Archive for the ‘Decentralization’ Category

The Sun and the Ether: Why Ethereum Has Already Won – hackernoon.com

Is there room for more than one general-purpose blockchain in the world?

Clearly, the answer is yes.

But there will also likely be only one major winner. While the topic is currently hotly debated, I believe that the endgame for the crypto industry is already written, in an almost deterministic fashion, into the choices that were made in designing the current contenders.

I believe the final equilibrium for the crypto industry in the financial domain will form around a super large-scale, efficient, neutral asset platform serving as the Internet of Money, a term popularized by, amongst others, Andreas Antonoupoulos. Crucially, this one platform will have to be decentralized. The winner has already been decided, and it is the one that best provides decentralization, scalability, and security, without compromise. We will examine why Ethereum has already won by design, although Solana will put up a worthy fight.

The Internet of Money, built on a blockchain protocol, will be the future infrastructure of global finance, directly and indirectly serving billions of people, with an asset scale of at least several tens of trillions of dollars. A large variety of assets will be issued on the Internet of Money and because these assets are on the blockchain, they naturally possess "programmable" attributes, enabling efficient handling around the clock: transfers, trades, mortgage, bundling, unbundling, issuing derivatives based on underlying assets, and so on.

Why does the blockchain have value? This is a question all crypto investors have asked. The recognized answer in the crypto industry is: because of decentralization. I believe this answer is correct. However, when we talk about "decentralization," what exactly are we discussing?

In my view, "decentralization" is a means, and the goal is "trustlessness."

So, what is trustlessness? Let's first discuss what trust is. When you trust someone, you give them the "power" to harm you while holding a positive expectation that they will not harm you.

A fine example of trust in the financial system was when people initially stored their gold in vaults, which issued a deposit receipt, promising to return the gold whenever you presented the receipt. A depositor essentially had to trust the vault, which now had the ability not to return your gold, but they felt it would be fine, assuming the vault would return it. As we all know, vaults realized it was unlikely all depositors would withdraw their gold at the same time, so they lent out a portion of the gold to earn interest. Eventually, this developed into the "fractional reserve system." The vaults became banks, which then repeatedly faced bank runs. In 1971, the promise of dollar-to-gold conversion was broken, the "deposit receipt" was directly invalidated, "US dollars" became unanchored "dollars," and we entered an era of unbridled fiat currency issuance, moving into the credit money era dominated by fiat currencies.

What then is trustlessness? Trustlessness means you do not need to give others the power to harm you. "Trustless service" means you can obtain services without giving the service provider the power to harm you. Blockchain provides trustless services. In the blockchain world, as long as you control your private keys, no one can take or freeze your BTC or ETH; as long as you pay the blockchain miner's fee, you can send coins to any address. Trustless services are especially suitable for the financial domain, including services such as issuing assets (BTC, ETH) according to pre-agreed rules and handling assets in various ways, such as transfers, trades, and mortgages, among others. The blockchain is the basis for the Internet of Money, because it is ruled by code and not law.

The blockchain that builds the Internet of Money must be: (A) sufficiently decentralized; (B) able to provide enough throughput. These two points must be met simultaneously, without exception. While Solana and other L1s will put up a worthy fight, Ethereum is the only contender in this race.

Why must this base infrastructure be sufficiently decentralized? Recalling our previous discussion, the attribute of decentralization provides trustless services, and trustless services are the foundation of the Internet of Money. Why is trust, or rather "trustlessness," so important?

What would Satoshi Do?

Blockchain expert BitGulu notes that if the Bitcoin blockchain were not decentralized but ran on a centralized server:

Obviously, a single server could not run the Bitcoin network. So why a decentralized network? Because decentralization is an "army" that prevents providing the blockchain network with a form of "sovereign independence," thereby providing the Internet of Money with neutral, independent, predictable security services.

