Ethereum 2.0’s long and winding road to scalability launch

On Nov. 4, Ethereum (ETH) core developers hit a significant milestone. In a “quick update” on the Ethereum Foundation blog, developer Danny Ryan confirmed the release of the v1.0 specs for the hotly anticipated Ethereum 2.0 upgrade, which includes the mainnet deposit contract address. Anyone who wants to participate as a validator on the Ethereum 2.0 mainnet can now start depositing their minimum stake of 32 ETH.

The initial results looked promising, with 14,000 ETH (worth around $5 million) staked in the first eight hours alone. However, the developers have set a minimum total stake of 524,288 ETH from 16,384 validators as the trigger for launching the mainnet, known as the beacon chain. The target must be met at least seven days beforehand, so by Nov. 24. If this doesn’t happen, the launch will take place seven days after the minimum staking threshold is met.

Is the Dec. 1 deadline achievable?

At the time of writing, less than 20% of the total amount has been staked. If staking continues at the current rate, the Ethereum 2.0 mainnet will launch not on Dec. 1, but in the early weeks of 2021.

Of course, the participation rate could change. As Nov. 24 draws closer, the growing anticipation may encourage more people to stake their ETH. Ben Edgington, the lead product owner at ConsenSys Quorum Protocol Engineering advising on Ethereum 2.0 development across the ConsenSys organization, maintains a positive outlook on the Dec. 1 launch date, telling Cointelegraph:

“I expect that the pace of deposits will accelerate sharply as the cut-off date nears. There’s little benefit in staking early, so I think people are just taking their time. Whether there will be enough to push us over the threshold in time is hard to judge, but I remain optimistic. If there is a delay to genesis, I expect it to be short.”

The numbers show that the potential is there, as the number of addresses holding 32 ETH hit an all-time high of 126,852 in the hours following the news. This means that fewer than 13% of addresses need to participate to hit the threshold.

On the other hand, those who do stake will be locking up their tokens in a one-way contract until the current Ethereum mainnet joins the beacon chain. Exactly when this happens, nobody knows, although the current Ethereum 2.0 roadmap specifies it will be in 2021.

Whether the beacon chain launches on Dec. 1 or in the weeks following, there won’t necessarily be any “big bangs” to look forward to on the launch. The role of the beacon chain is to secure transactions on shard chains, which won’t be available until later. The current Ethereum 1.0 mainnet will continue running as it does now.

The road to sharding

So what are the next steps, and when can Ethereum become fully scalable? The beacon chain launch is known as Phase 0 on the Ethereum 2.0 roadmap. The next significant developments are slated for 2021 and will involve the launch of 64 shard chains, which will operate under the proof-of-stake consensus validated by those who staked ETH. However, in their initial state, shard chains won’t support smart contracts or user accounts.

Perhaps the most significant milestone for the existing Ethereum 1.0 ecosystem will be Phase 1.5, when the Ethereum mainnet joins the beacon chain as a shard chain. This will mark the transition of Ethereum to a full proof-of-stake consensus. Again, it’s set to happen in 2021, but no exact date is available as of yet.

Only when the final stage of Phase 2 comes around will it be possible to assess the full effect of the Ethereum 2.0 upgrade on the network’s scalability. At this time, shards will be fully operational, supporting smart contracts and all transaction types. However, this could be as long as two years away. On the roadmap, the Ethereum Foundation states, “Phase 2 is still very much in the research phase,” effectively confirming that development isn’t yet underway.

No solution to rule them all

Even if all the roadmap phases are delivered within the next 18 months, which is a big “if,” it will be well into 2022 before the full scalable potential of Ethereum 2.0 is visible. However, rather than focusing on the development of Ethereum 2.0 as the endgame, it’s worth taking a bird’s eye view on the evolution of the Ethereum ecosystem over the coming years.

Despite coming into some criticism, layer-two solutions still offer the best hope of Ethereum scalability in advance of the Ethereum 2.0 mainnet becoming fully operational. Even Vitalik Buterin himself appears to favor other layer-two platforms as the current scaling solution of choice.

This year, both Matic Network and the OMG Network unveiled layer-two solutions based on variations of Plasma, which makes use of side chains to take processing load off the main Ethereum chain.

