Crypto-digest 05.07: The Age of endless blockchain forks is coming to an end; Meetup’s crypto secret? Scams are running rampant; Code is law – but it’s not the only law for blockchains; The next generation of crypto exchanges has one big missing piece; Iceland’s missing Bitcoin miners may be in China; When not if: for Ethereum believers, scaling is just a matter of time.
The Age of endless blockchain forks is coming to an end
When we sit down inside of EY and discuss what the biggest risks are to the future of the blockchain industry, one topic that comes up again and again is the high rate at which key blockchains are forking and the possibility that future forks will split apart large blockchains with critical mass.
This is important because we do not believe that private blockchains will scale effectively beyond highly specific use cases into a general-purpose platform for digital contracting between enterprises. That job, if any system is to take it, will belong to public blockchains.
The more companies and users there are on a single network, the more likely it is you can transact with your key business partners over a common infrastructure.
But, if public blockchains splinter into many different camps, one of their key advantages over networks of private blockchains will disappear.
Right now, however, forking a public blockchain is as easy as copy and paste, and it happens all the time as a means to “resolve” (I’m using that word in a very limited way) governance disputes.
This option won’t be viable for much longer, however, as real-world assets represented by digital tokens start popping up on public blockchains. Links between those assets – be they real estate, diamonds, gold or U.S. dollars in escrow accounts – and the blockchain tokens will only be valid on the primary network.
If they don’t already, the purchase agreements for these tokens and assets will need to be quite specific about what constitutes the “primary” or “original” blockchain on which the token is located, and external firms involved in attestation and audit will have to agree to and link up those plans.
The role of external firms will be particularly important going ahead. As blockchains are more and more linked to ownership of real-world assets, verifying the link to those assets is going to be important to investor confidence.
It will still be possible to fork blockchains, but the chances that users will come to alternative paths is declining by the day. Those users will be closely tied to their investment assets, which if they represent off-chain items, will have one and only one valid public blockchain representation.
As a result, it will become more and more important for the major public blockchains to develop robust governance models that are able to manage change and incorporate the views of stakeholders. It is also important for users to understand that as blockchains mature, they are likely to become much less dynamic and change less frequently.
It’s no accident that trustworthy institutions tend to evolve slowly and prize stability.
Meetup’s crypto secret? Scams are running rampant
The line between crypto education and self-promotion has blurred.
And nowhere is this more evident than on social media, where imposters are everywhere and scams are rampant. But as crypto Twitter devolves into all-out chaos, a similar deterioration of discourse is playing out on another popular site for crypto enthusiasts – Meetup.com, the startup acquired by co-working giant WeWork for $20 billion in 2017.
Take James Moreau’s experience. The founder of the Worcester Ethereum Meetup had a self-proclaimed blockchain expert interrupt one of his recent meetings focused on how to use cryptocurrency wallets by passing out flyers for a crypto accounting service. Thinking it was inappropriate, Moreau stopped the solicitation but was later horrified to discover the accountant didn’t actually have any experience reporting crypto assets.
Yet, some of the more inexperienced group members had been quick to take the stranger at her word.
And Moreau felt some responsibility, not only for their potential wasted time but also the fact that should any of those members purchase her services, and then have problems later because she, in fact, didn’t know what she was doing.
This experience displays just how difficult it’s become to run a Meetup group related to cryptocurrency or blockchain, and moreover to educate in any form in the space.
“Around a month or two ago, I started noticing the same type of spam you’d see on Twitter,” Moreau said, listing questionable exchange links, giveaways and phishing scams among the culprits he sees on Meetup.
“I’ve deleted the comments and blocked the users, but they keep coming.”
Meetup’s policy currently forbids groups that offer “specific advice or services in areas that require a licensed professional,” including law and finance, as well as groups that promise “financial gains.” But when it comes to the nascent cryptocurrency space, it can be tricky to separate education from blatant scams and misinformation.
So far, Moreau has dealt with about a half dozen problematic posts and direct messages, but he can’t be sure how many scammy direct messages have been sent to the 97 members of his Worcester group.
