Some Technical Details and Reasons Behind the $ETH Merge and $ETC Migration
0xa3C5
August 2nd, 2022

First of all, does ETH have the required condition for forking?

Basically not, because the value of the ETH network is not only on Ether, but also the other tokens build on it. The new Ether may still have some value if keeping the PoW fork, but USDT, USDC, etc. are basically worthless, because if you are Tether or Circle, you will definitely choose to follow Vitalik rather than some miners oligarch.

What is the Merge process like?

Broadly speaking, ETH has two layers: consensus layer + execution layer. Let’s regard the consensus layer as the leaders in the enterprise, and the execution layer as the employees. The Merge process is like directly assigning new leaders from outside (PoS nodes), replacing the old leaders (PoW miner nodes), while keeping the previous employees (EVM) because they are only responsible for execution. So, as a user, probably you won’t notice any difference.

What if PoW nodes refuse to upgrade the client?

Some of you may ask, what if the old leaders occupy the office and do not want to leave? Referring to the former president in Servant of the People, who is unwilling to step down. The difficulty bomb is here to solve this problem. In theory, if PoW refuses to upgrade the client, ETH PoW mining will be more difficult, from 13 seconds per block now to tens of seconds or even hundreds of seconds.

What happens if the mining speed slows down?

Everyone knows that in a distributed system, The longest chain is what individual nodes accept as the valid version of the blockchains. In the case of a difficulty bomb, the old client cannot outperform the new one. The standard PoS ETH mining speed is fixed at 12 seconds per block, so TPS could also be increased slightly.

So can the old PoW miners upgrade to the new client for mining?

No, because a field called “ommers” in the ETH block is adjusted to 0, and the original “difficulty” field is changed to “random”. This means that there will be no block difficulty in the future, and blocks will only be randomly generated by validators.

Block Structure
Block Structure

Wait a minute, how does the PoS random selection work?

You can deposit 32 ETH to be a validator. Then, in every epoch, the whole network randomly selects a bout of nodes to pack the block (The KPI of the consensus layer is changed because in the past, only the first node which solved the hash puzzle will get the chance to pack the block).

Is the selection really random?

Unfortunately, it’s not completely random. Although the hash of the blockchain is often used for lottery, in fact, such a distributed system cannot generate pure randomness because miners can always manipulate the block header in theory.

How to solve the randomization problem?

In the fifth stage, the splurge, after ETH’s merge, Ethereum will use VDF technology (verifiable delay functions) to ensure the random selection of PoS nodes.

ETH Roadmap
ETH Roadmap

Will there be mining pools in the future?

High likely. There are 410k nodes on PoS ETH now, that is to say, on average, if you have 32 ETH, you can be randomly selected to produce a block every 56 days (410k*12 seconds). Everyone knows the probability theory and understands that 56-days is just the expected value which cannot be guaranteed. Therefore, it’s a good choice to join the mining pool to share a more stable rewards together.

What’s the APR of the ETH PoS mining?

It is expected to be around 5%, but it may be up to 9% if including fees. The general rule is that the more staked ETH, the higher the total output, but the less the rewards allocated to each validator, which is a nonlinear curve.

Validator Rewards
Validator Rewards

Speaking of the fork, what is the process if someone insists on forking Ethereum?

Take a snapshot, restore the deleted fields, and invite the miners to join. It’s true that miners have no better place to go, but if the new chain’s token rewards couldn’t cover electricity bills and graphics card depreciation, it’s not sustainable either.

How much is the token on the new chain worth?

Frankly speaking, it depends on the exchanges. If the CEXs are willing to list the token, even if the project is a scam, someone will pay for it. Hopefully the exchanges stay integrity and neutral. For instance, although $BCHA has basically no backers now, it still has some value because it is listed on the exchanges. If the new token is not listed, its value will be very limited, and the miners will soon walk away.

What about ETC? Will miners go to ETC?

Definitely will. But the capacity is very limited.

Always remember that it is the price that guides the hashrate, not hashrate guides price. Why is Bitcoin the best? Not because it has the most number of miners who support it, but because it is valuable, miners are willing to support Bitcoin which can cover their electricity bills. Otherwise, BCH would have flipped BTC long ago, considering the large number of miners.

You said ETC capacity is limited, so what is the capacity?

The computing power of ETC is 25 TH/s, and ETH is 924 TH/s, which is about 1:37. And now ETC price is $32, ETH price is $1600, about 1:50. So the capacity is very limited. If you do squeeze in, the payback period will be long. The power consumption of the ETH graphics card mining machine is not as great as that of Bitcoin, so the shutdown price is not as high as that of BTC. You can actually mine ETC if you squeeze in, but it is hard.

ETC Hashrate
ETC Hashrate

Unless…

Unless ETC can pump to four digits, then ETH miners will rush in and the payback period remains unchanged.

But…

Yes, there is a but. It is a chicken-and-egg problem. The token price guides the hashrate. If the token price does not go up, miners won’t be attracted thus the hashrate will not go up.

Why ETC?

ETC is the real ETH, just kidding. But one thing is true: ETH is the fork chain. ETC is the original chain that Vitalik built, which is why it’s called classic. Because of the DAO incident (DYOR if interested), the community decided to roll back a hacker’s transaction and that’s when ETH originated.