However, while Plasma was the scaling technology of choice for a while, the focus for much of this year has been on rollups, a solution also endorsed by Vitalik Buterin. Additionally, privacy protocol Aztec has launched private smart contracts based on zero-knowledge rollups. Zero-knowledge rollups bundle transactions together using zero-knowledge proofs to verify validity.

Another type of rollup, called optimistic rollups, is also in development by several projects. Optimistic rollups use game theory to avoid the need for the heavy computational load required by zk-Rollups. Erick De Moura, founder and CEO at Cartesi, explained to Cointelegraph how he believes rollups outperform Plasma-based scaling solutions:

“Rollups solve a huge problem that is inherent to Plasma — data availability. With rollups, all transaction data is bundled, or rolled up, and made available on Ethereum in a way that’s cheaper than it would be for regular blockchain-based transactions. Besides, all the entailed computation load is done off-chain, making for large gains in throughput and transaction cost-efficiency.”

Cartesi is set to launch its own version of optimistic rollups on its testnet during early 2021. The launch will come with a Linux-based infrastructure, effectively making a scalable version of Ethereum available to developers used to mainstream standards.

A scalable ecosystem

It’s worth pointing out that the arrival of Ethereum 2.0 won’t negate the development efforts of the layer-two platforms currently attempting to solve for scalability. Instead, technologies such as rollups or side chains will continue to help Ethereum 2.0 scale beyond its renewed capacity once sharding is fully implemented.

So, strap in and settle down for a long ride. Ethereum 2.0 may be gearing up for an initial launch, but it’s still only the first of many steps on the long road to scalability. The ongoing development of layer-two solutions means there’s plenty of company along the way.

Zcash celebrates first halving with implementation of ‘Canopy’ upgrade

Privacy-focused cryptocurrency Zcash (ZEC) celebrated its first halving event on Nov. 18.

The occasion was marked by the implementation of the Canopy upgrade, which establishes a development fund for the platform and removes the controversial “Founders Reward.”

The halving and upgrade occurred at block 1,046,400, just over four years after Zcash was first mined in late October 2016.

Canopy is the fifth major upgrade to Zcash, primarily consisting of the change to the mining rewards distribution. Prior to this, funding for the development of the platform was potentially set to expire at the point of the first halving. Technical upgrades were relatively minor, with three improvement proposals tweaking some security and performance parameters.

The changes, which were proposed and ratified by the Zcash community, establish a continued development fund for the next four years.

While 80% of mining rewards will still go to the miners, 8% will now be reserved for the Major Grants Fund. This will be exclusively reserved for independent third-party developers.

The remaining 12% will be split between the Electric Coin Company, which will receive 7%, and the Zcash Foundation, which will collect the remaining 5%.

The change primarily impacts the founders and employees of ECC, while the share reserved for the company itself has been raised slightly. In addition, bringing external teams into the Zcash development environment was seen by the community as essential to ensure the integrity and growth of the protocol in a decentralized manner.

Previously the 20% of network rewards that didn’t go to miners was split between the ECC, the Zcash Foundation, and the founders and investors who helped create Zcash. The community’s strongest point of contention was the latter share, as the initial founders took the lion’s share of 14.2% of the entire mining reward.

As Cointelegraph reported, the ECC recently released its updated and more efficient “Halo 2” source code into the public domain.

Number of Bitcoin ATMs Up 85% This Year as Coronavirus Drives Adoption

The number of bitcoin automated teller machines (ATMs) across the globe has surged this year amid the coronavirus-induced shift toward contactless payments.

Bitcoin ATM installations have increased by 85% to 11,798, outpacing the previous year’s near 50% rise by a significant margin, according to data source Coin ATM Radar.

The spike demonstrates the rising popularity of bitcoin as a payment mode. The fear of getting a coronavirus infection has accelerated the growth in the broader contactless payment market this year, according to Global Trade Magazine.

Bitcoin’s borderless network facilitates a seamless transfer of money in any amount from anywhere across the globe, through any mobile or computer, and at relatively lower fees than traditional banking channels.

A bitcoin ATM allows a person to purchase the cryptocurrency by using cash or debit card. Some machines facilitate the purchase of bitcoin and the sale of cryptocurrency for cash.