So, how much decentralization is enough? Everyone's judgment is different, and this threshold is dynamically changing, related to the severity of the external environment. Dozens of consensus nodes are definitely not enough to build the Internet of Money; a few hundred may not be enough; a few thousand nodes may start to make people feel at ease. The degree of decentralization, in addition to the number of consensus nodes, is also very related to the nature of the nodes themselves. For example, if the hardware requirements for nodes must be data center-level, then even with a few thousand nodes, this "army" is still fragile because the privacy of nodes is almost nonexistent, and "soldiers" cannot conduct guerrilla warfare. Thus, the Ethereum community believes that it is very important for ordinary people's computers to be able to run consensus nodes, the crucial basis for Ethereum's decentralization.

The blockchain building the Internet of Money must not only be sufficiently decentralized but also able to provide enough throughput. However, before the proposal of second-layer technology in Ethereum (English: Layer2, hereinafter referred to as L2), the crypto industry once popularized the "impossible trilemma" theory. This theory posits that it is impossible to simultaneously achieve scalability, decentralization, and security, with the best being two out of three. Obviously, security cannot be compromised, so one must choose between scalability (i.e., high throughput) and a high degree of decentralization. As a result, many blockchains compromised on decentralization to achieve high performance, such a compromise has already disqualified them from the race to build the Internet of Money.

Todays L2 technology solves the problem posed by the impossible trilemma. What defines an L2 is simple: whether the L2 system can ultimately achieve the "trustless" level of L1 (Layer1, i.e., the underlying blockchain) in design. L2 is an extension of L1, forming the entire blockchain internal ecosystem together with L1. If it loses the most important "trustless" attribute after extension, then such an L2 system is not part of the blockchain ecosystem and cannot provide independent space for building the Internet of Money. Otherwise, logically speaking, centralized exchanges could also claim to be L2, because after you deposit (rename as bridge) to a centralized exchange, you can also transfer and trade.

Leaving aside those "pseudo-L2" systems that claim to be L2, among the real L2 technologies, the most important branch is Rollup technology. The working principle of Rollup technology is to compress a large batch of transactions into one Rollup transaction and upload it to the L1 blockchain. There are currently two types of Rollup technology: Optimistic Rollup and ZK Rollup, both of which break the so-called "impossible trilemma" in their own ways. Optimistic Rollup outsources the verification work that Ethereum nodes need to complete, allowing anyone to challenge the state after an Optimistic Rollup transaction on Ethereum within a specific period (typically 7 days). The challenge mechanism can be designed to reward successful challengers, encouraging active public supervision and challenges against any errors. In ZK Rollup, cryptographic zero-knowledge proofs ensure the correctness of the state after ZK Rollup, and zero-knowledge proof technology also allows Ethereum nodes to quickly verify a large batch of transactions compressed together with very little computational resources.

Ethereum's future will be a combination of "L1 blockchain + L2 system equivalent to L1's trustlessness" (hereinafter referred to as "L1+L2"), especially after ZK Rollup solves the technology for general-purpose smart contract platforms. Such a combination not only maintains the current decentralization level of Ethereum but also provides high throughput services, making it the best choice to carry tens of trillions of dollars of the Internet of Money.

L2Beat (L2Beat.com) provides an overview of the various stages of maturity and "trustlessness." This website comprehensively presents the maturity of various L2 projects (including "real L2" and "pseudo L2").

L2Beat judges the "trustlessness" of each L2, here "maturity," based on five risk factors. These five risk factors are (1) State Validation (verification of state validity), (2) Sequencer Failure, (3) Proposer Failure, (4) Exit Window (the window period for user escape), (5) Data Availability. For example, as shown in the figure below, only when all five risk factors are evaluated as green can a STAGE 2 rating be obtained. Currently, among all ZK Rollup projects, only one has achieved STAGE 2 rating, which is DeGate, as shown in the figure.

Why is it so difficult to technically achieve "L1 trustlessness equivalent" in L2? The core reason is that L2 systems are very complex, the more complex a system, the higher the difficulty of achieving secure operation, and the longer the construction time required for secure operation. Both Optimistic Rollups and ZK Rollups are new technologies, especially ZK Rollup's use of cutting-edge cryptography in the field of zero-knowledge proofs. In fact, the application of ZK Rollups is rapidly advancing the development of zero-knowledge proofs in the academic field. Among the L2 systems displayed on L2Beat, to my knowledge, the earliest to implement ZK Rollup, Loopring, has gone through at least 5 years from project initiation to now; DeGate, which achieved STAGE 2, took 3 years and underwent 5 rounds of "security audits" and a serious bug bounty program with Immunefi.

