Developer Story 01 | Ethereum Foundation Justin Drake & OKX Web3 Product Head Owen: The Impact of Ethereum 2.0

Ethereum is one of the largest public chain networks in the world and the preferred choice for developers. In the future, with the advancement of Ethereum 2.0 and Layer 2 solutions, it will continue to lead and shape the development trends of blockchain technology. Justin Drake is an important member of the Ethereum Foundation (hereinafter referred to as "EF"), playing a crucial role in promoting the development and implementation of Ethereum 2.0. He has not only advanced Ethereum technology but also brought significant innovations and insights to the entire blockchain field.

This issue is the first episode of the "Developer Stories" column, which aims to better understand and comprehend the Ethereum world from the perspectives of Justin Drake and Owen, the head of OKX Web3 products. The questions in this episode cover various aspects, including technical improvements of Ethereum 2.0, consensus mechanisms, scalability, security, DeFi, user experience, ecosystem, environmental impact, and future development and strategies, aiming to gain in-depth insights into the views and plans of Ethereum's core developers.

Changes in Ethereum and L2 After the Cancun Upgrade

Justin Drake: After the Cancun upgrade, Ethereum's throughput has increased, and the GAS fees for L2 networks have significantly decreased. From the data, it is evident that the Cancun upgrade has indeed enhanced the attractiveness of Ethereum and L2 for developers and projects.

The charts from L2beat illustrate this well: transaction volumes have continued to grow over time.

Image 1: Source L2beat

Additionally, the chart from Dune showing the "Average Number of Blobs per Block" indicates that the usage of Blobs has grown from about 1 Blob/block in March to approximately 2.3 Blobs/block today. This steady growth is largely driven by Ethereum's guidance for various L2s. In a few weeks, we should see Blob demand reach the target of 3 Blobs/block, and the fees for Blobs will reach a fair market level.

Image 2: Source Dune

The reduction in Gas fees has stimulated user demand. From an economic perspective, when the supply curve moves from S1 to S2, the equilibrium price decreases from P1 to P2, inducing demand to increase from Q1 to Q2.

Image 3: Source Network

Owen, Head of OKX Web3 Products: So far, although the overall transaction volume of Ethereum and L2 has not shown a rapid growth trend, assets are shifting to L2, and the total value locked (TVL) in L2 continues to rise. Moreover, L2 activity has surged; for example, after the upgrade, Base's daily average active users (DAUs) increased by 560% compared to before the upgrade, and the daily average transaction volume (DTXs) increased by 540%. The daily average transaction volumes (DTXs) for Optimism and Arbitrum also saw increases of 70% and 200%, respectively. From the perspective of transaction volume and daily activity, the upgrade has indeed attracted some traders, especially smaller ones.

The Foundation's Reduction of ETH Holdings is a Good Thing, Promoting Decentralization in the Long Term

Justin Drake: In promoting ecological development, EF is often seen as "governing by doing nothing," a style that has faced some controversy. I believe that the diminishing role of EF in the entire ecosystem is a good thing.

Currently, EF's responsibilities are mainly limited to:

1) Hosting one Devcon or Devconnect each year; they are now just one of many conferences, with many peripheral activities being more important than the main venue.

2) An execution client: Geth, one of the five execution clients, but EF does not maintain any consensus clients.

3) Providing funding: EF offers tens of millions of dollars in unconditional funding to the broader community each year, which has led to a reduction in EF's ETH financial reserves. In the long term, a decrease in the ETH held by the Ethereum Foundation is beneficial; EF currently controls 0.23% of the ETH supply, and bringing this number close to 0% over the coming decades is healthy, as it promotes the decentralization of the Ethereum ecosystem.

Image 4: Source Etherscan

4) Coordinating calls: Many conference calls are hosted by EF members, such as All Core Devs (ACD) hosted by Tim Beiko, All Devs Consensus (ACDC) hosted by Alex Stokes, RollCall hosted by Ansgar Dietrichs and Carl Beekhuizen, Sequencing and pre-meetings hosted by me, and MEV-boost conference calls hosted by Alex Stokes.

