The ‘Unique Opportunity’ to Upgrade Ethereum’s Virtual Stack

The ‘Unique Opportunity’ to Upgrade Ethereum’s Virtual Stack

With Eth 2.0’s first hard fork spec mapped out, attention has turned to the planned merge of Eth 1.x and Ethereum 2.0.

And, not wanting to lose momentum around the merge, Vitalik Buterin has proposed making some additional changes to the network, given most people don’t see Ethereum changing much afterward (minus some cleanup, more shards and, of course, our new favorite Ethereum word, rollups).

In two blog posts and on Friday’s All Core Developers call, Buterin made the case for stripping less useful – or maybe even harmful – functions in Ethereum’s codebank sometime before or during the merge. Buterin mainly focused on opcodes used in Ethereum’s Virtual Machine (EVM).

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“We have a unique opportunity to make some backwards-incompatible changes to the EVM that could be valuable for Ethereum in the long term,” Buterin said on GitHub Feb. 18. “The portion of applications that would need to be rewritten as a result of these changes is quite small, but it is nevertheless nonzero.”

Making changes to the EVM

Chief on that list is the SELFDESTRUCT function which rewards anyone who destroys a contract sitting idly on the Ethereum state. The intended purpose of the opcode was to incentivize Ethereum developers to practice “good hygiene” and destroy contracts when they weren’t necessary anymore. That would help reduce Ethereum’s long-term state size.

However, it hasn’t really panned out like that. Right now the function stands in the way of scaling Ethereum by making it “difficult to move to a different state storage format in the future,” among other reasons, Buterin said.

In fact, many people use the function as a discount of sorts in case Ethereum’s fees rise. Called gas tokens, these tokens can be bought when gas is cheap and spent later when gas is expensive to help lower the cost of a transaction. Ethereum developers have considered removing the opcode from the EVM a few times, most recently in September.

Story continues

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Making changes to the EVM or any other technical descriptions in the Ethereum Yellow Paper has not made everyone happy. Some decentralized application (dapp) creators expressed frustration that functions their projects rely on may be removed, such as the gas that enables dapps to check in on how much gwei is left in a contract execution.

It’s unclear how much support the EVM cleanup pitch will receive. Moreover, any changes to the EVM will come with ample warnings beforehand, Buterin said.

“The overwhelming majority of applications are not dependent on anything that is expected to break here,” Buterin said. “It’s a very small percentage.”

Pulse check: The CoinDesk legend of Zelda begins

The CoinDesk Ethereum 2.0 validator, officially dubbed “Zelda” by Director of Engineering Spencer Beggs, was activated on Feb. 17. Over the past six days or so, Zelda has earned 0.04 ETH, which is worth roughly $61.80 at time of writing. At this rate, the annual percentage return (APR) of our validator operations is expected to be around 7%.

If you’re new to Valid Points and the topic of Ethereum 2.0 in general, be sure to check out our 101 explainer on Eth 2.0 metrics to get up to speed about jargon and terminology used throughout this newsletter.

In the first couple of hours after Zelda was activated on Ethereum 2.0, our validator operations lost roughly $3.45 worth of ether. This was due to a file permissions issue that prevented Zelda from signing off on attestations, which is the most common responsibility required of an Eth 2.0 validator node. (The other less-common responsibility is proposing blocks.)

Updating file permissions and rebooting Zelda was a simple fix that got our validator operations back in the green within 24 hours.

Setting up a validator? Keep these points in mind

The first lesson learned from this minor mishap was this: Remember to stay awake for the activation of your validator node to ensure all operations are running smoothly from the get-go.

Most validators after they have deposited their 32 ETH to the Eth 2.0 deposit contract will be put in a pending queue before they’re activated on the network and able to earn rewards. The amount of time needed for validators to wait in the queue before activation can range from a few days to a couple weeks.

Rough estimates of the exact day and time a validator will exit the queue, based on how many other validators are also waiting in the line for activation, can be found on block explorers BeaconScan and Beaconcha.in.