Recently, the blockchain industry has engaged in heated discussion about modular DA (Data Availability) layers, with some proposing to migrate DA services out of Ethereum to use other cheaper data services. If DA services are migrated out of Ethereum and Rollup systems can still maintain L1 level "trustlessness" in design, I fully support it. In fact, there are such schemes, and excellent teams are actively exploring and building in this area. However, recent discussions actually aim to abandon L1 level "trustlessness," downgrading the concept of L2 to "pseudo L2" for lower costs, which is unacceptable.

All financial application L2s aim to scale up and eventually become important members of the "L1+L2" system. Therefore, whether to abandon L1 level "trustlessness" from the start in design must be carefully considered. Abandoning "trustlessness" will severely hinder "pseudo L2" from scaling up. Currently, among the L2 projects running on L2Beat, the capital scale in value locked of "real L2" is more than 10 times that of "pseudo L2," indicating that the market cares about real trustlessness.

There are many contenders for the race to be the Number 1 platform underlying the Internet of Money, amongst them Bitcoin, Ethereum, and Solana. For one, there is Bitcoin, which is the best known blockchain and the highest in market capitalization. Yet because it is not a general purpose blockchain, it is unlikely that it will be able to contain the many applications of the new Internet of Money.

More interesting is the challenged posed by this bull runs major competitor, Solana. While the introduction of ZK compression could vastly improve throughput potentially, Solana has the problem of decentralization to contend with. If Solana is the Sun of this bull run, because in the immortal words of Will Ferrell in the movie Zoolander it is so hot right now, one centralized ball of flame, it is also very likely to fail by that same logic. It is too centralized by design to withstand the eventual stress tests from all sides attacking its decentralization. This is not to say that it will not have a great run, and that there will be no value created in this dynamic ecosystem, before its eventual demise due to a lack of trustlessness, a flaming out if you will, in the albeit distant future.

Conversely, there is Ethereum. Historically, "ether" referred to a hypothetical invisible medium believed to permeate the universe and serve as a conductor of light waves. This name was not chosen without consideration. If the Ethereum seems relatively cool and detached by comparison, it is a feature not a bug. It encapsulates more things and more people, because it is more decentralized. This laissez faire attitude has led some to accuse it of being slow, but it has shown to be an all-encompassing church for all creeds, precisely because of how easy it is for the everyman to set up a node and be part of the ecosystem. Because Ethereum is both decentralized and high throughput by design, it has already won the race.

Note: In writing this essay, many ideas are indebted to the writings of BitGulu and Andreas Antonoupolos.

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The Sun and the Ether: Why Ethereum Has Already Won - hackernoon.com

Decentralization and Privacy Still at the Core of Ethereum Community – Smartphone Magazine

Embracing Idealistic Initiatives In contrast to the predominant focus on financial gains and meme coins in the cryptocurrency sphere, the Ethereum community continues to uphold its commitment to idealistic ventures. Rather than abandoning notions of democracy on the blockchain and open internet, Ethereum co-founder Vitalik Buterin highlights initiatives that embody decentralization and privacy.

A New Wave of Blockchain Projects Buterin points to projects such as Farcaster, utilizing the Optimism protocol to construct a decentralized social network, and Lens Protocol, empowering users to own their content within a secure environment. These initiatives signify a shift towards more socially conscious applications of blockchain technology.

Innovative Funding Mechanisms Moreover, Buterin champions initiatives like quadratic funding and retroactive funding, which democratize the distribution of financial support within the cryptocurrency community. By endorsing programs like the Gitcoin Grants Program, the Ethereum community showcases a commitment to fair and transparent resource allocation.

Advancements in Privacy-Preserving Technologies Highlighting advancements in privacy-preserving technologies, Buterin advocates for tools like Zupass and zero-knowledge proofs for enhanced security and anonymity in transactions and voting processes. These developments underscore the communitys unwavering dedication to privacy and data protection.

Remaining True to the Ethos Amid the frenzy surrounding meme coins, the Ethereum community stays true to its foundational principles of decentralization and privacy. By nurturing innovative projects and advocating for inclusive funding models, Ethereum continues to pave the way for a more ethical and sustainable cryptocurrency ecosystem.

