.
The most obvious issue with PoW relates to the environmental impact of mining. Computers continually solving complex mathematical problems requires a huge amount of energy. One recent report shows that Bitcoin mining now uses more energy than 159 countries, including Ireland and most African nations. The second issue with PoW relates to the problem of centralization. As mining difficulty increases, it requires more and more power to solve blocks, making it more difficult for individuals to mine. This has led to resource consolidation among large mining companies and pools. Today, a handful of pools control a huge percentage of Bitcoin’s hashrate. If a few of the large pools were to collaborate, they could potentially launch a 51% attack.
Ethereum’s proposed solution to both of these issues is to switch from a Proof-of-Work consensus algorithm to Proof-of-Stake (PoS). Casper is the name for Ethereum’s PoS protocol. Rather than relying on miners, Casper’s PoS system uses “validators.” Instead of using electrical and computer resources, validators instead “stake” their own funds towards solving blocks. Similar to placing a bet, a group of validators will put Ether towards the solving of a block. If your block gets appended, you get a reward. If not, you lose your staked Ether. The implementation of Casper is intended to resolve the issue of energy consumption and eliminate the threat of 51% attacks by ensuring distribution. While there is no official word on when exactly this update will be released, Capster is currently running on in alpha on a test net and will undoubtedly be an important part of 2018 development for Ethereum.
Sharding for Scalability in Ethereum
Casper makes up one component of Ethereum’s long term push for network scalability, and sharding is another. One issue that is faced by many blockchains, including Bitcoin, is that every node on the network must download and maintain a copy of the entire blockchain. As networks aim to handle higher transaction volumes at faster speeds, blockchains grow and require more and more space and processing power to maintain, creating more of a demand on each node in the network.
Sharding works essentially by breaking the blockchain up into many different pieces, or “shards.” Instead of each node having to store the entire blockchain, it will only need to store and computer certain shards. Transactions happening on the network could be routed to nodes based on relevant shards. For example, one shard might handle all addresses starting with 0x00 and another might handle those starting with 0x01. Implementation of sharding is technically quite complex, but Ethereum developers have suggested that it could drastically increase the network’s capability to handle high volumes of transactions quickly.
Currently, Ethereum is in the phase of development dubbed “Metropolis.” Within Metropolis, there are two hard forks, the first of which, called Byzantium, happened in October of 2017. The second, Constantinople is slated for some time in 2018. Within the “Metropolis” stage, several privacy-related features are slated for Ethereum.
Developers can now verify zero-knowledge proofs (zkSnarks) on the Ethereum blockchain. Originally implemented by ZCash, zkSnarks stands for “zero-knowledge succinct non-interactive arguments of knowledge.” Basically this is a way to verify that something is true without knowing anything else about it. The implications for Ethereum include the ability to make certain transaction information, such as the sender, recipient, or amount, completely private.
Ethereum’s developers tend to avoid putting exact dates on the roadmap, but it is safe to say that 2018 is going to be a very active year for the project. As more and more projects are issued on the Ethereum blockchain, including many of the top market cap tokens, the underlying Ethereum protocol is clearly undergirding a significant swath of the cryptocurrency space. While nobody knows for sure what the price of Ether will be in the future, we can say with relative certainty that Ethereum itself is still in the early stages of development, with a lot of room to grow.