Will Casper Network Boost Ethereum Before ETH2.0 Goes Live? | Hacker Noon

Anton Dzyatkovskii Hacker Noon profile picture

@anton-dzyatkovskiiAnton Dzyatkovskii

CEO and co-founder of Platinum Software Development Company. Blockchain enthusiast, blogger.

In many ways, Ethereum is a victim of its own success. Bitcoin demonstrated that it was possible to have viable digital money without masters, but it was the programmability of the Ethereum blockchain that created an even more important advancement.

Under the guidance of its creator Vitalik Buterin, Ethereum birthed a parallel financial system by leveraging the power of smart contracts.

Fast forward from Ethereum’s launch in 2015 to the summer of 2020. This is when DeFi really took off, in large part thanks to Uniswap and its many forks such as SushiSwap and SpaceSwap.

The dawn of the tokenized economy had finally arrived with the introduction of decentralized exchanges (DEXs), staking as yield farming, automated market makers (AMMs), shadow staking, decentralized insurance protocols, and finally, NFT marketplaces being the most recent boom within the DeFi ecosystem.

As a result, Ethereum ended up hosting thousands of altcoins — utility tokens, governance tokens, non-fungible tokens and stablecoins — alongside dApps.

The result was predictable.

Imagine an eight-lane highway suddenly swarming with millions of vehicles, creating a congested mess. It not only takes longer to get anywhere, but one has to pay extra for the privilege to use the emergency lanes.

This led to consistently high transaction fees, just when greater popularization of DeFi protocols, further exacerbated by the headlines of astronomic NFT sales, took off, almost all of which are conducted in the ETH cryptocurrency.

Suffice it to say, newcomers were greeted with the unpleasant surprise of congestion and high transaction fees — the worst combo possible.

Source: BitInfoCharts.com

Let’s face it. Ethereum’s exorbitant Gas fees have become unsustainable. The entire purpose of DeFi was to build a decentralized infrastructure with less friction and lower transaction costs than the traditional finance sphere.

The opposite seems to be happening, with Ethereum delaying its scalability upgrade on multiple occasions. The first phase of the upgrade was supposed to launch in January 2020, which was then delayed to Q2 and once again to Q3 2020.

These delays opened a window of opportunity for competing, programmable blockchains to rise. Polkadot, Cosmos, HyperLedger, Solana and NEAR are just some of the smart contract challengers, not to mention the more specialized blockchain products such as Wexchain and Enjin.

While offering lower fees and faster transaction times, they all have a difficult time ahead as they have to compete with the massive momentum of the established Ethereum network.

This is best illustrated by the number of developers involved with Ethereum vs. all other platforms offering smart contract programmability.

Source: Electric Capital

Fortunately, the combined power of multiple development teams is back on schedule, making sure that the Ethereum network becomes scalable and sustainable. Let’s review how the ETH 2.0 roadmap is supposed to accomplish this.

On the Road to Solving Ethereum’s Scalability

As Bitcoin is demonstrating by constantly being in the media for its electricity usage, the proof-of-work consensus algorithm makes it more centralized, not less. Due to the computational power requirements needed for transaction validation, nodes are becoming more costly to run.

In turn, this ends up with big mining companies being in control of the Bitcoin network. After all, there is no comparison between the cost-effectiveness of streamlined operations and individual miners in their apartments. This is one of the main reasons for Ethereum’s transition from proof-of-work to proof-of-stake (PoS).

At the current time, Ethereum tops at about 16tps with a $22 Gas fee. Both of these values are highly unfavorable and inconsistent with creating sustainable decentralized finance.

The Ethereum 2.0 upgrade should drastically improve these metrics by following this roadmap.

Phase 0 — Beacon Chain

Beacon Chain was deployed on 1st December 2020. It plays a vital role in how the new proof-of-stake performs. As PoS removes the concept of miners and replaces them with validators, it is critical that validators are randomized, so they cannot exert dishonest influence on shards.

Likewise, the slashing protocol would reduce the ETH stake of validators who turn abusive. Beacon Chain was implemented after 16,384 accumulated validators, needing a minimum stake of 32 ETH to qualify. Altogether, they had deposited 524,288 ETH when this threshold was reached on 1st December. Predictably, such intensified staking of ETH tokens caused its price to spike, while there is a record low ETH supply on centralized exchanges.

Source: CryptoQuant, ETH: All Exchanges Reserve

In short, Beacon Chain serves as a foundation for Ethereum’s transition to proof-of-stake consensus.

Phase 1 — Shards and Layer 2

Long-present in software engineering, the concept of sharding is the key element to Ethereum’s future scalability. Sharding is generating multiple instances of a database, so that each shard contains a slice of the whole database. When applied to blockchain, shards represent chains. In 2021, up to 64 of these shard chains should be deployed.