“I have people in my groups that are new and don’t know what a scam looks like in this space,” he said, describing newbies punch-drunk on headlines about quick riches as a ripe target for opportunists.
And what’s more problematic is when users directly solicit others via the comments section of Meetup groups.
For instance, a Meetup user calling himself “Stellar Lumens” promised users of the platform an “invite bonus” of lumens, the native cryptocurrency of the stellar protocol, even following up with people on Facebook before Meetup shut down the solicitor’s account.
Zac Freundt, community manager at the Stellar Development Foundation, told CoinDesk the team at routinely reports such scams on Meetup and other social media platforms.
While this bad behavior appears far less common on Meetup.com, Moreau said reporting scams (which the company has encouraged him to keep doing) is taking up a lot of his time.
As such, he isn’t sure whether he’ll keep using the platform if the problem persists. In his eyes, some of the responsibility lies with the platform itself.
“It’s a paid service, so I feel like there should be some level of service,” he told CoinDesk, adding:
“I’m thinking about whether Meetup is a good platform for me to organize around anymore, then again, I don’t know what my options are otherwise.”
Meetup did not reply to requests for comment.
Currently, Moreau is hoping to address some of the issuers by exploring an option to review prospective members before allowing them to join the group.
Lawson Baker, a former attorney turned founder of the cryptocurrency consulting firm RelayZero, echoed Moreau, saying Meetup.com should deal with these scammy and spammy issues, whether through moderation policies or other solutions.
Although, the moves of platforms like Facebook, which banned all advertisements related to cryptocurrency, are also not the best solution.
“It’s a fine line to walk between censorship and consumer protection,” said Moreau. “Somebody sharing their opinion about cryptocurrency could be misconstrued as spam or financial advice. I don’t know what the best solution is yet.”
It’s not only online where dodgy promotion happens.
Going one step further from Moreau’s example, a Stellar Meetup in San Francisco in April left Baker feeling uneasy.
During that Meetup, hosted by Boris Reznikov, director of partnerships at Stellar, the co-founders of real estate startup Slice not only talked about what the company’s aims were but also offered a guide to buying “slice” tokens and referred to upcoming portfolio options.
The event’s comment section is full of people posting links to similar blockchain projects and asking about free lumen giveaways.
According to Freundt, “Our meetups are purely focused on educating the public about the technology and use cases of stellar. We do not offer any investment advice.”
But Baker said the Slice executive’s presentation kind of was.
“They put all the disclaimers that this was not a solicitation. Even though, honestly, that’s basically what they are doing,” he told CoinDesk.
On the other hand, though, startup pitches and discussions about what crypto assets have real long-term value are a normal and much-needed part of the cryptocurrency community.
But Baker said organizers of these events have to be careful and vet guest speakers diligently.
“There’s always bad actors, and then there’s a whole bunch of stuff that is just really bad projects. Sometimes it’s hard to identify that in a three-minute talk on why you should invest in it,” Baker said.
As such, Hannah Rosenberg, co-organizer of the Bitcoin & Open Blockchain Meetup group in Chicago, which has more than 2,550 members, takes a more stringent approach.
“We don’t do ICO stuff,” Rosenberg told CoinDesk, adding:
“I’ve no problem with it in theory. But some of what has been going on is madness. So we just don’t touch ICOs.”
Code is law – but it’s not the only law for blockchains
A blockchain network is a complex system that involves a variety of actors that cannot be trusted. Its protocol is designed to ensure that every actor has an incentive to cooperate and that the costs of defection are higher than the potential gains.
Yet, like other complex systems, blockchains are made of many different parts, interacting with one another in ways that are difficult to predict – and therefore difficult to govern or regulate.
It might be possible to regulate the actions of each individual part. But as the whole becomes greater than the sum of its parts, governance cannot be achieved without a proper understanding of the various components that constitute that whole, and the power dynamics that subsist among them.