The U.S. added over 800 ATMs in October alone and is leading cryptocurrency adoption, followed by Canada and Germany, as noted by Coin ATM Radar.

With several public companies investing in bitcoin and online payments giant PayPal adding support to the cryptocurrency, mainstream adoption could continue to grow.

Disclosure

Bitfinex to compete with DeFi with new borrowing service

Amid a year of significant growth for the decentralized finance space within the crypto industry, Hong Kong-based crypto exchange Bitfinex has unveiled its new lending service today, called Bitfinex Borrow. 

“Bitfinex Borrow is a borrowing platform,” Bitfinex chief technology officer Paolo Ardoino told Cointelegraph. “This particular offering isn’t about lending out your crypto and obtaining a rate of return on it,” he said. “The crypto loan is obtained via Bitfinex’s peer-to-peer lending platform, though it may consist of a pool of available credit,” he explained. So essentially, crypto borrowing and loans are not directly tied to a direct and immediate opposite party. 

Bitfinex Borrow acts as a way for Bitfinex to offer loans to customers. When customers put up crypto assets as collateral in exchange for a loan, Bitfinex then allocates those assets to a different customer as part of a separate product called Bitfinex Funding — hence the peer-to-peer classification. “Bitfinex Funding, Lending Pro and Bitfinex Borrow are all part of the same, peer-to-peer lending markets. These are different products, using the underlying same pool of funding,” Ardoino said. 

Customers can receive U.S. dollars or dollar-pegged stablecoin Tether (USDT) in return for their crypto assets, which Bitfinex holds until the loan is paid back, per Bitfinex’s announcement.

Collateral is something a borrower gives a lender to hold until the loan is paid back. At this time, Bitcoin (BTC) and Ether (ETH) are the two accepted forms of collateral on Bitfinex Borrow. 

Interest and speculation in the decentralized finance, or DeFi, space reached bubble territory in 2020. Random new projects have seen immediate parabolic growth, with their related assets also rocketing in price. What started as a fairly straightforward system of crypto-based loans and borrowing turned into speculators chasing the highest returns on their capital allocations.

The red-hot DeFi sector cooled slightly as Bitcoin took center stage with its upward price action, although the past few days have seen soaring DeFi price action return. Bitfinex Borrow seems more similar to the DeFi loan structure seen prior to the recent bubble than a continuation of the parabolic trend. Before speculators started yield farming, loaning and borrowing capital across multiple projects and platforms in search of massive compounded interest, DeFi acted as a fairly straightforward way of putting up crypto collateral in exchange for stablecoins. Borrowers could use those stablecoins for their needs without selling their crypto holdings. 

The service comes with a fairly wide range of annual interest rates, between 5.5% and a steep 18.25%, pending a number of factors such as the length and size of each loan, Bitfinex’s statement noted. With regard to the time component, interest rates scale up in cost based on the loan period, with longer-term loans incurring greater rates, according to Ardoino. Additionally, customers can only hold borrowed funds for 120 days.  

Two other options also come into play when it comes to interest rates on these loans: fixed rates, or floating rates derived from Bitfinex’s Flash Return Rate, or FRR.

“The FRR represents a moving average of interest rates proposed on Bitfinex’s peer-to-peer financing market,” Ardoino explained. “The moving average of what is available in the market is recalculated every hour,” he added. “The crypto loan is provided on a peer-to-peer basis through Bitfinex’s financing matching engine (separate and apart from the trading matching engine).”

Customers with partial verification status on Bitfinex must keep their borrowed assets on the exchange, but those with top-tier verification can withdraw such funds, the statement said. Bitfinex Borrow lets customers pay back their loans all at once or in segments. 

Although DeFi may unlock further possibilities in the crypto industry, the niche has also seen its fair share of hacking activities

DeFi on Polkadot: An alt chain with interoperability on the horizon

The Polkadot blockchain platform only launched its mainnet in May, but it is already pushing to become a major competitive force in the sector. In late August, following a DOT token redenomination, Polkadot smashed into the top 10 cryptocurrencies, overtaking established altcoins such as EOS, Litecoin (LTC) and others. 