As a result, the network traffic will be distributed across shard chains, eliminating the need for costly and energy-intensive hardware to run shard nodes. However, they will not be able to manage transactions and smart contracts, only data. This is where Layer 2 rollups come into play, specifically Optimistic Rollups that run smart contracts at scale within OVM — Optimistic Virtual Machine compatible with EVM.

Ethereum’s dApps are all built on the Layer 1 network. Layer 2 would contribute to scalability and sustainability by performing transactions off-chain, creating cryptographic proof which is then submitted to chain shards. Altogether, these two mechanisms — sharding and Layer 2 — should speed up Ethereum’s network transaction time by up to 100,000 tps.

Phase 1.5 and Phase 2.0

In Phase 1.5 scheduled for 2022, proof-of-work will be completely replaced by proof-of-stake, with Ethereum’s blockchain becoming one of the shard chains, the only one capable of handling smart contracts without employing Layer 2 protocols. This process is called docking, ensuring that all users’ ETH funds remain untouched.

Depending on the performance of the transition, Phase 2.0 refers to a potential upgrade of all 64 shard chains so that they are fully executable. Meaning, they would be able to handle both transactions and smart contracts.

Metis and the Casper Network

Now that you have a clearer picture of how Ethereum functions and what its upgrades entail, it’s time to take a look at Metis. This protocol aims to leverage the Layer 2 network in order to implement Web 3.0. Also called the Semantic Web, this is the next generation of the internet, taking advantage of machine learning and Big Data to create a smarter and more pluggable internet when using metadata.

Effectively, Metis makes it possible to create a decentralized (DAO) platform as easily as creating an email — all one has to do is enter DAC name (Decentralized Autonomous Community), logo and description.

On the other hand, the Casper network is much wider in scope and potential. It is an ambitious project that seeks to combine the key features of blockchain technology within the context of DeFi and dApps:

  • Programmability
  • Security
  • Scalability
  • Decentralization
  • Privacy

Unlike other projects that are forks of existing blockchains, Casper relies on the proof-of-stake mechanism to build up smart contracts. This is based on the original Casper CBC (Correct-By-Construction) consensus protocol. An evolution of CBC, tweaked for mass scaling and adoption, one of Casper’s main attractions is its support for WebAssembly (WASM), a programming language already in use by 30 million developers worldwide. In contrast, it is estimated that only 200,000 developers are familiar with Solidity, Ethereum’s primary coding language.

Alongside WebAssembly, Casper also supports Rust, Assembly, Script and other languages that can be compiled to WASM. With a drastically deeper pool of developers to draw from, Casper should accelerate the process of creating dApps. More importantly, Casper’s Gas fee model is one that aims to rectify Ethereum’s current woes — fee volatility as shown in the previous graph.

By stabilizing Gas fees in the face of the highest network usage, Casper immediately becomes attractive to users and developers who are burned out on ETH’s exorbitant Gas fees.

Relationship Between Casper and Ethereum

Not many blockchain enthusiasts know that the Ethereum network had been planned to transition into proof-of-stake (PoS), even before it officially launched in the summer of 2015. There are two implementations of PoS in existence, both developed for Ethereum:

  • Casper CBC – Correct-by-Construction, led by Vlad Zamfir
  • Casper FFG – Friendly Finality Gadget, led by Ethereum’s co-founder Vitalik Buterin

Ethereum 2.0, which is expected to finalize some time during 2022, represents the Casper FFG version. In contrast, Casper CBC should be viewed as Ethereum 3.0, far down the line in about 4–6 years. In other words, all the ETH 2.0 phases explained above are Casper implementation phases.

To somewhat circumvent such a long implementation process, it is important to understand the role of the Metis protocol.

Metis and Casper Working Together

Both Metis and Casper exist to make the process of creating and using dApps scalable and user-friendly. Metis is concerned with the ease with which dApps can be developed, while Casper serves as the infrastructure that provides high throughput and low fees, with high security on top.

Even if it weren’t the case that Casper supports more widely used WASM over Solidity, the technical know-how to construct a dApp or DAC is only part of the equation. The more important part is how to translate real-world usage scenarios into a decentralized environment. This is where Metis excels as a DAC facilitator by leveraging Optimistic Governance and other tools to build up trust among decentralized communities:

  • DeFi
  • Crowd-sourcing
  • Gig Economy
  • Sharing Economy
  • Open-Source platforms
  • Volunteers’ platforms

In conclusion, by having launched way ahead of even Ethereum 2.0 on 23rd March with Casper’s CSPR public token sale, Casper represents a glimpse into what Ethereum 3.0 will be. Thanks to its Solidity transpiler, it stands as a future-proof solution that will make migration easy to accomplish.

Although one cannot expect the Casper network to grow larger than Ethereum due to the network effect, one should view the emerging PoS blockchain as another valve to siphon off Ethereum’s clogged traffic. It’s a win-win situation for both Ethereum and Casper’s users and developers.

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