This post provides an overview of the multiple layers of governance affecting blockchain-based systems. It distinguishes between two distinct governance structures: on-chain governance by the infrastructure and off-chain governance of the infrastructure – each model incorporating both endogenous and exogenous components, which contribute to varying degrees to the overall governance structure of a blockchain-based network.
Layers of governance
If we look at the first post of this blockchain governance series, we see that most decentralized blockchain-based applications have their governance split into different layers, each one interacting with the other:
- The Internet protocols layer: e.g., the TCP/IP protocol
- The blockchain layer: e.g., the ethereum protocol
- The decentralized app (DApp) framework: e.g., DAOstack
- The DApp layer: e.g., Sapien
Each layer implements its own governance structure, which may affect or be affected by that of the other layers. The design and implementation of these multiple layers involve several individuals, but chances are they come from different communities that may or may not communicate with one another.
Specifically, bottom-layer communities often implement their own governance structure with little to no regard for the governance system implemented on the upper layers. And yet in doing so they ultimately dictate how applications from the upper layers will operate.
For instance, DAOstack, a project I am involved in, is a DApp framework (Layer 3) built on top of the ethereum blockchain. It is therefore subject to the governance rules of that specific blockchain-based network.
Yet DAOstack also implements its own protocols that determine how people interact with the platform, and how they can create new decentralized organizations on top of it. An application (like Sapien) deployed on top of DAOstack will, in turn, have its own governance protocols specific to that DApp (Layer 4).
Accordingly, any blockchain-based application is subject first to its own governance rules, but is also indirectly affected by the rules of the platform on which it operates: the ethereum blockchain that ensures the proper execution of relevant smart contracts (Layer 2), and the internet network that makes everything run (Layer 1).
The governance of each layer can be distinguished into two separate components:
- governance by the infrastructure
- governance of the infrastructure.
These two mechanisms co-exist more or less peacefully and both contribute to regulating a particular platform or infrastructure according to their own – sometimes divergent or contradictory – set of rules
Depending on the focus of analysis, these two mechanisms can be regarded as either endogenous to a particular community or exogenous to that community.
Endogenous rules are elaborated by the community and for the community: they are a community’s attempt at self-governance through a set of self-imposed rules (e.g., the hipster’s dress code).
Exogenous rules are established and/or imposed by a third party that is external to the community, but nonetheless have the ability to influence it through a set of rules that community members are required to abide by (e.g., school uniforms).
Modes of governance
Governance by the infrastructure refers to hard-coded rules embedded into a technological platform. It generally focuses on the process of rule enforcement rather than rule-making (at least with regard to the elaboration of the initial set of rules).
In the case of ethereum, for example, endogenous rules refer to the blockchain protocol and consensus algorithm (Layer 2). From a DApp’s perspective, endogenous rules include decision-making procedures and technical rules embedded in the relevant smart contracts (Layers 3 and 4) – whereas the underlying ethereum protocol qualifies as exogenous. A variety of other exogenous rules also exist, like the TCP/IP and other Internet protocols that make it possible for people to find and connect to the blockchain-based network (Layer 1).
When these rules are endogenous to a blockchain-based network, we refer to governance by the infrastructure as “on-chain” governance. These rules are encoded directly into the blockchain-based network, which guarantees their execution in a secure and decentralized manner.
Sometimes, on-chain governance rules also specify procedures to amend themselves: just like we can make laws that stipulate how to make, amend or repeal laws, we can design protocol rules that define the procedures to make, amend or repeal other protocol rules.
Take Tezos, for instance: a self-amending blockchain, where people have the ability to change the protocol rules – including the rules to change the rules!
Governance of the infrastructure refers to all forces that subsist outside of a technological platform, but nonetheless influence its development and operations. These rules operate at the social or institutional level rather than at the technical level.
Endogenous rules comprise rules, social norms, customs, and other governance structures developed or endorsed by a particular community with a view to facilitating coordination within that community.
For instance, developers in open source communities codify rules and procedures to decide on developing and evolving an open source software project. Peer-review usually enforces these rules, although the community might also implement formalized mechanisms of enforcement and oversight. Failure to follow these rules might lead to exclusion from the community or other forms of social punishment.