Expanding Utility Beyond Finance One significant aspect not covered in the article is Ethereums expanding utility beyond financial applications. The Ethereum blockchain serves as the foundation for various decentralized applications (dApps) across industries such as gaming, decentralized finance (DeFi), non-fungible tokens (NFTs), and more. This diversification showcases the versatility and potential of Ethereum beyond just financial transactions.

Key Challenges and Controversies Some key questions and challenges facing the Ethereum community include scalability issues due to the networks high transaction fees and limited throughput. There are ongoing debates surrounding the implementation of Ethereum 2.0 and the transition to a proof-of-stake consensus mechanism to address scalability and energy consumption concerns. Additionally, concerns about regulatory compliance, security vulnerabilities, and the potential for centralization in the network remain areas of contention within the community.

Advantages and Disadvantages One advantage of Ethereums focus on decentralization and privacy is that it fosters innovation and experimentation in a permissionless environment, enabling developers to build diverse applications without centralized control. However, this commitment to decentralization also poses challenges in terms of transaction speed, cost, and efficiency compared to more centralized systems. The emphasis on privacy can provide enhanced security and autonomy for users, but it may also hinder regulatory compliance efforts and transparency requirements in certain use cases.

Further Reading For more insights into the latest developments and discussions within the Ethereum community, you can explore the official Ethereum Foundation website at ethereum.org. This website provides updates on Ethereums roadmap, research initiatives, community resources, and upcoming events, offering a comprehensive view of the ecosystems evolution.

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Decentralization and Privacy Still at the Core of Ethereum Community - Smartphone Magazine

Vitalik Buterin Highlights Ethereum DApp Innovations – Crypto Times

The founder of Ethereum, Vitalik Buterin explains several decentralized applications (DApp) that demonstrate principles of privacy and decentralization in the cryptocurrency market, indicating a continued focus on improvement and the core principles of Ethereum even as meme coins gain more attention.

Buterin described Farcaster as a social network that relies on the Optimism protocol. Farcaster still enjoys relatively low usage, but the platform still offers relatively high decentralization for users. Buterin spoke about the Lens Protocol, a decentralized application where users own their content, which speaks volumes about Ethereums vision of bringing decentralized interaction online.

Buterin highlighted the importance of quadratic funding for the Gitcoin Grants as a fairly fresh concept of community funding for projects. This means they can fund different projects depending on what the community wants, thus, funding moves in the direction of accomplishing collective will.

He also mentioned that post-launch funding encourages schemes that have already proved useful and effective in practice, thus helping developers engage in more meaningful, effective project development.

Privacy improvements are also important according to Buterin in future Ethereum development. Buterin mentioned using zero-knowledge proofs (ZKPs) and zero-knowledge voting as critical innovations that allow verification of transactions and votes that occur in a black-box fashion while preserving privacy in the blockchain ecosystem.

While meme coins have surged in popularity, often overshadowing more substantial, utility-driven projects, Buterin acknowledges this trend but contrasts it with the significant developments in decentralized finance (DeFi) and decentralized social networks.

Also read: Vitalik Buterin Backs TiTok AI: A Leap in Blockchain Image Storage

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Vitalik Buterin Highlights Ethereum DApp Innovations - Crypto Times

Bitcoin is King, the Rest is Just Hot Air – Cointribune EN

Sun 16 Jun 2024 3 min of reading by Evans S.

Bitcoin continues to make headlines. Recently, Pablo Ardoino, CEO of Tether, called Bitcoin the only true decentralized currency, praising its uniqueness and unassailable status. With this bold statement, Ardoino highlighted what sets Bitcoin apart from other cryptos, emphasizing its immutability and the purely mathematical governance that underlies it.

According to Pablo Ardoino, Bitcoin is a unique example of a currency governed solely by maths, a fact that makes it inherently decentralized.

During his interview with Cointelegraph, he emphasized that Bitcoin fundamentally cannot be modified, which sets it apart from other digital currencies.