Unfortunately, Zelda’s activation took place at roughly 4:00 (ET) in the morning, which is why most of the CoinDesk staff, including myself, were asleep. Had any one of us been awake for the activation of the node, any irregularities in our operations could have been noticed in advance and resolved more quickly.

Another important thing to remember is to keep validator operations as simple as possible. About 132 validators have been slashed since the network launched on Dec. 1, 2020. Being slashed on Eth 2.0 carries more consequences than missing out on a few attestations. Slashing occurs when there’s evidence of malicious behavior by a validator. The network can correctly or mistakenly view the actions of a validator as a potential attack or attempt to rewrite blockchain history and data. This results in the validator being forced to exit the network, meaning it is no longer eligible to earn rewards on Eth 2.0.

Slashing happens commonly when Eth 2.0 validator operators are trying to maximize rewards by setting up two computers to run one validator. When one of the computers goes offline, the other automatically boots up and takes over validator operations. While this sounds like a perfect idea to maximize APR by having your validator running virtually without any downtime, it can lead to mistakes where both computers are running the same validator at the same time.

As soon as the network detects instances where a single validator is proposing different blocks or signing off on attestations more than once, operations could get slashed.

“The risk is not worth it,” said the co-lead developer of Prysmatic Labs, Raul Jordan, in an interview with CoinDesk.

While it might be tempting to try and maximize rewards by complicating the node setup so that there is never any downtime, it might come at the expense of losing the ability to earn any rewards on your staked ETH.

For more information about slashing events on Eth 2.0 and more comments by Jordan, be sure to tune in tomorrow to our weekly podcast series “Mapping Out Eth 2.0.”

Validated takes

DeFi lending platforms liquidate record $115 million in loans as ETH price drops (Article, CoinDesk)

Ethereum trading bot strategy extracted $107 million in 30 days, research suggests (Article, CoinDesk)

Kraken CEO says ether flash crash was due to trading, not system glitch (Article, CoinDesk)

Nyan cat NFT sells for 300 ETH, opening the door to the ‘meme economy’ (Article, CoinDesk)

The business of art and how NFTs will change it, with Nanne Dekking (Podcast, CoinDesk)

Top auction house Christie’s to accept ether cryptocurrency for digital art sale (Article, CoinDesk)

Why Ethereum miners will accept EIP 1559 (Blog post, Deribit Insights)

Nvidia releases a new Ethereum ASIC mining chip (Blog post, Nvidia)

A list of EVM features potentially worth removing (HackMD post, Vitalik Buterin)

Factoid of the week

Open comms

Feel free to reply any time and email research@coindesk.com with your thoughts, comments or queries about today’s newsletter. Between reads, chat with us on Twitter.

Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is:

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb.

Search for it on any Eth 2.0 block explorer site!

Finally, Will Foxley and I will be continuing the conversation on Ethereum 2.0 in a CoinDesk podcast series called “Mapping Out Eth 2.0.” New episodes air every Thursday. Listen and subscribe through the CoinDesk podcast feed on Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica, IHeartRadio or RSS.

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BNB up 530% in 30 Days: Will the Binance Smart Chain Conquer Ethereum?

Cryptocurrency markets are recovering after a massive selloff that took place throughout Monday and Tuesday. Bitcoin has rebounded past the $50,000 mark, and the tokens that belong to two competing chains, Ethereum and Binance Smart Chain (BSC), have also improved their price performances.

At press time, data from Messari showed that Ether (ETH) was up by nearly 17 percent over the past 24 hours, with a price of ~$1,690. Binance Coin (BNB), which is associated with the BSC, was up by nearly 30 percent, bringing the price to ~$265. Over the past 30 days, BNB was up by more than 530 percent; ETH was up by 27 percent.

While the price drops that started off the week may have shifted the discussion away from the roles that these two chains play in the cryptocurrency ecosystem, the market rebound has allowed some of the spotlight to shine back onto these two blockchains. The big question is this: which one of them has more long-term viability as the ‘backbone’ of the DeFi ecosystem?