You can click to learn more: https://www.youtube.com/@EthereumProtocol/videos

5) Research: This may still be one of the more centralized areas, but some EF research teams may become independent.

6) Roadmap formulation: Vitalik updated the roadmap illustration, and then dozens of tasks were developed in parallel by different teams.

Image 5: Source Vitalik Tweet

Owen, Head of OKX Web3 Products: EF should play more of an advisory role. The ecosystem has gained enough attention to continue developing without relying on key figures. This means discussions can take place in an open and fair environment, making Ethereum a project recognized by everyone rather than influenced by any one party. This also aligns with the spirit of blockchain, which is community-driven governance and transparency.

Ethereum DeFi & Future Large-Scale Application Scenarios

Justin Drake: Currently, the Ethereum community has a very pure technical atmosphere, continuously tackling various technical challenges, but technology ultimately needs to serve user demands and application scenarios.

First, I believe existing DeFi will grow tenfold in the next five years:

1) Stablecoins: I hope to see $1 trillion in stablecoins, a significant portion of which will be decentralized stablecoins.

2) DEX: The trading volume of DEX compared to CEX is continuously increasing, and I expect this trend to continue.

3) Lending markets: Projects like AAVE and Compound should grow about tenfold.

4) Prediction markets: Projects like Polymarket should also grow about tenfold.

5) Derivatives: Liquidity-filled perpetual contracts, options, futures, etc., will all be offered on Ethereum.

Secondly, besides DeFi, I hope to see decentralized front ends using ENS and IPFS become more popular.

Owen, Head of OKX Web3 Products: From the data, the total locked value (TVL) of decentralized exchanges (DEX) on Ethereum is still the largest, but this figure has decreased significantly compared to two years ago. We believe that the biggest obstacle for Ethereum in DeFi is still the high transaction fees; the same transaction executed on Ethereum can execute hundreds on L2, so market trading behavior will always move towards higher efficiency.

The current technical development of the Ethereum community also considers practical needs. For example, the recently promoted EIP4337 Account Abstraction aims to lower the entry barrier for Web2 users into Web3. This will be a cornerstone for all future applications.

In the foreseeable future, I believe everyone will be able to easily self-custody their Web3 virtual assets with a user experience closer to Web2.

Global Adoption of Ethereum 2.0 & Attractiveness to Developers and Users

Owen, Head of OKX Web3 Products: Ethereum 2.0 is now widely adopted globally and has significant appeal to both the blockchain world and current financial institutions.

From the perspective of network scale and staking, the total staking amount of Ethereum 2.0 has reached a scale of $100 billion, and there are now over 50,000 independent validator nodes participating in Ethereum 2.0's consensus mechanism worldwide. In terms of DeFi market development, the TVL after Ethereum 2.0 has also seen significant growth, as the PoS mechanism allows more DeFi projects to operate at lower transaction fees, thus attracting more users and capital. From the perspective of global enterprises and institutions, several large companies and financial institutions (such as Microsoft, JPMorgan, and IBM) are actively adopting Ethereum 2.0 technology. These companies use Ethereum 2.0 for supply chain management, financial transactions, and other applications.

For new users and developers, Ethereum 2.0 offers faster transaction speeds and lower fees, making the Ethereum network more attractive to ordinary users. For developers, the improvements in Ethereum 2.0 make building and deploying decentralized applications (dApps) more efficient. The new consensus mechanism and sharding technology enable them to build more complex and innovative applications without worrying about excessive costs or performance bottlenecks.

All of this indicates a strong confidence in Ethereum 2.0.

However, Ethereum 2.0 still faces several obstacles in attracting a larger scale of new users and developers.

