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

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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).

Related: Fed Chairman Powell: We Will Engage the Public on the Digital Dollar This Year

“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.

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Related: Bitcoin More Popular Than Gold in Australia, Report Finds

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.

Related Stories

Ethereum Miners Are Likely to Accept EIP-1559 Activation - Analysts

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The vast majority of Ethereum miners are unlikely to protest EIP-1559, a proposed change to Ethereum’s ‘crazy high’ fee market that would potentially cut a fair share of miners’ revenue, according to popular crypto analyst Hasu and Georgios Konstantopoulos, Research Partner at Paradigm, a cryptoasset investment firm.

EIP-1559 is an Ethereum improvement proposal by ETH co-founder Vitalik Buterin that was first proposed in April 2019. It is supposed to change the rules of how Ethereum users bid for block space in order to get their transactions confirmed. It comes with a new set of rules that are relatively simple but would mean significant changes for users, miners, wallet providers, as well as the overall security of the Ethereum blockchain.

Four main improvements proposed by EIP-1559, as outlined in the Analysis of EIP-1559, are:

All transactions pay the same fee rate. One of the biggest problems with first-price auctions currently used by Bitcoin and Ethereum is fee estimation. EIP-1559 seeks to improve it by making all transactions pay the same rate as much as possible instead of making individual bids, which would hopefully lead to lower fees and more precise fee estimation.

One of the biggest problems with first-price auctions currently used by Bitcoin and Ethereum is fee estimation. EIP-1559 seeks to improve it by making all transactions pay the same rate as much as possible instead of making individual bids, which would hopefully lead to lower fees and more precise fee estimation. Block size slack mechanism. Demand for block space often varies, making miners validate both half-full and highly congested blocks. EIP-1559 slack mechanism would allow some blocks to be larger while other blocks would be smaller. As such, the longer-term average blocksize limit would still be enforced, even though there would be short-term variation between individual blocks.

Demand for block space often varies, making miners validate both half-full and highly congested blocks. EIP-1559 slack mechanism would allow some blocks to be larger while other blocks would be smaller. As such, the longer-term average blocksize limit would still be enforced, even though there would be short-term variation between individual blocks. Security improvements. EIP-1559 seeks to make the Ethereum blockchain security less reliant on user transaction fees by burning them and instead incentivizing miners with a more reliable perpetual block subsidy.

EIP-1559 seeks to make the Ethereum blockchain security less reliant on user transaction fees by burning them and instead incentivizing miners with a more reliable perpetual block subsidy. Preventing economic abstraction. EIP-1559 will also enforce that transactions burn a specific amount of ETH so that other tokens don’t threaten the reserve status and monetary premium of the native token.

As reported, some miners are unhappy with the proposed changes and have started rallying against the proposal under the hashtag #StopEIP1559.

We do not support EIP-1559! 🙅‍♂️❌

Hive OS team stands for the interests of our mining community 🤛

Let’s hope that the Ethereum developers will take the miners' opinions into account when working on EIP-1559.

🙅‍♂️ Don’t let EIP-1559 go live! ⛔️ #STOPEIP1559 #ETH #ETHmining pic.twitter.com/1Pk92sPFSc — Hive OS (@hiveonofficial) January 19, 2021

One of the leading mining pools opposing the proposal, Flexpool, has even launched a website to keep track of Ethereum mining pools that stand against the proposal. According to some of the pool’s latest tweets, their faction stands against burning transaction fees instead of giving them to ‘’honest miners who invested their savings into the Ethereum security.’’

We are not against UX features introduced with #EIP1559; we are against burning transaction fees instead of giving them to honest miners who invested their savings into the Ethereum security. It is just just a move to secure whales' bags and nothing more. — Flexpool ⚡️ (@flexpool_io) January 15, 2021

Even so, the article co-authored by Hasu and Konstantopoulos, and published on the Deribit Insights' website, argues that most miners are likely to activate the proposal because they are structurally long ETH and the entire Ethereum economy, and they are likely to continue receiving the same revenue from block subsidies. In addition, the report authors stressed that miners provide service to Ethereum users in a transactional relationship, so without a sufficient number of users, there would not be sufficient revenue for miners.

“Users have no moral (or other) obligation to pay miners more than is needed for Ethereum to be secure any more than miners have a moral (or other) obligation to keep mining when it’s not profitable for them.”

Having this dynamic in mind, the report specifies five scenarios of how the EIP-1559 activation may play out.

Scenario #1

Miners maintain the old chain without EIP-1559. This scenario is unlikely because of the Ethereum difficulty bomb. All EIP-1559 opponents would have to go through an additional hard fork to avoid grinding their version of Ethereum to a halt.

Scenario #2

Miners create a new altcoin. Much like with Ethereum and Ethereum Classic (ETC) split, miners could fork Ethereum and create an entirely new chain. However, this is unlikely as well because a forked version of Ethereum today would also replicate thousands of different tokens smart contracts, applications, and much more. Even though all of the projects would be copied in a fork, they would essentially constitute mere skeletons. Consider a stablecoin project or Wrapped Bitcoin (WBTC) - they represent claims on an asset in the real world, yet duplicating the claim would not duplicate the asset.