BSC vs. Ethereum: A History in Brief

The BSC initially appeared on the scene in September. A blog post detailing the launch of the chain said at the time that the “Binance Chain will enable the creation of smart contracts and the staking mechanism for BNB.” The post also mentioned that: “Any interested individuals and/or organizations can gather BNB stakes to become a validator of this new blockchain.”

The blog post specifically said that the BSC was launched just “in time DeFi (decentralized finance) revolution, as the public shows increased interest in alternative financial solutions powered by blockchain.”

And indeed, the public was showing massive interest in the ‘DeFi revolution’. The upward price movements of a number of DeFi-associated tokens were so powerful throughout June, July and August that the warmer months of the year came to be known as the ‘DeFi summer’.

Throughout this ‘DeFi summer’, a great deal of the projects that were performing so well price-wise were struggling in another way. As DeFi was growing, the Ethereum network, the network that many of these projects were built on, was beginning to strain under the weight of their success.

At the time, Finance Magnates reported that the Ethereum network was raking in record-high transaction fees as increased network congestion stepped up transaction times and continued to slow down.

“The reason that the network fees went up was because of Ethereum’s popularity: the more users and protocols that the network attracts, the more transactions that are sent through the network,” Finance Magnates reported at the time. “The more traffic there is on the network, the more congested it becomes; as it becomes more congested, fees go up, and transaction times slow down.”

Was “the Demise of the Narrative That ETH 2.0 Is a Viable Future Platform” the “Biggest 2020 Development in DeFi”?

As such, the conversation around the Ethereum network began to shift. The viability of the network, which is known as the original smart contract-enabled blockchain network, became uncertain. A growing number of reports emerged claiming that DeFi developers were looking beyond Ethereum for blockchains that could support higher numbers of transactions without skyrocketing fees or vastly slowed transaction times.

At the time, Stuart Popejoy, Co-founder and President of blockchain infrastructure firm, Kadena told Finance Magnates that: “the demise of the narrative that ETH 2.0 is a viable future platform” was the “biggest 2020 development in DeFi.”

Indeed, while Ethereum’s software upgrade to Eth2.0 is already underway, some members of the community believe that the update will take too long, and that another smart contract-enabled blockchain could become dominant in the meantime.

Competitors to the Ethereum network were already on the market when Ethereum began to struggle under the weight of the DeFi ecosystem: Polkadot, Cardano, Quantum (QTUM) and NEO, to name a few.

However, none of these competing chains seemed to have managed to pick up traction that could make them truly viable competition to good old Ethereum.

BSC Was Originally Billed as a “Support Network” for Ethereum

Enter the Binance Smart Chain.

Right away, Binance Chief Executive, Changpeng Zhao (CZ) began to encourage DeFi projects to leave Ethereum in favor of the BSC. However, CZ has maintained that BSC is a ‘support network’ for the Ethereum ecosystem and is not intended to threaten the Ethereum network.

In a tweet that appears to have been deleted, CZ allegedly wrote in mid-September that: “BSC never aimed to replace ETH, BSC is just ETH-compatible. Smart projects are giving their users more options. Option for cheaper fees.” At the time, CZ allegedly wrote that Binance Smart Chain transaction volume recently reached 10% of Ethereum’s network a few days ago.

Then, in late October, he wrote that: “#BSC is not a #ETH replacement or killer. I believe ETH 2.0 will be awesome, when it comes out… Until then,#BSC is more like a #ETH 1.8. 100% backward compatible, faster and lower fees (97% lower).”

#BSC is not a #ETH replacement or killer. I believe ETH 2.0 will be awesome, when it comes out… Until then,#BSC is more like a #ETH 1.8. 100% backward compatible, faster and lower fees (97% lower). — CZ 🔶 Binance (@cz_binance) October 29, 2020

“#BNB Started as a Token on #ETH, but Maybe #ETH Will End up as a Token on #BSC.”

Since then, CZ has stated that BSC and Ethereum can continue to coexist with one another. “For those holding ETH, no need to attack #BSC. We together make the industry bigger. ETH price did not drop. It increases together with #BNB. Have an infinite mindset,” he wrote on Twitter on February 20th.