Any EVMs on the ETC? Any DeFi?

Yes. Yes.

ETC’s EVMs are basically the same as that of the ETH. The only difference is that the ETC network could be easily attacked, so the DeFi does not flourish there. Now the TVL of ETC’s entire network is only about hundreds of thousands of dollars, mainly contributed by two swap protocols.

ETC Total Value Locked
ETC Total Value Locked

Why can ETC be easily attacked?

Because it uses the same mining machine as ETH, and the hashrate can be rented on some platforms. Therefore, as long as the hacker rents 1% of the ETH hashrate, the threshold of 51% to attack ETC can be easily reached. ETC has been hacked several times in the past.

How did the hack happen?

This is the basics of PoW blockchain, called double spending. For example, I use 100 ETC to buy a vase from you, and then rent the hashrate to produce the longest chain without the transaction “I transferred you the 100 ETC”. Then my ETC will not be transferred to you, but your vase is mine now.

How much does it cost to hack ETC?

If you go to Nicehash to rent hashrate, it will cost about 20–30 BTC to hack ETC for a whole day. You won’t dare to engage in DeFi on it, as nobody can bear a blockchain that rolls back so easily. Now depositing ETC on exchange requires hundreds of block confirmations, but probably that’s still not enough.

Cost to Hack ETC
Cost to Hack ETC

What will bring to ETC with the influx of hashrate?

The fundamentals will be improved. If a large amount of hashrate rushes into ETC, it’s a good sign for ETC. But the premise is that someone in the secondary market has to pay for it.

You’ll notice that we’ve entered a cycle. If you want the market to pay for it, you must have an established ecosystem; if you want to build an ecosystem, you want it to be secure; for it to be safe, you must have higher hashrate; if you want to have higher hashrate, the market has to pay for you.

PS: This is basically the same as the logic of the ETH PoW fork, with no big difference here (so we don’t have to post another thread for it lol)

How about attacking ETH? What’s the cost?

The cost of a PoW ETH hack for one hour, according to https://51attack.info/, requires about 900,000 US dollars. The problem is that you can’t rent that much computing power, the only way is to buy mining machines. And if you buy 51% of the ETH mining machines in the world, you are already a super big ETH oligarch, and you won’t hack it. So the cost is just based on economic assumptions.

So what about attacking PoS ETH? How much does it cost?

Actually, it’s very difficult to hack PoS ETH. Because PoS requires miners to stake, and every block ensures that its state is final.

What does it mean for a final state?

If I pay you 100 ETC to buy your antique vase, according to the longest chain principle, you do not know whether the payment has been received or not and its state is Schrödinger. Although your wallet shows that it has received 100 ETC, this record can be rolled back.

That’s not sure. If that’s the case, BTC and ETH are also not secure?

Not really. The reason why BTC\ETH requires several block confirmations, from a probabilistic point of view, is because it is nearly impossible to become the longest chain after a few blocks. So it is only 99.9…9% safe. Satoshi has discussed this issue earlier. 99.99..99% can be considered safe.

Wait, I’m totally lost.

What is 99.9…9% safe? It means that if I paid you 100 USDT and you received it, and luckily I mined many blocks in a row, I could cancel this transaction. The probability is extremely small though. That’s it. The so-called “final state” can guarantee you it’s 100% secure!

How could PoS ETH get the final state?

All nodes in PoS ETH have to put every single block in line. Only a block that has received 2/3 of the locked ETH votes in the entire network is considered valid.

For PoW, it is common for two miners to solve the puzzle at the same time, so it is necessary to compete for the longest chain. But in PoS, it is impossible for two blocks of the same height to get 2/3 votes at the same time. Because 2/3+2/3>1.

So what?

Under PoS, once the block is on the chain, it can never be rolled back. You can always trust PoS ETH, what you see is what you received, this is the final state. What you see is what you get.

I heard some ways to attack PoS…

Suppose you are a big holder and own 100 million tokens. One day, you sell all 100 million tokens into USD and then you re-organize the block right before you sell it. Because you (used to) have a lot of tokens, you can quickly build a new longest chain without that transaction. And now you have both the transfered USD and the original token.

Can we attack PoS ETH this way?

PoS completely defends this kind of hack — because it is not allowed to roll back.

So how to attack PoS ETH?

Having 2/3 of the total staked ETH, which is worth about 140 million US dollars according to the current price and you can’t use flash loans. It is extremely difficult for hackers to have such a big amount of assets, and even if they have, ETH has found ways to guard against such an attack. You can refer to: https://arxiv.org/pdf/2003.03052.pdf

So what do you really want to say?

Don’t be deceived by the L1 narratives. From theoretical demonstration, to technical implementation, and to community accumulation, ETH builders have thoroughly considered all aspects and this gives users a reliable feeling. Of course, Bitcoin is also doing very well. Its upgrades even have forward compatibility. Only such a stable system can be used as the bottom layer of the future world financial system.

So flip ETH is never an easy job, no matter whether the opponents are miner oligarchs or some VC backed L1 whales. Look forward to the bright future of PoS ETH.

Subscribe to Nothing Research
Receive new entries directly to your inbox.
Collectors
View
#1
#2
#3
View collectors
This entry has been permanently stored on-chain and signed by its creator.