In a blockchain-based network, we often refer to governance of the infrastructure as “off-chain” governance because the governance rules subsist and operate outside of the blockchain infrastructure. As opposed to on-chain governance rules, these rules are not automatically executed: they require a third-party authority for enforcement or oversight.
For most blockchain communities, endogenous rules include all rules and procedures used to decide which changes to implement in the protocol, including the decision to fork. In bitcoin, these are done via the Bitcoin Improvement Proposals (BIP) – an informal mechanism by which people can propose new features and improvements to the bitcoin protocol.
Ethereum implemented a similar system for people to submit Ethereum Improvement Proposals (EIP), an informal procedure by which people can suggest or request changes to the ethereum protocol or code. However, none of these procedures are binding. The developer community evaluates these proposals and decides whether (and how) they should be implemented into the code base – along with the various problems that this might entail.
To the extent that these proposals get accepted and implemented into the code, governance of the infrastructure has the ability to affect governance by the infrastructure. In other words, because off-chain governance is generally geared toward changing the rules of the underlying blockchain protocol, it has the power to modify the structure of on-chain governance.
Exogenous rules neither stem from the community nor are chosen by it, yet they have the ability to influence the activities thereof.
For instance, although they do not apply directly to blockchain-based networks, national laws can impact the operations of such networks. Of course, because laws are inherently territorial, if violated, they can only be enforced by the national court system within the scope of a particular jurisdiction. Yet as soon as we start dealing with real-world assets (as opposed to pure digital assets), the rule of law will necessarily come into play, potentially countering the rule of code.
Perhaps the clearest illustration of the tension between endogenous and exogenous rules comes from the recent discovery of child pornography imagery and links encoded into the bitcoin blockchain. Hosting this type of content is illicit and national laws stipulate that such harmful content should be taken down.
Yet according to bitcoin’s endogenous rules, the blockchain is immutable: nodes cannot arbitrarily delete or modify the content that has been recorded onto the blockchain.
The same tension exists between blockchain’s immutability and Europe’s right to be forgotten, which entitles people to request the removal and deletion of specific information concerning them, if such information is deemed irrelevant, outdated, or otherwise inappropriate.
Governments or other regulatory authorities impose these exogenous rules to ensure public order and morality. Their goal is to promote the interests of specific communities or the public at large – sometimes at the expense of the interests and norms of other communities.
Putting it all together
Today, most of the discussion about on-chain and off-chain governance is mainly looking at endogenous rules. Yet, it is the combination of endogenous and exogenous rules that ultimately dictates the manner in which blockchain-based platforms will operate.
Before we can begin to understand blockchain governance, we need to adopt an ecosystemic approach, looking at the various forces that might affect the operations of these platforms, and how they interrelate with one another.
As a result, we cannot focus only on endogenous rules and forget about exogenous rules. That would be like trying to understand people independent from their social context, analyzing a cell without looking at the body in which it lives, or disregarding the whole for its parts.
The next generation of crypto exchanges has one big missing piece
2018 could end up being a banner year for a much-hyped cryptocurrency creation.
Heralded as a way to put true custody back into the hands of traders, decentralized exchanges have moved out of R&D phase and are enrolling early adopters. But before users can start rejoicing, there’s a serious chicken-and-egg problem, one that entrepreneurs believe is preventing the model from challenging the Coinbases and Krakens of the world.
In short, you need liquidity to get adoption, yet in order to get adoption, liquidity must be good, a fact acknowledged by even those who see the potential in more high-tech trading offerings.
But more broadly, it’s worth looking at how centralized exchanges solve this problem. Oftentimes, they make deals with market makers to incentivize them to create liquidity. These incentives usually come in the form of a rebate or reward that’s exchanged for the guarantee a certain amount of what traders call “order book depth” is maintained at all times.
Some centralized exchanges will even employ temporary strategies to solve the problem, such as market making themselves with their own capital, and will basically replicate order books from other more liquid exchanges (plus a spread) to try to attract traders.
