More delays to come? Ethereum 2.0 business model under review


An independent research paper explores the economics behind Ethereum 2.0 in depth. The study comes from Tanner Hoban and Thomas Borgers, both members of the corporate development team at ConsenSys.

During the 100 pages of the report, the authors dissect the incentive model of the future Ethereum network. They also highlight some potential security risks as the network shifts from mining to staking. What are the potential risks of this transition? And how will this affect the cryptocurrency space?

The long and hard road to serenity

After years of manufacturing, Ethereum 2.0 is still not here. The much-heralded “Serenity” transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) takes time to come to life.

Originally slated to begin implementation as early as 2017, developers continue to delay launch.

August 2017 graphic highlighting the proposed launch of Serenity 2017 | Source:

The developers probably underestimated the scope of the project at the time. Serenity has been broken down into phases, and they are expected to occur over the next several years.

It’s not just a matter of changing a few lines of code.

Serenity is a complete rebuild of Ethereum, from transaction validation system to incentives for network validators. It will introduce tag and fragment chains, allowing for parallel transaction processing.

It will also change the current Ethereum Virtual Machine (EVM) to the more advanced Ethereum Web Assembly Machine (eWASM). The current EVM can only process transactions sequentially, while eWASM will be able to do so in parallel.

A roadmap showing the provisional implementation of Serenity at the end of 2019 | Source: Consensys.

As of this writing, Serenity is nowhere in sight, although there is constant development going on. According to the cited study, phase 0 is scheduled for the second half of 2020.

Unsurprisingly, some in the crypto community have been particularly critical of the constant delays due to high expectations.

Examination of the economic model

The study points out that the security of an Ethereum PoS network will depend on the amount of ETH involved, the price of ETH and its volatility.

The minimum amount of ether needed to become a validator is 32, which qualifies most current holders. At the time of writing, there are over 120,000 addresses that contain 32 Ether or more.

The growth of Ethereum addresses holding more than 32 ETH | Source: Arcane research.

The amount of ETH that can potentially be brought into play is the only variable under relative control of the network. The study explores a few models dealing with the security of the network when prices go up or down. It also studies the implications of price volatility with respect to the incentives of validators.

In an age when crypto investors are looking for high returns on their digital assets, this is a notable concern for future investments in the evolving crypto asset.

Source: Arcane research.

One of the advantages of Ethereum 2.0 is that its security will cost much less than Ethereum 1.0. Hoban and Borgers estimate network inflation at around 0.55% per year, compared to 4-4.5% currently.

At historical prices, targeting just 13.8% staked ETH would match current safety levels. But it’s not all rainbows and unicorns.

Ethereum security concerns

There are two main concerns outlined in the study. One is that it will be relatively easier to deploy an attack on Ethereum 2.0 than on the current network. This is a consequence of moving to a less intensive validation system.

Proof of work networks like Bitcoin or Ethereum 1.0 are secure because they are very resource intensive. You need a lot of computing power to attack Bitcoin and the ability to convince other nodes to join in your attack.

Ethereum Security Spending | Source: Ethereum 2.0 study.

With Proof-of-Stake, all you need is a lot of money. Due to price volatility, there are risks that malicious actors will manipulate prices in order to take over the network.

While this may be true for any PoS network, Ethereum 2.0 is particularly in the spotlight. Other projects depend on it and may have the power to influence the price. It will be a challenge when the growing DeFi industry switches to Ethereum 2.0.

The study also mentions the risk of “derivatives attacks”. As reported by Borgers in this Medium article:

“The Ethereum ecosystem is evolving rapidly, as is Ether as an asset class, with an increase in the volume of options and unique financial instruments such as ‘flash loans’ being used in malicious exploits. With this momentum, derivative products could become the preferred route of attack for adversaries. ”

Better to be safe than sorry

Some investors and speculators argue that the continued delays are damaging Ethereum’s reputation, while providing valuable time for competitors like EOS or Polkadot to grow. These dissenting voices could, however, overlook the gigantic size of the project.

After all, Ethereum’s original value proposition is to become “the world’s supercomputer”. The Serenity upgrade is arguably the most ambitious update in cryptocurrency history. There are literally hundreds of developers working there.

Thousands of projects and billions of dollars depend on a better and more secure Ethereum network. Addressing the concerns outlined in this business model review is fundamental to the future of Ethereum.

If these issues require further delays in Serenity’s schedule, that may be a fair price to pay. Maybe, just maybe, the whole crypto space depends on it.


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