Ethereum’s ‘World Computer’ Doesn’t Compute
The nomenclature behind Ethereum’s plans to alleviate network congestion suggests that even insiders no longer believe such relief is possible.
The group behind the Ethereum scaling solution known as Optimism recently announced that its launch would be delayed. Originally scheduled for March, the new ‘rough estimate’ for Optimism’s mainnet debut was pushed to July, allegedly to give Ethereum developers more time to ensure compatibility with the new system.
Optimism is the latest in a series of proposed ‘Layer 2’ solutions to Ethereum’s notoriously congested Layer 1, all of which have either failed to reduce the backlog or simply failed to materialize. The folks behind Optimism originally proposed a solution they called Plasma way back in 2017, which then morphed into Plasma Cash, which was itself supplanted by Optimism.
None of these solutions ended up delivering on their promises, which really isn’t surprising, given that the original Plasma white paper was co-authored by Ethereum founder Vitalik Buterin and Joseph Poon. Poon also co-authored the Lightning Network white paper aimed at curing the BTC blockchain’s scaling issues but Lightning failed to live up to the hype surrounding its announcement way back in 2015.
The Optimism rebranding reflects the perversion of language detailed in George Orwell’s novel Nineteen Eighty-Four, in which the Ministries of Truth, Peace and Love are actually in charge of (respectively) propaganda, war and torture. Maybe the Optimism folks chose that name because they truly believe their third time up to bat will prove a winner, but we suspect the more appropriate ‘Pessimism’ just didn’t survive the focus group testing.
Optimism is only one of Ethereum’s Layer 2 projects, along with Rollups and zk-Rollups. All have significant drawbacks, including Optimism’s weeklong delay before Layer 2 transactions are confirmed on Ethereum’s mainnet. This latter issue is expected to be mitigated by a third-party that will offer quicker access to your locked-up funds (for a fee), adding still more complexity to an already convoluted process.
Skepticism surrounding these bolt-on layers means the network’s hopes and dreams have been transferred to ‘sharding.’ This will see Ethereum split into dozens of blockchains processing in parallel, a pretty tall order considering they can’t even get the sidechains to work properly.
All of this speculative tinkering is only necessary because Ethereum doesn’t do what it says on the tin. Occam’s Razor suggests the solution lies in expanding the size of the network’s individual blocks, but Buterin and his inner circle appear to prefer the Rube Goldberg method of problem solving.
Buterin’s unveiling of Ethereum at the tender age of 19 earned him a reputation as a technology prodigy but his later moves were more blunderkind than wunderkind. Buterin promoted Ethereum as a ‘world computer’ thanks to the incorporation of scripting elements that were expunged from Bitcoin’s original design in order to accelerate the rollout of that pioneering technology.
Ethereum’s script permits the use of such elements as smart contracts and quickly attracted a flood of developers eager to build on this exciting new platform. But excitement soon turned to dismay as developers realized this world computer was less Tianhe and more TRS-80.
Developers discovered that while they could launch their products on Ethereum, they couldn’t grow them. Ethereum can currently handle a maximum of 30 transactions per second, a modest multiple of BTC’s pathetic seven per second limit, but still nowhere near what a supposedly global financial platform needs to handle.
Worse, this spring saw Ethereum’s transaction backlog result in record-high costs to ensure your transaction makes it into a block sometime this year. At one point, Ethereum’s fees even exceeded BTC’s record-setting transaction costs, rendering anything but high-value transfers utterly uneconomical on either blockchain.
Buterin justified maintaining Ethereum’s block-size limit as necessary to ensure individual users could continue to operate a node and to avoid centralized control of the network by Ethereum miners. The latter is a disingenuous argument, given that Ethereum was founded on centralized control by a small group of individuals who are fiercely protective of the benefits this control offers them.
The seeds of that control were planted in Ethereum’s 2014 pre-mine. Individual buyers/entities were barred from claiming more than 12.5% of the original batch of Ether tokens but purchases required only a distinct email address. (Not the highest of hurdles to overcome.) A few years later, data indicated that just a few hundred individuals controlled one-third of the circulating Ether supply.
The power of that centralized control was on full display following the hack of The DAO in June 2016. The DAO had attracted roughly 11,000 investors, but nearly half of The DAO tokens had been purchased by only around 100 investors (who evidently had a lot of spare Ether lying around to invest).
Debate raged within the Ethereum community as to how to respond to the hack. Rank-and-file members argued that the theft was disappointing but investors should have more thoroughly vetted the software for bugs before opening their funding floodgates. Others, particularly those who’d suffered a loss, wanted Buterin to hard-fork the network and return The DAO tokens to their original owners.
Buterin opted to put the matter to a vote, but investors not only had significantly greater motivation to cast a vote, they also had significantly greater voting clout based on the weighting of voters by the size of their Ether holdings. To virtually no one’s surprise, the whales got their way and the fork went ahead. So much for decentralization.
Further evidence of Buterin’s fondness for particular types of centralized control is the long-delayed (of course) plans for Ethereum 2.0, which will abandon the miner-based Proof of Work consensus system in favor of a Proof of Stake system that Buterin claims will reduce Ethereum’s environmental impact.
The jury’s still out on whether a shift from PoW to PoS will accomplish these environmental aims, but it will most definitely rob Ethereum’s miners of their current level of influence on the network. That influence will be transferred to individuals holding large quantities of Ether. (Are you sensing a pattern yet?)
Ethereum 2.0 will require ‘validators’ to put up stakes of 32 ETH (currently worth more than US$80,000) to participate in the PoS system. Anyone who doesn’t already have significant ETH holdings will find themselves unable to participate in this new scheme.
There’s also no limit on how many validator roles an individual can hold, so individuals with large Ether stacks will likely dominate the new system. Given that these validators will earn still more Ether (and thus more voting power) for performing this service, Ethereum 2.0 is a clear case of the rich getting richer.
For the moment, Ethereum 2.0 remains a glimmer on the horizon. If past is prologue, that hazy image may turn out to be more mirage than miracle. In the here and now, Ethereum resembles the cantina from the original Star Wars movie: overrun by shady characters with a disregard for law and the safety of others.
Remember the Initial Coin Offering (ICO) frenzy of a few years ago? That explosion of Ethereum-based pump-and-dump scams that did so much to tarnish the image of the entire cryptocurrency sector? Yeah, good times.
That frenzy gave way to Decentralized Finance (DeFi) operations, most of which consist of day-traders/arbitragers doing convoluted swaps at such high volumes that Ethereum’s ‘gas’ fees don’t deter them. Other DeFi operations are pure scams preying on neophyte investors, many of whom jumped blindly into crypto during the media hype over token value.
The latest crypto craze is non-fungible tokens (NFT), an asset class that makes ICOs look downright rational. While several blockchains have joined the party, most NFTs continue to be sold (and quickly resold before the hype fades) on the Ethereum blockchain.
You’d think Ethereum would have learned its NFT lesson from the CryptoKitties fiasco that brought activity on the network to a standstill in 2017. But Buterin & Co. seem incapable of learning from their mistakes.
Maybe Ethereum 2.0 will prove capable of resolving the network’s transaction fee hurdles, offering the chance for Ether to be used for everyday digital payments. But given Ethereum’s lengthy history of over-promising and under-delivering, optimism is in short supply.