First, for ordinary users, the entry cost is relatively high. Whether the wallet, as the "Web3 entry point," can achieve seamless access for ordinary users is crucial.

Second, the overall learning cost is relatively high. Ethereum 2.0 includes many new concepts, such as Proof of Stake (PoS), sharding technology, and Rollups, which may have a steep learning curve for new users and developers. Developers need to spend time and effort to understand and adapt to these new technologies. Moreover, Ethereum's infrastructure and tools are still maturing, which also requires continuous learning and follow-up.

From the perspective of market and competition, the overall market competition is becoming increasingly fierce, with new platforms and technologies emerging continuously. Other blockchain platforms (like Solana) are also actively developing and promoting their technologies, which may offer different technical advantages or lower entry barriers to attract a large number of users and developers.

Finally, there are regulatory and compliance aspects; the regulatory policies for blockchain and cryptocurrencies are still changing, and the policies of different countries and regions may affect the adoption of Ethereum 2.0.

Current Major Technical Advances in Ethereum 2.0 & Focused Technical Improvements

Owen, Head of OKX Web3 Products: Staking and Restaking.

On Ethereum 2.0, adopting the PoS consensus has saved a significant amount of energy, while also creating space for restaking. Providing security guarantees for other projects has become a major mission for Ethereum, and only Ethereum's scale can bear this responsibility.

Additionally, recently Vitalik proposed EIP-7702, a solution that allows user wallets to support smart contracts, making it more convenient for users when using wallets. It can also support more login methods and provide many convenient features that ordinary EOA wallets cannot achieve, such as social recovery and paying gas fees with non-native tokens, paving the way for large-scale Web2 users to enter Web3.

Impact of PoS on Ethereum's Decentralization

Owen, Head of OKX Web3 Products: We address this question from multiple angles, including the impact of PoS consensus on decentralization, whether the incentives and penalties for validators participating in Ethereum 2.0 are effective enough, and how to ensure fairness for small validators under the PoS mechanism.

First, regarding the impact of PoS consensus on decentralization. This has been a long-discussed topic. In the long run, the transformation of Ethereum 2.0's consensus mechanism is beneficial for its development. Ethereum aims to become a "world computer," so all its improvements and upgrades must move towards this goal, making it a more suitable computing platform for running decentralized applications (dApps). The transition from PoW to PoS in Ethereum 2.0 helps effectively balance the "impossible triangle" of decentralization, scalability, and security.

Moreover, when discussing decentralization, we need to consider real-world situations. PoW is a permissionless participation method that theoretically achieves maximum decentralization. However, in reality, mining is a highly specialized job, giving rise to professional services such as mining pools, mining hardware manufacturers, and mining farms. Before Ethereum transitioned to PoS, the top five mining pools controlled over 75% of the total network hash rate, with the largest single mining pool accounting for over 33% of the total network hash rate. The electricity consumed by Ethereum mining is comparable to that of a small country, and for professional mining farms, electricity prices are one of the most sensitive cost factors, leading to the concentration of mining farms in areas with low energy prices.

This geographical concentration makes the supply of hash power susceptible to regional government intervention, threatening the security and stability of the crypto network. We have seen similar situations during China's "environmental" mining ban in 2021, when Bitcoin's total network hash rate dropped by over 50% within two months.

Additionally, professional mining relies on specialized hardware. Before Ethereum transitioned to PoS, mining required the use of graphics cards, and there are very few chip companies globally that can produce graphics cards. If hardware suppliers intervene in mining activities, network security will also be threatened. For example, NVIDIA once limited the Ethereum mining efficiency of the RTX 3060 graphics card by half to force miners to seek alternative solutions. Therefore, I believe that discussing "decentralization" purely in isolation from the real world is unrealistic; Ethereum's transition to PoS is a step towards better development.

