As the price of Ethereum (ETH) reaches a record high it is now evident that Ethereum 2.0 is going to happen sooner or later.
The price of Ether (ETH) nearly hit a new all-time high on October 21, before dropping below $4,000 after the $435 million option expired on October 22. The Ethereum network will take another step towards Ethereum 2.0 on October 27, 74240 with the upgrade from Altair to Beacon Chain. Eth2 will be the full Proof-of-Stake (PoS) network the community has been preparing for over a year.
According to a blog post by the Ethereum Foundation explaining its development, Altair is an update to the beacon chain that supports light customers, leaks inactivity before validators, increases load reduction, and releases validation rewards for simplified claims management. This is Beacon Chain's first planned upgrade. The blog post states that this update is an "upgrade update" for Beacon Chain and its connected customer.
This update will try and introduce some main features to the Ethereum 2.0 which will be crucial to the development of this project:
- First, the introduction of a synchronization committee for lightweight client functions which will allow lightweight clients to easily synchronize header circuits with low computational and data costs.
- Second, the incentive accounting reform, which brings three major changes:
- conservation measures which uses more efficient output formats that reduce complexity, the "leak inactive" box is based on validators, not globals - which is insignificant for validators that are more valid over time - and there are some fixes for Error in price reporting.
- Du Jun, co-founder of crypto exchange Huobi Global, said that, “If the chain is not completed within two weeks, completely inactive validators will lose ~11.8% of their balance and active validators will lose 75% of the time. they are ~3.1%.
- According to Altair, the loss of completely inactive validators was ~15.4%, but the loss of 75% active validators was only ~0.3%. This makes the inaction process more easy-going for honest but rare auditors.
- Third, the update introduces changes in penalty parameters, makes pauses inactive and cuts more penalties than in the pre-Altar era.
- There are three main changes to this parameter. First the inactivity penalty rate which has been reduced by 25%, reducing credit expiration time by nearly 13.4%.
- Second the minimum truncation ratio was reduced from 128 to 64 - the ratio is the minimum portion of the editor's total lost credit.
- Third It sets the minimum penalty for withholding at 0.5 ETH, which is double the previous penalty of 0.25 ETH.
The proportional slicing multiplier will also be increased from one to two, meaning that the withholding penalty will now double the percentage of other validators that were reduced within 18 days of that validator. June goes on to explain this change: "For example, if you are deducted and within 18 days (two-way) 7% of the other validators are also removed, your withholding penalty will be 7% before Altair and 14% after Altair."
Such changes to the incentive structure are often critical to network security, as they reward higher and customized contributions across the spectrum. However, currently, this change does not directly affect users and distributed applications (DApps) on the network as it is an upgrade that only affects the Beacon Chain. However, this will affect Ethereum users once the transition to Eth2 is complete. June says this upgrade will lower the user participation threshold on Ethereum 2.0:
"One of Altair's main goals is to make a lightweight client so simple and efficient that it can run in any environment (mobile devices, embedded hardware, browser extensions and even other blockchains with smart contract functionality)."
The redistribution of validator benefits will lead to a redesign of the reward and sanctions structure for validators, making incentives for network participants more systematic and understandable with logical arguments. It makes sense to do this update as a "warm-up" for future Beacon Chain upgrades, as the economic stakes are relatively low right now. Since the node operators have gone through multiple upgrades in the chain, any future upgrades aimed at the merger should run more smoothly - which is even more important because a large amount of money will be invested in the network after the merger.
Ben Edgington, Ethereum developer and product owner for Teku - an Eth2 client developed by ConsenSys - spoke about how Altair is connected to the upcoming merger: “The proof of increased stakes, known as The Merge, will be the largest increase in Ethereum history. The Altair upgrade will provide us with valuable experience to ensure The Merge runs smoothly when it is up and running in 2022.
When asked about the impact of the upgrade on the Beacon Chain forklift, Edgington said they generally wouldn't notice a difference from the Altair. In essence, it's a "leaderboard" that doesn't affect the rewards participants are expected to win or how they interact with the chain. As described in Ethereum Upgrade Proposal (EIP) 2982, penalty parameter changes apply to truncation leaks and inactive leaks. Edgington mentions that reducing this penalty came early in the Beacon Chain to allow bettors to regain their footing and regain confidence. The merger will eventually raise its sanctions to full “crypto-economic optimal”, while Altair will raise it slightly in that direction. He goes on to explain how this is beneficial for network security:
“The beacon chain is never resting and only 0.06% of validators are reduced, so these sanctions are mostly theoretical. They should have made a targeted attack on the beacon chain very expensive. Therefore, upgrading with Altair increases chain security. Rick Delaney, a senior analyst at OKEx Insights, the research team of cryptocurrency exchange OKEx, said that this is a critical component of network security, saying, "If the incentives are inconsistent, malicious participants may be able to play with the system."
The Altair upgrade is the next major network update after the London hard fork that occurred earlier this year in August. The hard fork notably brought EIP-1559, which changed the transaction pricing mechanism to burn some of the cost of gas, which put ETH on a deflationary path. According to data from Ultrasound money, the current burning rate of ether is 5.31 ETH/minute and to date more than 628,000 ETH have been burned - worth over $2.6 billion. Currently, supply is growing at a rate of 2.2% per year. Simulations of combining the Ultrasound money website show that this supply rate will be negative, up to -2% per year.
Explaining the impact of gas costs on the entire ecosystem, Delaney said, "This is part of a continuous improvement aimed at lowering Ethereum's gas costs. So far, the Ethereum killer has taken advantage of the dominant, often overestimated smart contract network. It's getting interesting to see if these chains hold their market share if the Ethereum separating application goes smoothly and reduces transaction fees. The merger will provide a consensus mechanism for PoS across the Ethereum network, which will advertise that scalability and it will be improved when data exchange is inserted in the network. So far, competing blockchain networks that have been working smart contract programs, such as Solana and Binance Smart Chain, continue to gain foundation due to low gas costs.
Additionally, Edgington notes network support for Layer 2 solutions, allowing consumers to access lower gas costs than is available on existing Layer 1 networks: “As developers, we don't worry too much about the Ethereum killer. [...] Meanwhile, the Layer 2 recruitment technology on Ethereum already offers great scalability benefits and a rich ecosystem of exciting new features, fully supported by Ethereum base layer security. Protocol updates for next year and beyond will maintain and improve everything that happens at Layer 2.
While Altair's upgrade doesn't mean much to end-users of the Ethereum network, it is very important for developers and other community members looking forward to the planned merger for 2022. In early October, 40 representatives from the Eth1 and Eth2 teams met for a week, the Ethereum Foundation and ConsenSys, where they managed to build a test network working with PoS with multiple Eth1 and Eth2 customers. Such an achievement is a huge boost to confidence that Ethereum will be able to move completely to PoS and shut down the Eth1 test network forever.