Kelvin Koh from Asian crypto fund Spartan Black previously said that Polkadot could rank in the top three blockchains. Elsewhere, Dan Morehead from Pantera Capital Management also recently shared his sentiments with Bloomberg, highlighting that although Polkadot is currently trading at around 10% of Ethereum’s value, his firm believes it has a “much higher than 10% chance of being a competitor to Ethereum.”

Although there is endless speculation about which factors drive Ether’s price, one trend has emerged over its lifetime: As more developers build applications with user appeal and value, the price outlook of Ether looks more bullish.

If the same is true for Polkadot, then the analysts’ predictions look promising. The popularity of decentralized finance caused the price of ETH to double this summer. Now, DeFi developers also appear to be looking toward Polkadot, keen to take advantage of fast throughput, the Substrate development framework and ultimately — interoperability.

However, Peter Mauric, head of public affairs at Parity Technologies, told Cointelegraph that there is vast potential for Polkadot to expand the DeFi ecosystem beyond its current capabilities, saying that parachains are a different type of smart contract that will enable a different degree of implementation. He elaborated further:

“Once we have these turbo-charged DeFi primitives, the potential for new innovation is greatly expanded, and we see interesting new possibilities like decentralized Sovereign Wealth Funds and cross-chain money markets providing the basis for the next generation of DeFi protocols.”

Many of these new DApps and parachains are also receiving the boost of grant funding from Polkadot’s main sponsor, the Web3 Foundation. Mauric confirmed that the Polkadot treasury is also disbursing funding trustlessly, on-chain, to projects looking to build on Polkadot. So, who’s involved in Polkadot’s DeFi ecosystem, and how do they compare to their Ethereum counterparts?

A complete DeFi platform

Acala is a decentralized finance hub, billed as an “all-in-one DeFi service center.” It offers some features comparable to Maker, allowing users to lend and borrow its aUSD stablecoins. However, it also operates a decentralized exchange under an economic model called a “decentralized sovereign wealth fund,” designed to provide an ongoing means of sustaining the development ecosystem. Acala was also one of the first to participate in a new Polkadot-specific crowdfunding model known as the initial parachain offering.

Acala is a classic example of a project leveraging the high customization capabilities of Substrate. Bette Chen, co-founder of Acala, told Cointelegraph: “By using Substrate to build Acala, we can, for example, customize the fee schedule and allow users to pay fees in any accepted tokens. The upside of innovation is uncapped, as we can add new features and fix issues without hard forks.”

Staking and lending

Mantra DAO is a community-governed DeFi platform for staking, lending and governance. The platform’s OM token confers voting rights that influence various factors such as inflation levels or interest rates. Mantra DAO will operate on the Rio Chain infrastructure and is on the path to becoming a fully decentralized DAO governed by its community.

Mantra DAO sees scalability and interoperability as major selling points of being based on Polkadot, as Will Corkin, co-founder and council member, explained to Cointelegraph: “Interoperability is a stride towards bringing DeFi mainstream and getting rid of the current network problems that platforms on Ethereum face.” He further added: “Not only can we bring Ethereum DeFi to Polkadot, but we can bring all of DeFi to all peers across all platforms.”

Another project, StaFi (short for Staking Finance) is a protocol that allows users to unlock the liquidity tied up in staked tokens. It works in a comparable way to Yearn.Finance or Compound, issuing synthetic tokens called rTokens that represent a stake in the pool and can be used in other protocols. Along with Web3 grants, the project has received backing from B-Tech, a tech accelerator affiliated with the Bitmax exchange.

DEXs and liquidity

Uniswap’s Polkadot equivalent is Polkastarter, a decentralized exchange allowing users to launch interoperable token pools with cross-chain swaps. Projects can list their tokens and use the platform to crowdfund in a decentralized auction. The development team has created a proof-of-concept on Ethereum, with a roadmap including migration to Polkadot from early 2021.

Equilibrium is another project migrating to Polkadot from a different blockchain — EOS. It started as a MakerDAO equivalent, but with the move to Polkadot, it plans to expand its range of products to include a decentralized exchange, a synthetic asset platform and a newly interoperable stablecoin.

A bridge to Ethereum DeFi

Moonbeam is a Polkadot bridge parachain to Ethereum, enabling developers to build Ethereum-compatible smart contracts. Using Moonbeam, DApps can integrate with other blockchains, including Bitcoin. It also means that existing Ethereum-based front ends can connect to Moonbeam to interact with Polkadot-based DeFi applications.

