Ethereum 2.0 inches closer with Altair’s Beacon Chain upgrade

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The price of Ether (ETH) almost hit a new all-time high on October 21, before falling below $ 4,000 after the $ 435 million option expiration on October 22nd spoiled sentiment. The Ethereum network will take another step towards Ethereum 2.0 on October 27th in epoch 74240 with the Altair upgrade to Beacon Chain. Eth2 will be a pure proof-of-stake (PoS) network that the community has been preparing for over a year.

According to a blog post by the Ethereum Foundation explaining the development, Altair is an update to the Beacon Chain that includes support for light clients, accounting for inactivity leaks prior to validation, an increase in the severity of the cut, and adjustments to the validation bonuses that allow for simplified reporting Administration. This is the first planned upgrade of the Beacon Chain.

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The blog post states that this update is a “warm-up upgrade” for the Beacon Chain and its clients. Essentially, the update will bring several key features to the Ethereum 2.0 network.

Firstly, the introduction of synchronization committees for light client functions enables light clients to easily synchronize the header chain with low computing and data costs.

Second, the incentive accounting reforms bring three major changes: The storage actions use a more efficient bit field format that reduces complexity, the square of the “inactivity leak” is based on a per reviewer rather than global – which is insignificant for reviewers who are more than 80% involved. the time – and there are some bug fixes in the reward accounting.

Du Jun, co-founder of the Huobi Global crypto exchange, told Cointelegraph, “If a chain is not finalized for two weeks, completely inactive validators lose ~ 11.8% of their balance and validators who are active 75% of the time lose ~ 3.1%. According to Altair, the loss of the fully inactive validator would be ~ 15.4%, but the loss of the 75% active validator would only be ~ 0.3%. ”This makes the inactivity leak more forgiving of honest but erratic reviewers.

Third, the update brings changes to the penalty parameters that make inactivity leaks and cuts more punitive than in the pre-Altair era. Three major changes will be made to these parameters. The inactivity penalty ratio is reduced by 25%, reducing the time it takes for balances to expire by almost 13.4%. The minimum slashing quotient is reduced from 128 to 64 – the quotient is the minimal fraction of the total credit that a crossed-out validator loses. This sets the minimum slashing penalty to 0.5 ETH, double the previous penalty of 0.25 ETH.

The proportional slashing multiplier will also be increased from one to two, resulting in the slashing penalty now doubling the percentage of other validators that were cut within 18 days of that validator. Jun further explained this change: “For example, if you are cut and within 18 days (in both directions) 7% of the other validators are also cut, your penalty would have been 7% before Altair and 14% after Altair.”

Such adjustments in the incentive structure are often extremely critical for the security of the network as they reward higher contributions and adapt accordingly across the spectrum. Currently, however, this change does not directly affect users and distributed applications (DApps) on the network as it is an upgrade that only affects the beacon chain.

However, this will affect Ethereum users once the transition to Eth2 is final. Jun said this upgrade will lower the threshold for users to join Ethereum 2.0:

“One of Altair’s main goals is to make a light client so simple and efficient that it can run in any environment (mobile device, embedded hardware, browser extension, and even within another smart contract-enabled blockchain).”

The redistribution of the benefits of the validators will lead to a redesign of the reward and punishment structure for validators, making the incentives for the network participants more systematic and easier to understand with logical arguments.

A warm up for the merge

It makes sense that this update be performed as a “warm-up” for future beacon chain upgrades, as the economic stakes are currently relatively low. Since the node operators have already experienced a simultaneous upgrade in the chain, any upcoming upgrades towards the merge should be smoother – which is more critical because a significant amount of the network will be staked out after the merge.

Ben Edgington, an Ethereum developer and product owner for Teku – an Eth2 client developed by ConsenSys – spoke to Cointelegraph about the way Altair is building on the upcoming merger:

“The proof-of-stake upgrade, known as The Merge, will be the largest upgrade in Ethereum history. The Altair upgrade will give us valuable experience to ensure The Merge runs smoothly when it is operational in 2022. “

When asked about the impact of the upgrade on Beacon Chain-Stakers, Edgington said that by and large they won’t notice any difference from Altair. It is essentially a “cleanup” exercise that does not affect the expected rewards stakers can earn or the way they interact with the chain.

As described in the Ethereum Improvement Proposal (EIP) 2982, the change in penalty parameters applies to both slashing and inactivity leaks. Edgington mentioned that the reduction in these penalties was done at the beginning of the Beacon Chain to allow the stakers to regain their foothold and gain confidence. The merger will ultimately set its penalties to its full “crypto-optimal values” while Altair increases them a bit in that direction. He went on to explain how this benefits the security of the network:

“The Beacon Chain has never suffered an inactivity leak and only 0.06% of the validators have been cut, so these penalties are largely theoretical. They are supposed to make targeted attacks on the beacon chain very expensive. The increase with Altair therefore increases the security of the chain. “

Rick Delaney, senior analyst at OKEx Insights – the OKEx cryptocurrency exchange research team – told Cointelegraph that this is an important component in keeping the network secure, stating, “If incentives are misaligned, malicious actors can potentially outsmart the system.”

Merging can change the dynamics of “Ethereum killers”

The Altair upgrade is the next major update to the network after the London Hard Fork that happened earlier this year in August. The hard fork mainly brought with it EIP-1559, which changed the transaction price mechanism to burn a certain portion of the gas fees, which put ETH on a deflationary path.

According to data from Ultrasound.money, the current burn rate of ether is 5.31 ETH / min, and to date, over 628,000 ETH – worth over $ 2.6 billion – has been burned. The supply growth rate is currently 2.2% per year. A simulation of the merge on the Ultrasound.money website shows that this supply rate will be negative, down to -2% per year.

Delaney explained the impact of gas fees on the entire ecosystem, saying, “It’s part of the ongoing upgrade that should lower Ethereum’s gas fees. So far, “Ethereum killers” have benefited from the often prohibitively high fees of the dominant smart contract network. It will be interesting to see if these chains retain market share if the sharding implementation of Ethereum goes smoothly and reduces transaction costs. “

Related: Staking on Ethereum 2.0, explained

The merger will provide the PoS consensus mechanism for the entire Ethereum network, after which scalability will be touted to improve when data sharding is provided on the network. By then, competing blockchain networks that have a working smart contract utility, such as Solana and Binance Smart Chain, could continue to gain ground due to their low gas tariffs.

Edgington also noted the network’s support for Layer 2 solutions, which allows users to access lower gas charges than what they have on the existing Layer One network:

“As developers, we don’t care too much about Ethereum killers. […] Meanwhile, Layer 2 roll-up technologies on Ethereum already offer tremendous scalability benefits and a rich ecosystem of exciting new features that are fully supported by Ethereum’s base-layer security. The protocol upgrades over the course of the next year and beyond will support and improve everything that happens on Layer-2. “

While the Altair upgrade may not mean much to the end users of the Ethereum network, it is hugely significant for developers and other community participants who are eagerly anticipating the merger planned for 2022. At the beginning of October, 40 representatives from Eth1 and Eth2 teams, the Ethereum Foundation and ConsenSys met for a week in which they successfully built a test network with PoS with several clients from Eth1 and Eth2.

Such an accomplishment is a tremendous confidence boost that Ethereum can move entirely to PoS and disable the Eth1 proof-of-work network for good.