According to Vitalik Buterin (founder of Ethereum), there are four crucial problems that must be solved to push Ethereum to the next level: privacy, consensus safety, smart contract safety, and most importantly, scalability.
All of which are being tackled by the largest community of active developers in the blockchain space. According to Joseph Lubin, Ethereum currently has the most active developer community in the space and has 30 times more developers than the second most active community.
We are currently on the Byzantium phase of Ethereum’s roadmap; the first part of the Metropolis stage.
Byzantium was released in October of 2017 and aims to solve scaling issues by implementing Plasma and Sharding techniques. Ethereum’s scalability flaws were brought to the forefront during the cryptomania of late 2017.
Ethereum has experienced rising smart contract fees that slow down transaction times, especially during ICOs. Plasma is an update which aims to fix scalability issues on the Ethereum main network.
This is done in collaboration between Vitalik Buterin and Joseph Poon from the Lightning Network. Plasma is an Ethereum scaling solution which involves a second layer of smart contracts over the main blockchain.
Similar to sharding, this method will mean that the entire network does not have to validate and broadcast every contract transaction. Smart contract transactions are done on a side chain to reduce traffic on the main blockchain.
Like Bitcoin, every Ethereum node stores every transaction that was ever made on the entire blockchain, and every transaction has to be cryptographically solved by every node on the network so that every computer has the entire chain.
Repeat that about a million times a day, and you can see why it can get congested. This makes it impractical to scale a single blockchain beyond what a single node can process.
Sharding is the process of splitting up the chain data so that every node only has to worry about a small portion of the chain. The code will be able to run parallel instead of linearly.
This will allow Ethereum to process thousands of transactions per second. Vitalik Buterin recently revealed a proof of concept of Sharding and hinted that the development of Sharding is near on social media. He added that the proof-of-stake beacon chain with Sharding enabled can issue new blocks every two to eight seconds, which is significantly faster than existing proof-of-work blockchains like bitcoin, which has an average block time of 10 minutes.
Constantinople: Transitioning to Casper
The second and final part of Metropolis will be Constantinople. This release, currently without a specific timeline will introduce the stage for the Casper proof-of-stake upgrade. Casper is currently being tested.
Although a majority of the transactions on the Ethereum network will remain PoW, every 100th transaction will be PoS in Constantinople, which will lay the groundwork for Casper. Gradually, Ethereum will become entirely a proof of stake consensus protocol.
What is Casper PoS?
Casper is Ethereum’s upcoming proof of stake (PoS) consensus protocol. In a PoW protocol, like Bitcoin, computers race to solve algorithms. The computer that solves the algorithm first and broadcasts the new block to the network gets rewarded.
A PoS protocol has nodes referred to as bonded validators that can stake their money on the blocks added to the Blockchain. The percentage of wealth staked relative to the market cap represents the percentage chance an individual has of creating the block and receiving the transactions fees contained in it. There will also be investors who “stake” their coins by locking them down in special wallets.
These stakers will be rewarded through an annual dividend of ether. A bond validator staking their funds can be thought of as an individual making a security deposit. If the blocks they stake their funds on are valid, they will receive their stake back, if fraudulent, the bond validator will lose their stake. Since bad actors are severely punished for supporting invalid blocks, individuals have more incentive to act honestly than they do in a PoW system.
The PoS system also makes it more difficult to conduct a 51% attack. In a PoS system you would need to purchase 51% of the Ethereum market cap, a feat that not many individuals have the funds to accomplish. While to conduct a 51% attack in a PoW system, an entity has to gain the majority of the mining power.
This has happened before: in July 2014, a bitcoin mining pool named Ghash controlled 51% of the mining power on the Bitcoin network for 12 hours.
Casper will be in full swing by the time Ethereum upgrades to Serenity, the final milestone on Ethereum’s roadmap. At the Serenity phase, Ethereum will be a blockchain with a built-in Turing-complete programming language that can be used by other developers, companies, and entities to create contracts, applications, and systems.
Ethereum developer Hudson Jameson stated that when Ethereum Serenity is released, “this is going to be when the really big stuff hits.” Coinbase co-founder Fred Ehrsam said that “for Ethereum to support decentralized applications with millions of active users, it will need to improve by more than 100-fold regarding scalability”.
Currently, developers expect Sharding, Casper, and Plasma to bring the scalability of Ethereum to the next tier. These scaling solutions could be the elixir to elevate Ethereum to new heights and new potentials.
For investors and users, these improvements can’t come fast enough as competing cryptos such as EOS, often dubbed the ‘Ethereum killer,’ are rapidly gaining ground.