Secondly, we want to discuss whether the incentives and penalties for validators participating in Ethereum 2.0 are effective enough. The upgrade to Ethereum 2.0 has been underway for over two years, and based on current operational results, the incentive and penalty mechanisms are effective. Attack modes that were heavily discussed before the upgrade, such as short-range reorganization, bounce attacks, balance attacks, avalanche attacks, and denial-of-service attacks, have all been effectively mitigated.

The last point is how to ensure fairness for small validators under the PoS mechanism. These issues have been incorporated into Ethereum's mid-term roadmap.

For example, by lowering hardware requirements: using Verkle trees along with EIP-4444 allows staking nodes to run with extremely low disk requirements. This enables staking nodes to sync almost immediately, greatly simplifying the setup process and the operation of switching from one implementation to another. These proposals also make Ethereum's light clients more feasible by reducing the proof data bandwidth required for each state access. Alternatively, through economic means, such as allowing a larger validator set (lowering the minimum staking requirement) while reducing the overhead for consensus nodes. Through these measures, validation becomes fairer, and light clients become more secure.

Current Development Status of Ethereum L2s & Potential of Rollups Technology

Owen, Head of OKX Web3 Products: Regarding the current development status of Ethereum L2s, the Layer 2 track on Ethereum is currently too crowded, which goes against the original intention of establishing Layer 2 for scaling Ethereum. The competition has led to increasing fragmentation of Layer 2 liquidity and disjointed UIs. Users find it difficult to engage with the Layer 2 ecosystem through a single entry point. The OKX Web3 wallet is researching corresponding solutions.

From a product development perspective, the head effect itself will concentrate liquidity and interactions towards a few leading Layer 2s, ultimately resulting in a long-tail situation where Layer 2s with no user base will gradually be eliminated. From a technical solution perspective, we see that chain abstraction technology is on the rise, allowing users to enter through a single entry point and achieve seamless use of Layer 2 through inter-chain atomic swap service providers.

Regarding the potential of Rollups technology in the Ethereum ecosystem, it can be viewed from two aspects, as Rollups have dual characteristics.

Advantages of Rollups: 1) Scalability: Significantly increases transaction throughput and reduces gas fees. 2) Security: Uses ETH as the DA layer, retaining the security and decentralization characteristics of the Ethereum main chain. 3) Ecosystem support and compatibility: The Ethereum community and developer ecosystem provide extensive support for Rollups. 4) Flexibility and innovation potential: Rollups support complex smart contracts and decentralized applications. 5) Future scalability development direction: With the gradual implementation of Ethereum 2.0 and the introduction of sharding technology, Rollups are seen as a complementary scaling solution to the Ethereum main chain. 6) After the Cancun upgrade, it is cheaper to put main chain data on-chain.

Disadvantages of Rollups: 1) Data availability issues: Publishing compressed data and state roots on the Ethereum main chain to ensure data availability requires ensuring that all data is accessible and verifiable. 2) Latency and exit times: Exiting a Rollup chain usually requires waiting for a challenge period. 3) Compatibility issues: There are some incompatibilities between different Rollup networks, such as EVM OP_CODE. 4) Centralization risks: Fewer nodes lead to greater centralization.

Overall, Rollups primarily promote the development of Ethereum by enhancing scalability, reducing transaction costs, increasing security, and supporting complex applications. Despite facing some disadvantages, they remain an important driving force for Ethereum's development.

From the Perspective of OKX Web3 Wallet, How to View Ethereum 2.0's Security, Community Governance, Energy Efficiency, and Privacy Technology

Owen, Head of OKX Web3 Products: First, the main challenges of Ethereum 2.0 in terms of security should not be underestimated, which include:

First, the security of the Proof of Stake (PoS) mechanism: While PoS is more energy-efficient than PoW, it carries the risk of ETH whales engaging in malicious activities.

Second, the degree of decentralization of validators: Staking projects like Lido occupy a disproportionately high share of the staking network, significantly reducing decentralization.