There are some practical issues: decentralized exchanges are limited to trade in cryptos only. That means people can’t actually use regular US dollars to buy a token. They first have to go to a regulated exchange to put in US dollars (or other government-backed currencies) to buy bitcoin or ether.
Then, with bitcoin or ether, they can go to a decentralized exchange to buy the more tokens. As such, it’s perhaps no surprise that to those familiar with more user-friendly Wall Street solutions, this can all seem a bit much.
As Daniel Cawrey, CEO, Pactum Capital explains:
“Most investors/traders are already intimidated by bitcoin. So, to have them jump through hoops to trade on a decentralized exchange to trade a token with a tiny market cap causes a lot of people to give up.”
Cawrey characterizes it as a question of cost and benefit. Essentially, most tokens don’t do much in the way of volume, which makes the set-up hurdles even more pronounced.
That said, there have been early successes.
For example, AirSwap, the decentralised marketplace for ethereum tokens that launched last week, handled over $1 million worth of transactions on its first day of trading.
A different take
Still, those working to bring the business model to life see it differently.
AirSwap, co-founded by former Virtu Financial trader Michael Oved, goes so far as to use a bulletin board-style system that emulates the way traditional foreign exchange traders interact directly with each other, peer to peer.
The platform replaces the traditional order book with a kind of search engine called an “indexer,” whereby traders can announce their intent to trade, making them discoverable by their peers using smart contracts. It currently trades some 25 tokens and that number is growing.
In this way, AirSwap co-founder Don Mosites believes this selection is enough to overcome the issues Cawrey discussed, by offering a selection of markets that may be small today, but have been growing in volumes of late.
Mosites said: “There are people all over the world looking to make trades, often in large amounts, but may not have the tools.”
“The first-day volume was a testament to the global community we’ve built, our ‘peer discovery’ system and the smart contract used by peers to make trades. There is a ton of demand for a simple and secure OTC system like this,” he continued.
Yet, this isn’t the only approach – smart developers are dropping IP all over the place with different ways to decentralize ethereum token trading, while attracting the necessary liquidity.
For example, KyberNetwork (launched in April), has also gotten rid of the order book, and maintains a reserve warehouse controlled by a Kyber smart contract.
In order to attract as much liquidity as possible from Singapore’s burgeoning token economy, Kyber operates an open model – anyone can be a market maker or taker by interacting with the smart contracts.
“We solve the liquidity problem by bringing the market makers to our platform – anyone with a substantial amount of idle assets or even the token issuers themselves,” said Loi Luu, the co-founder of KyberNetwork. “They can get more profits on their idle assets by market making on our platform.”
Also looking to leverage the explosion in ethereum tokens is the 0x protocol, which offers exchange operators (relayers) building on top of its smart contract system, the choice of being open or closed.
Using 0x in an entirely open and decentralised way, aspires to capture a networked liquidity effect. This means the smart contracts that essentially clear and execute trades are set so that the maker and taker of trades can be filled by any user.
But 0x can also be used to create a closed order book, or matching model, where the smart contract is set so the taker of any trade is always the relayer.
As with most things in a decentralized context, there are trade-offs.
While openness may solve liquidity issues over time, it opens up an easy way of front-running trades. This can happen on ethereum when users observe market-moving orders and set a gas price for their own transaction higher than the transaction they’re seeing.
Amir Bandeali, the CTO of 0x, pointed out this issue shouldn’t be put completely on decentralized exchanges.
“This is not a problem that’s specific to trading; front running is one of the larger issues of blockchains in general. If anyone submits a transaction to the blockchain, the entire transaction is public before it is mined,” he said, adding:
“But since decentralized exchanges are one of the first working use cases of blockchains, they have been getting a bad rap for this.”
To fortify the open approach, 0x is looking at introducing features like a trade execution coordinator, or an embeddable trade widget for open order books that can allow wallets and other applications to monetize by simply rebroadcasting orders from other relayers.