Speaking to Cointelegraph, Derek Yoo, CEO of Moonbeam developer PureStake, elaborated on the functionality: “Moonbeam allows ERC-20 tokens to move between Ethereum and Polkadot, which is needed to power cross-chain deployments where you have an instance of the application on both platforms.”

Moonbeam is already finding traction with Ethereum-based DeFi projects wanting to expand into Polkadot. It has announced several partnerships with prominent DeFi projects, including SushiSwap, BetProtocol and Linear Finance, and Yoo indicated that there are more in the works.

DeFi infrastructure

Ethereum DeFi has grown organically, with multiple innovators coming along and building upon the work of their predecessors. However, many projects on Polkadot are seeing an opportunity to put infrastructural layers in place using Polkadot parachains for cross-chain transfers of assets and transactions.

Rio DeFi’s Rio Chain is a Polkadot parachain built using Substrate and provides a ready-made suite of tools for DeFi DApp builders. These include the Rio Generic Asset Bridge, which supports simultaneous cross-chain transfers of multiple assets. All of Rio’s core tools are accessible using the project’s website interface, including the Rio Wallet and Rio Block Explorer.

The team behind Rio Chain foresees several cross-chain DeFi use cases, including a Bitcoin lending platform, a Bitcoin saving account application, and instant stablecoin loans based on a crypto portfolio. Furthermore, Rio Chain believes that there is room to disrupt the global market for e-commerce payments by removing intermediaries such as PayPal that earn significant revenue from taking a share of merchant payments.

Bithumb Global is also initiating its own parachain on Polkadot, called Clover. Aimed at stimulating DeFi development, Clover will seek to leverage cross-chain capabilities and include some of Bithumb Global’s own in-house apps, including a decentralized exchange, wallets and lending protocols. Norelle Ng, managing partner at Bithumb Global, told Cointelegraph that the availability of infrastructural layers such as Clover will ultimately help drive improvements in the DeFi user experience: “The modules that are made available in Clover will greatly reduce the technology development threshold for upper-layer applications.”

Akropolis is an established project on Ethereum that provides open-source protocols for DeFi DApp developers — effectively an operating system for DeFi. In the context of Polkadot DeFi, it has received a Web3 Foundation grant to provide platform-as-a-service for Substrate nodes. It also offers a staking portal as a front end for the Polkadot chain. Akropolis is already integrated with Ethereum DeFi DApps, including Compound and Aave.

A long road still ahead

Based on the scale of development, things are looking promising for Polkadot DeFi. Many projects are already starting to take advantage of interoperability offered by the system. Polkadot is also attempting to make headway in attracting developers from other platforms.

However, it will take some time for the vision of interoperability to fulfill its true potential, mainly due to the current lack of composability between Ethereum and Polkadot applications. For example, it’s not yet possible to take out a flash loan on one platform to profit from arbitrage at different decentralized exchanges across other platforms. Mauric said that Polkadot is on a path to achieve composability and acknowledged that it’s a critical development:

“Cross-chain composability is a must both for DeFi and Web 3.0 as a whole. We already see the thirst for trustless, wrapped Bitcoin in Ethereum to use in DeFi, this is a clear early indication that cross-chain connectivity and composability is coming. Solving cross-chain composability is a major milestone.”

However, until cross-chain composability is a reality, there’s a risk that many DeFi DApps on Polkadot will simply seek to replicate existing applications on Ethereum. After all, this has already happened with Binance Smart Chain, where DApps such as BurgerSwap or BakerySwap opted to copy Ethereum-based SushiSwap.

Related: BurgerSwap frying high — Binance offers up the latest dish on DeFi menu

The value of simply copying existing apps is arguably questionable. Therefore, Polkadot DeFi will need to up its offering to entice users away from Ethereum’s composable and liquid DeFi ecosystem.

Ultimately, it’s still a matter of time to see whether Polkadot will steal the DeFi crown from Ethereum. However, perhaps a more pressing question is whether Polkadot can eventually improve upon DeFi to enhance adoption and make it more user-friendly and accessible to everyday investors and consumers. Beyond interoperability, that would seem to be the ultimate achievement.