Third, new attack risks brought by sharding: Ethereum 2.0 introduces sharding technology to improve network throughput. Sharding divides the network into multiple shard chains, each handling a portion of transactions, greatly enhancing performance but also increasing the complexity of the chain, introducing new risks.

Fourth, economic incentives and attack costs: In the PoS mechanism, validators have economic incentives to maintain the security of the network. However, if the potential rewards from an attack outweigh the risks and costs, it may attract malicious actors to attack.

Fifth, contract code: For example, EVM upgrades may lead to incompatibility with older Solidity features.

Secondly, the community governance of Ethereum 2.0 is full of potential for the future. As the network moves towards greater decentralization and scalability, governance will become more decentralized. The transition from Proof of Work (PoW) to Proof of Stake (PoS) increases the influence of stakers. For instance, in the first upgrade after Ethereum transitioned to PoS, the priority of ETH staking withdrawals was mainly influenced by the interests of Ethereum stakers.

As the Ethereum ecosystem matures, the governance process will become more structured and formalized, and social governance will continue to play an important role in the network's development. Additionally, with the popularity of Layer 2 solutions, governance will also need to address the interactions between Ethereum 2.0 and these scaling solutions.

The community governance of Ethereum 2.0 will become more decentralized in the future, but it requires careful design and continuous innovation to maintain the network's decentralization and the community's voice in governance decisions.

Then, regarding whether there is still room for improvement in energy efficiency with Ethereum 2.0, we observe that Ethereum has reduced its electricity consumption by over 99% after transitioning to PoS, but storage costs can still be optimized, such as transitioning Ethereum's state management from Merkle Patricia Trees (MPT) to Verkle Trees (VKT).

Finally, regarding the development of Ethereum's privacy technology, we believe that future Ethereum privacy technologies will focus on enhancing transaction privacy, protecting user data, and finding a balance between decentralization and regulatory compliance. Major development directions include the broader adoption of zero-knowledge proof technology. Most importantly, with the advancement of quantum computing technology, research on quantum computing attacks will drive the development of quantum-resistant cryptography to ensure Ethereum's privacy and security in the long term. The Ethereum community has already begun researching and discussing how to prevent quantum computing attacks.

Challenges Facing Ethereum in the Next 10 Years & Whether Ethereum Will Exist in the Next 30 Years

Owen, Head of OKX Web3 Products: If we categorize Ethereum and its corresponding EVM L2 (Ethereum scaling Layer 2) as Ethereum, then the main challenge in the next 10 years will be to reduce friction between L1 and L2, thereby improving the user experience of cross-chain interactions and reducing liquidity fragmentation. The ecosystems of L1 and L2 should seamlessly connect like a single chain, which is a challenge that teams like Polygon's AggLayer are working to solve.

In the next 30 years, Ethereum should still hold significance, as it has established itself as one of the most decentralized and long-lasting networks.

About the "Developer Stories" Column

Web3 developers have made significant contributions to the development of the crypto industry. Their innovative spirit and technical capabilities have injected lasting vitality and momentum into the entire industry's development, not only improving the technology itself but also supporting future application scenarios and business models. However, while they are active, they are also rarely noticed. The "Developer Stories" column launched by OKX Web3 and ChainCatcher aims to enhance the voices of Web3 developers by understanding the development context, technical insights, latest dynamics, market changes, and hot comments of different public chain core developers and the OKX Web3 technical team through dialogues. It seeks to get closer to these most active and interesting individuals and provide them with maximum support.

Disclaimer

This article is for reference only. It represents the author's views and does not reflect the position of OKX. This article does not intend to provide (i) investment advice or recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; (iii) financial, accounting, legal, or tax advice. We do not guarantee the accuracy, completeness, or usefulness of such information. Holding digital assets (including stablecoins and NFTs) involves high risks and may fluctuate significantly. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. Please consult your legal/tax/investment professionals regarding your specific circumstances. You are solely responsible for understanding and complying with applicable local laws and regulations.