For those holding ETH, no need to attack #BSC. We together make the industry bigger. ETH price did not drop. It increases together with #BNB. Have an infinite mindset. Read:

Infinite Game by Simon Sinek

Innovation Stack by Jim McKelvey https://t.co/kRvNlh83GP — CZ 🔶 Binance (@cz_binance) February 20, 2021

On February 23rd, CZ wrote that: “to think a new coin takes value away from existing ones shows a finite mindset. It’s like saying whenever a new company is formed, Telsa or Google or Bridgewater loses value. That’s not the case. The world is not finite. Value is can be created by more/new use cases.”

To think a new coin takes value away from existing ones shows a finite mindset. It’s like saying whenever a new company is formed, Telsa or Google or Bridgewater loses value. That’s not the case. The world is not finite. Value is can be created by more/new use cases. — CZ 🔶 Binance (@cz_binance) February 23, 2021

However, CZ’s rhetoric seemed to take a more competitive turn against Ethereum when it was revealed earlier this month that the transaction volume on the BSC surpassed that of the Ethereum network. Indeed, on Wednesday, February 10th, reports emerged that the Binance Smart Chain (BSC) had surpassed the daily transaction volume of Ethereum by 30%. Then, on Thursday, February 18th, further reports emerged that BSC was processing 70 percent more transactions than the Ethereum network. On that day, BSC recorded 2.5 million transactions on its network; Ethereum processed 1.3 million transactions.

“As expected, I get a bit of ‘heat’ from #ETH lovers given the increased adoption of #BSC. I have no issues with ETH. We support it. We trade it. We futures it. We mine it. As a #BNB holder, I will of course continue to relentlessly shill #BSC and #BNB,” he wrote.

As expected, I get a bit of “heat” from #ETH lovers given the increased adoption of #BSC. I have no issues with ETH. We support it. We trade it. We futures it. We mine it. As a #BNB holder, I will of course continue to relentlessly shill #BSC and #BNB. — CZ 🔶 Binance (@cz_binance) February 20, 2021

Later, he joked that that “#BNB started as a token on #ETH, but maybe #ETH will end up as a token on #BSC.”

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Will Low Fees Be Enough to Carry BSC into the Future?

And, indeed, while the two networks are coexisting for now, Binance seems to be betting on BSC’s low fees for future growth of the network.

On February 20th, a Binance spokesperson explained to Cointelegraph that the higher number of transactions may be due to lower fees on the BSC.

“BSC daily transaction volume is up by 300% from YTD and bolsters an ecosystem of 100+ DeFi projects,” the spokesperson said. “Furthermore, the platform has succeeded in maintaining GAS costs as low as $0.04. Compared to Ethereum’s $5.53, BSC is 135 times less expensive.”

Additionally, CZ retweeted a meme of a person holding an empty wallet next to the Ethereum logo captioned with: “After paying all these gas fees, #Ethereum logo makes sense to me.”

After paying all these gas fees, #Ethereum logo makes sense to me pic.twitter.com/ElzBMRKtAC — Milana Valmont (@milanavalmont) February 21, 2021

”Real Builders Make the Customers King and Their Needs #1 Welcome to Reality.”

Whether or not CZ was fostering the “BNB vs. ETH” narrative, much of the crypto community seems to have been picking the narrative up on its own. Much debate has ensued over whether BSC or Ethereum will ultimately hold the crown as the premier chain of the DeFi ecosystem.

Ajit Tripathi, Head of Institutional Business at DeFi lending protocol, Aave, wrote on Twitter that: “my final take on #BSC is that consumers get to choose whether they want high throughput and low transaction costs, or security and autonomy. Fellow #Ethereum believers can either build and promote the tech consumers deserve or continue to do what Netscape did (ie assume victory).”

Ray Youssef, Chief Executive of crypto exchange, Paxul, also described the apparent surge of activity on BSC as par for the course: “The Eth bros are now seeing the cost of ignoring the customer,” he said.