Kyber, which is also open, removes the incentive to front run by limiting the transaction value per trade. The trade size is currently capped at SGD 5000 ($3,800) per trade for non-KYC’d users and SGD 10000 SGD for KYC’d users.
Combining the 0x protocol with a closed order book model is Paradex, founded by trading platform veteran Ron Bernstein. In this design settlement of trades takes place on the ethereum blockchain, but a closed matching model seeks to retain features that professional traders require such as best-price guarantees and price/time priority.
“The matching model does come with trade-offs,” said Bandeali. “It makes your relayer much less accessible to smart contracts. One of the main benefits of the open order book model is that you can execute trades atomically with other transactions, including other trades. You can’t really benefit from this using the matching model.”
Bernstein acknowledged that matching prevents Paradex from participating in 0x’s aspiration for beneficial shared liquidity, but he insisted the trade-offs are incomparable.
“There’s a very small chance that aggregated or shared liquidity will be a mass adoption solution. It may be a temporary benefit while bootstrapping very new trading ecosystems like decentralized token trading,” said Bernstein, adding:
“Liquidity is solved by partnerships with professional liquidity providers, like those already operating on centralized exchanges – and we’re courting a bunch of them.”
Iceland’s missing Bitcoin miners may be in China
Iceland’s 600 missing bitcoin mining machines may be in China, local news reported last week.
According to RUV, Icelandic police have sent Chinese authorities an inquiry after the latter country confiscated 600 mining computers. Police in the Tianjin area reportedly seized the machines after detecting unusually high electricity consumption, per Xinhua News.
The Chinese news agency explained that this may have been the “largest power theft case in recent years,” noting that eight high-power fans were also confiscated. The individuals running the mining farm short-circuited their electricity meter, thereby avoiding receiving a bill for the energy used to power the miners.
Left untouched, the meter would have recorded “hundreds of thousands of yuan” in bills, Xinhua reported.
However, it is unclear whether the machines seized in China have any relation to Iceland’s “Big Bitcoin Heist.” As previously reported, the machines were stolen across several incidents during December and January, and officials have so far had no luck in locating them. A $60,000 reward is offered by the machines’ owner for any information which could lead to the computers.
The alleged mastermind behind the thefts is set to be extradited to Iceland from the Netherlands, where he was arrested after escaping a low-security prison and fleeing to Sweden.
As previously reported, Sindri Thor Stefansson reportedly took a taxi to a nearby international airport and flew out of the country on an aircraft which also carried the nation’s prime minister.
When not if: for Ethereum believers, scaling is just a matter of time
“Sleep? What’s this word you talk about?”
It’s safe to say ethereum founder Vitalik Buterin’s joke during the first day of EDCON, an ethereum developer conference now taking place in Toronto, had some truth to it, both for himself and the developers who took the stage with him to discuss one of the $76 billion blockchain’s toughest challenges: scaling.
In contrast to the day’s more cheery asides, the discussion, featuring Vlad Zamfir, Philip Daian, Joseph Poon, Karl Floersch, Hsiao-Wei Wang and Justin Drake, struck a comparatively restrained note, one that was perhaps sobered by the sheer weight of the scaling challenges ahead.
These challenges were on full display six months ago when the platform was brought almost to a halt by the viral popularity of CryptoKitties, a decentralized application for trading digital kittens. More recently, though, even Buterin acknowledged the issue at an event in Seoul, South Korea, saying app developers were “screwed” because of the protocol’s current scale.
However, it was a point noted prominently at EDCON as well, with Zamfir, the developer behind ethereum’s upcoming consensus algorithm change, giving another prominent voice to the doubts.
Zamfir told attendees:
“I still don’t know how scalable it can get. I don’t know, I can’t even quantify the possible scalability of the blockchain, really.”
That said, there’s one thing in the platform’s favor, and that might be the sheer number of potential solutions to the scalability hurdle, a list that now includes Raiden, Plasma, Liquidity Network, Loom Network, OmiseGO, sharding, state channels and perhaps even others now in the earliest stages of experimentation.