With other currencies, you see that there is a group of developers who come every month. They release a new software version, they can change the monetary policy, inflationary, deflationary, and they keep changing things, said Ardoino. In contrast, Bitcoin offers rare certainty and stability, making it a trusted currency for investors and users.

Decentralization is one of BTCs most valuable features. Unlike other digital assets that undergo constant updates and modifications by groups of developers, Bitcoin remains unchanged.

Indeed, this stability is due to its robust infrastructure and secure protocol, which are designed to withstand sudden changes.

The CEO of Tether noted that Bitcoins true decentralization makes it unique and practically impossible to replicate in the current crypto landscape. This quality of rarity and stability explains why BTC has stayed at the top of the market for so long, even in the face of growing competition.

Bitcoin has proven its resilience and ability to maintain its leadership position in the crypto universe. In March 2024, it reached an all-time high of $73,000, once again demonstrating its robustness and popularity.

Pablo Ardoino also pointed out that it is unlikely that another digital asset will surpass BTC, due to the strength of its infrastructures and the trust it inspires.

Despite the numerous attempts by other cryptocurrencies to compete with Bitcoin, none have managed to achieve the same level of decentralization and stability. This reality reinforces Bitcoins position as the undisputed king of cryptocurrencies, a position it seems poised to hold for years to come. Meanwhile, Tron dethrones Ethereum.

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Fascin par le bitcoin depuis 2017, Evariste n'a cess de se documenter sur le sujet. Si son premier intrt s'est port sur le trading, il essaie dsormais activement dapprhender toutes les avances centres sur les cryptomonnaies. En tant que rdacteur, il aspire fournir en permanence un travail de haute qualit qui reflte l'tat du secteur dans son ensemble.

DISCLAIMER

The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.

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Bitcoin is King, the Rest is Just Hot Air - Cointribune EN

Bitcoin is the only decentralized currency, Tether CEO says – Cointelegraph

According to Tether CEO Paolo Ardoino, Bitcoin is unique among the more than 14,000 various cryptocurrencies because it is the only one that is not centralized.

Bitcoin (BTC) is the only decentralized currency, Ardoino said in an interview with Cointelegraph on June 13 at the Bitcoin-only conference, BTC Prague.

Bitcoin is the only example of a currency that is only ruled by math that basically cannot be changed, Tether CEO stated. Apart from Bitcoin, some cryptocurrencies are a bit more centralized, or others are a bit less centralized, Ardoino believes.

With the other currencies, you see that there is a group of developers that come every month. They are coming out with a new software release, they change the monetary policy, inflationary, deflationary, and they keep changing things, the executive noted.

On the other hand, with Bitcoin, there will always be 21 million BTC, and there will be a halving once every four years until all 21 million Bitcoin is mined. Ardoino stated:

In the interview, Ardoino admitted that his opinion on Bitcoins exclusive level of decentralization might be controversial. The CEO also mentioned that he openly said that Tether is centralized, unlike Bitcoin.

Additionally, Ardoino expressed skepticism about the record-breaking industry of memecoins, which is a type of cryptocurrency inspired by internet memes or trends. I like memes, but not memecoins, Ardoino said, adding that Bitcoin and memecoins are completely at the opposite parts of the spectrum.

Related: DeFi may struggle to stay decentralized after new EU law

One may indeed argue with Ardoino about the decentralization of Bitcoin versus other assets in the cryptocurrency market, as there is a whole sector in crypto dedicated to decentralized finance, or DeFi.

In the crypto industry, decentralization refers to the transfer of control and decision-making from a centralized entity to a distributed network. While the DeFi industry gives high promises on financial decentralization, some people in the industry, like Jan3 CEO Samson Mow, believe that DeFicannot compete with Bitcoin.

Ardoinos remarks on the decentralized nature of Bitcoin came amid the opening of BTC Prague 2024, where he is a speaker alongside major industry figures like former MicroStrategy CEO Michael Saylor, Blockstream co-founder Adam Back, Bitcoin author Jimmy Song and others. Unlike many industry events, BTC Prague is dedicated exclusively to Bitcoin.

Magazine: Bitcoin layer 2s arent really L2s at all: Heres why that matters

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Bitcoin is the only decentralized currency, Tether CEO says - Cointelegraph