The Eth bros are now seeing the cost of ignoring the customer. Cryptocrats are kings only in their own minds. Real builders make the customers king and their needs #1 Welcome to reality. https://t.co/PVTRNFH2pW — Ray Youssef (@raypaxful) February 20, 2021

“Cryptocrats are kings only in their own minds. Real builders make the customers king and their needs #1 Welcome to reality.”

“We All Know BSC Is Not Going to Threaten Ethereum Long Term.”

However, other members of the crypto community have questioned whether the surge in BSC trading activity is the start of a long-term trend or merely a short-term phenomenon.

“…Tbh, it is still far too early to say #BSC will replace $ETH,” wrote Andy Cheung, Founder & Executive Chairman of ACDX.io. on Twittter on February 19th. “Just a few years ago, a similar discussion was on $BCH & $BTC.”

Now all eyes are on #BSC. I do appreciate what @cz_binance has done. But tbh, it is still far too early to say #BSC will replace $ETH. Just a few years ago, a similar discussion was on $BCH & $BTC. — Andy Cheung (@AndyC0125) February 19, 2021

Larry Cermak, Director of Research at The Block, also tweeted on the 19th that: “we all know BSC is not going to threaten Ethereum long term.”

“[…] It absolutely amuses me when Ethereum people start sounding just like Bitcoiners bitching about Ethereum. Just chill, take a breather and let the incentives play out,” he added.

We all know BSC is not going to threaten Ethereum long term but it absolutely amuses me when Ethereum people start sounding just like Bitcoiners bitching about Ethereum. Just chill, take a breather and let the incentives play out 🤝 — Larry Cermak (@lawmaster) February 19, 2021

”Ethereum’s Biggest Moat Is That ETH Has Been Deemed ‘Not a Security’ by the SEC.”

Thibauld Favre, Chief Executive Officer at Fairmint, also pointed out on Twitter that he believes that BSC will not replace Ethereum: “Not for technical or philosophical reasons but for legal reasons: Ethereum’s biggest moat is that ETH has been deemed ‘not a security’ by the SEC,” he said. “That’s a massive competitive advantage.”

Does it mean that BSC could replace Ethereum? Rationally speaking, I’d say “no”. Not for technical or philosophical reasons but for legal reasons: Ethereum’s biggest moat is that ETH has been deemed “not a security” by the SEC. That’s a massive competitive advantage. — thibauld 🌍🔥⏳ (@thibauld) February 19, 2021

However, Favre did point out that Ethereum needs to address its technical shortcomings sooner rather than later. “As much as I love #ethereum, users & developers, unfortunately, don’t care that it has a soul when retail is priced out for making transactions and developers are paying large fees every time they touch the blockchain,” he wrote.

“This reminds me of Linux. I remember thinking in the early 2000s that Linux was so vastly superior technically & philosophically to other proprietary competitors that it was bound to ultimately win the desktop. But, it never did… because end users never cared.”

The BSC vs. Ethereum Debate Will Be Settled by Users

And, in the end, the users will be the ones who decide the fate of both BSC and Ethereum.

In fact, they already are, IDEX which is described as ‘the first DApp on Ethereum’, has recently made the decision to expand its platform to BSC. A spokesperson for the exchange told Finance Magnates that the platform plans to expand to Polkadot.

Alex Wearn, CEO of IDEX, explained to Finance Magnates that: “a major component of our decision is the fact the BSC is 100% compatible with Ethereum.”

“This means that we can deploy our application on top of BSC with almost no changes. Additionally, popular software wallets like Metamask also work with the BSC version of our application. This compatibility made it a natural choice for us and other protocols,” he said.

“Settlement on BSC is much cheaper than on alternatives, making it affordable for many more users. Within two weeks of launching we’ve already seen volume on our BSC version pass that of our ETH version, an accomplishment we largely contribute to the low settlement costs. BSC also contains many popular crypto assets such as BTC, LTC, etc., enabling us to offer more trading pairs to users.”

Of course, Ethereum’s community of dApps and developers remains larger than that of BSC’s. But, will it always be that way? Only time will tell.

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