“The emergence of tokenized assets and Defi has made Ethereum’s state unforkable,’’ according to the authors.

Scenario #3

Miners create an altcoin with a fresh state. Creating a new altcoin with a fresh state is more feasible than the second scenario, but the new chain would lose the existing ETH supply distribution, as it was the case with other stateless forks of Ethereum like Tron (TRX) or Binance Smart Chain (BNB). Alternatively, if the new chain copied the distribution of ETH, all the new coins would be in the hands of potential adversaries who could use it to suppress the price discovery of the new asset.

Scenario #4

Miners could join the new chain but block EIP-1559. In this scenario, miners would join the users on the new Ethereum blockchain, but would actively interfere with the EIP-1559 mechanism to prevent it from burning ETH. However, competition between different miners makes this strategy infeasible without the implementation of an additional miner-activated soft fork, which would constitute an unprecedented and self-destructive economic attack on the Ethereum network and its users.

Scenario #5

Miners join the new chain and support EIP-1559. According to the researchers, this is the most likely scenario. Even if miners made less on the new chain, they could still earn much more than creating any sort of altcoin.

In addition to these scenarios, the report also mentions three possible concessions that could satisfy the miners even more:

Raising the block subsidy on the new chain to increase miner compensation. EIP-969 activation, which would remove all ASIC miners from the Ethereum network. Instead of burning the fees, it could be distributed to miners in the next unspecified number of blocks.

Nevertheless, the report concluded that “it is already in the best interests of miners to cooperate with users on the upgrade,’ and the transition is likely to succeed despite the protests of some.

The upcoming EIP-1559 transition will be further discussed at the EIP-1559 roundtable on Friday, February 26, 2021, at 14:00 UTC.

At the time of writing (17:12 UTC), ETH trades at USD 1,562 and is down by almost 10% in a day and 12% in a week, trimming its monthly gains to less than 27%. The price rallied by almost 500% in a year.

Learn more:

Vitalik Buterin Unfazed by Chinese Ethereum Miner Concerns

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Ethereum co-founder Vitalik Buterin has spoken out on Chinese social media about threats from miners over the upcoming EIP-1559 upgrade.

Vitalik Buterin has been exercising some of his Chinese language skills on local social media platforms. It seems that miners are growing anxious over the approaching Ethereum EIP-1559 upgrade that could threaten their burgeoning revenue streams.

According to Chinese industry portal Wu Blockchain, Buterin is unfazed about the threat some miners have made over downing tools or a potential 51% attack. He reportedly stated that “we will all move to PoS [proof-of-stake] as soon as possible,” in response to questions about miner actions.

Translating the comments, the outlet stated;

“Vitalik said that the greater significance of EIP-1559 is that almost every exchange can be confirmed within 1-2 blocks. At present, the congestion of Ethereum is very serious, and the fees earned by miners have repeatedly hit record highs.”

@VitalikButerin does not care about the opinions of Chinese miners? He suspected that in the Chinese community, “If some miners leave, new ones can come. If the miners attack 51%, we will all move to POS as soon as possible.” Vitalik often speaks in Chinese in Chinese communities pic.twitter.com/dACceoJMAb — Wu Blockchain (@WuBlockchain) February 23, 2021

Miner Discontent Mounting

Ethereum miners have been making record revenues as gas prices continue to soar to new all-time highs. Today marks another peak with the average transaction fee now hovering around $40 according to BitInfoCharts.

Earlier this month, BeInCrypto reported that Ethereum mining revenue hit its highest ever level with one day, notching up $3.74 million in a single hour.

With this under threat, miners could take action such as forking the chain after EIP-1559 is implemented. This would be similar to what happened with Ethereum Classic, the original version of the blockchain before The DAO hack.

The EIP will change the way the current bidding system works for transactions and allow them to be dynamically generated. This should theoretically reduce the overall fees for the average user. It will also burn these fees which have to be paid in ETH, having a positive effect on long-term issuance and supply.

Those burnt fees are good news for Ethereum holders as the supply is reduced, but not for the miners that would have otherwise received them as payment for the “work.”

Ethereum EIP-1559 Drawing Closer

Ethereum’s future is proof-of-stake anyway, so miners should have come to terms with that inevitability by now. On the way there, however, EIP -1559 is likely to be launched with the London upgrade in July according to developers.

Long overdue, here’s another EIP-1559 update https://t.co/7uN7mO8lLG

It covers the client performance testing, changes to the EIP’s spec, our intent of proposing it for London, the recent mining concerns, and the best write-ups on 1559 & more over the past month — Tim Beiko | timbeiko.eth (@TimBeiko) February 22, 2021

In a recent update on the situation, lead developer Tim Beiko said that large state testing is “99% done.” A developer call scheduled for March 5 will confirm whether the highly anticipated gas-saving proposals will be included in the upgrade.