Still, the developers assembled were realistic, noting that there’s still a lot of R&D that needs to be done before ethereum can scale to allow for its vision of creating a decentralized world computer.
“What keeps me up at night is that not that many people know how to solve it,” said Floersch, a crypto-economics researcher who works on scaling solution Plasma.
So many solutions
Still, that’s not to say that understanding of the challenge isn’t increasing. For instance, it’s now accepted that there are two categories of scaling solutions.
This includes layer-one technologies, like sharding, that necessitate changes to the ethereum blockchain itself, and “layer-two” technologies, which can be built independently and added to the blockchain without an underlying change.
All these solutions are being pursued at the same time, and while that might seem to add complexity and confusion, according to Buterin, it’s both the safest and most impactful way to get a solution ready for the network. By actively pursuing all ideas, he said, even if one scaling solution doesn’t work, there’s always a backup.
And if they all work, the ideas can be combined to make something even better.
“For every single problem, multiple solutions exist,” Buterin said, adding:
“If for some reason the trolls are right and sharding gets delayed by five years then guess what, next year we still have awesome state channel networks and we still have raiden and we still have liquidity and whatever else is being built.”
Poon, the co-author of the paper on the plasma scaling solution (and also bitcoin’s lightning network paper), echoed this point, adding that in striving towards the same goal, developers can make discoveries that might be useful for other scaling approaches as well.
“It doesn’t matter what wins, so to speak, because they all do similar things and they all achieve things in somewhat similar ways,” Poon said.
Yet, there wasn’t unanimous agreement on that topic.
Zamfir, for instance, warned that the multiple layer-two solutions – or those stacked on top of ethereum – could increase the incentive for bad actors to attack the underlying blockchain.
“I don’t think the security of these things is independent, in fact, I worry that layer-one solutions will be compromised by layer-two solutions,” he said during the panel.
However, Zamfir acknowledged that this experimentation on layer-two technologies is necessary in case there’s no conclusion on how to make changes to the blockchain at all.
Touching on another hot topic for the ethereum community, Zamfir said, “I do think that we should experiment with things on layer-two, just in case layer-one governance breaks down and we can’t do anything with layer one.”
When will it happen?
With all these different efforts, from the outside, you might think ethereum scaling is right around the corner. But there’s some disagreement on this, too.
Buterin remains optimistic, saying that within a year he expects plasma, a scaling technology inspired by the lightning network that looks to decrease the amount of data that’s stored on the main blockchain, to be deployed by many different startups in place of proprietary permissioned blockchains.
As detailed by CoinDesk, new advancements, such as Plasma Cash, have further mitigated the risks in how plasma chains communicate with the ethereum blockchain.
And those building sharding technology, another scaling solution that purports to lower the data load by splitting the blockchain into parts running on different servers, are making good progress, according to Drake, a developer working of sharding.
Even though Buterin’s recent proof-of-concept for sharding was quickly bypassed by further advancements in research, Drake said a “semi-formal spec” will be released in the next couple months.
Still, though, there were some on the panel who think true breakthroughs lay further ahead.
“In my opinion, in a year nothing substantial will have changed in regard to fundamental blockchain scalability,” Daian said. Seeming to hint at Project Chicago, his new initiative aimed at redesigning ethereum, Daian went on, “Hopefully in five years we’ll see fundamentally new architectures that are really delivering huge throughputs.”
But even when those new architectures arrive, adding them to ethereum will be a challenge since the protocol must make sure it’s all compatible. As such, Daian expects smaller ethereum competitors to be the first to patch in the new architectures.
On top of that, many of these solutions have trade-offs – putting decentralization, verifiability and security on the line – that aren’t always considered as much as they should be, Poon said.
“Oftentimes people make claims about scalability and they’re not really saying what the tradeoffs are,” he said.
To avoid this, Floersch emphasized the importance of educating users on the value of decentralized technology, so they don’t make regrettable choices in the interim.
And Buterin remained positive, concluding:
“In the longer term, I do think the weaknesses of centralization are going to show themselves.”