The following article was shared in the public Blockchain Whispers channel via their fundamentals announcement channel on Telegram. Find this article and more by following them here: http://t.me/blockchainwhispers
What do you think? Is this accurate? Is it technically sound? How do other ethereum-forked projects, such as https://ether1.org differ? Do they, or will they, face the same future challenges if something isn’t done before then? Sound off and let me know.
Begin shared analysis:
the state of Ethereum
- I am bearish on ETH, here are my reasons:
Ethereum does not scale on the base-layer. One halfway popular dapp woulrd force the whole network to its knees, as seen with Cryptokitties or popular ICOs in the past. Ethereum as it is now, cannot handle even one single decentralized application that goes mainstream. The Ethereum blocksize has exceeded 1 TB and this is a very big issue. It is a known fact in blockchain technology that larger blocks centralize validators, and this is exactly what is happening here. There are fewer and fewer FAN-nodes (full archival nodes), and these nodes update the state of the Ethereum network. Because of Ethereum’s exponentially growing blocksize, the bottleneck is not regulated below these external factors and as such results in a shrinking and more centralized network due to network demands that increasingly exceed the average users hardware and bandwidth.
Ethereum full nodes are getting fewer and fewer because the clients can’t sync. And light nodes are not a full substitute of full node verification. This will lead to a weaker and more insecure network. Planned scaling solutions are Casper PoS, Sharding and Layer2 solution.
- Proof of Stake is not as secure as Pow because the blockchain is not anchored in the outside world through the consumption of an external resource. In PoW this resource is Electricity, which makes sure that it is very very expensive to attack the blockchain and makes this attack economically unrewarding. Using energy burnt to back a block allows us to view immutability objectively. Whereas any non-energy-based method ultimately requires someone’s subjective interpretation of immutability. By attaching energy to a block, we give it “form”, allowing it to have real weight & consequences in the physical world. And PoS also leads to centralization as the power is concentrated with the people who have the most money. The entrance barrier to staking is 32 ETH, this is a fundamentally different system as PoW where miners compete throught the use of energy (cost) with each other. I personally consider Ethereum’s economics broken at the base layer.
look at this picture to see how centralized ETH gets with Pos:
- Sharding comes from the world of databases and describes a technique where a database (or a blockchain) will be split in multiple parts (called “Shards”) where each of the parts has a different area of task. Validating responsibilities are split up among various groups, each with their own shard. The intent is to relieve the amount of work a single validating node must do so there can be more of them, but it only results in prolonging the issue, and not fixing the problem.
Furthermore, there’s now a huge cost for some of these nodes, as staking is required to be one of them. Sharding takes a single blockchain, turn it into multiple blockchains called Collations, then puts a twist tie on top and hopes mold doesn’t grow.
Layer2 solutions are the only viable scaling solutions. For Ethereum we have Raiden and the Loom Network. Loom is especially promising as it enables sidechains on top of the Ethereum base-layer. BUT, if Ethereum adopts PoS (which is highly untested) we have an insecure base-layer. You can build a insecure second-layer on top of a secure base-layer, but not the other way round.
Ethereums on-chain scaling solutions were delayed again this year. Casper PoS is now expected in 2019, sharding in 2020/21.
issuance policy is another major negative point for Ethereum. The issuance of ETH is not capped! This means there is a constant flow of newly minted Ether, this goes on indifinitely in theorie. This makes Ethereum an inflationary asset, which is bad.
use cases for Ethereum: the number one use-case is tokenization. And this used 99% for ICOs which create tokens with articificial demand and no real usage. This trend is declining and so i expect the price of ETH to decline. Tokenized securities and cryptocollectibles (ERC721) will be potential markets, but in my view they will get nowhere as big as expected by the public (but this topic is stuff for another article).
Now we come to smart contracts, a clever idea but without the potential of mass adoption. here is why:
- they are incredibly hard to write (see the Parity and the DAO hacks for example)
- altough in computer science “code is law”, smart contracts are NOT legally binding. They are NOT real contracts.
Execution in a Turing-complete context is extremely tricky and hard to analyze. Securing a Turing-complete smart contract becomes the equivalent of proving that a computer program does not have bugs. We know this is very difficult, as nearly every computer program in existence has bugs.
Consider that writing normal contracts takes years of study and a very hard bar exam to be able to write competently. Smart contracts require at least that level of competence and yet currently, many are written by newbies that don’t understand how secure it needs to be. This is very clear from the various contracts that have been shown to be flawed.
And we have the “oracle problem”, smart contracts rely on the correctness of outside data. Who feeds this data to the Ethereum system? What prevents these oracles to be corrupt or malicious? how do we prevent centralization?
Blockchains have advantages in a very specific field, namely censorship-resistance and immutability. The killer use-case for this setup is Money. We do not need a decentralized internet. Because a centralized service is ALWAYS cheaper and more easy to use. Implementing a blockchain makes only sense in specific fields where immutability and the prevent of government control are important. I cannot imagine a future where everyone holds a Ethereum wallet with 345 different tokens for 345 specific services. And i highly doubt Ethereums capability to handle this kind of data load.
Ethereum is not leaderless (Vitalik Buterin and dev-team), not entirely immutable (DAO-hack and subsequent fork because of transactions that were rolled back), not a Store-of-Value because of an uncapped supply and it does not scale on the base-layer. Another thing is that BTC increasingly cuts into Ethereums use-cases with Rootstock (smart contracts) and Drivechain (side chains).
And with the death of dapps Ethereums second use case (capital rasising platform) also dies. This is the bearish case for Ethereum. Thank you for reading Blockchain Whispers