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Overview
There is no official roadmap for Ethereum, as it is predicated more on rough community consensus. However, a high-level, noncontroversial plan stretching into 2022-23 is generally regarded as the agreed-upon path for the project. A more technical roadmap with the progress of each step filled in was updated by Vitalik Buterin in December 2021. Specific developments are tied to future upgrades and are always subject to change.
"The Merge" is the next step, set to be completed in Q2 2022 and will remove PoW entirely in a network hard fork. The PoW Ethereum layer 1 execution layer will be "merged" with the Beacon Chain, allowing all execution to take place on the staking chain and making miners obsolete. However, redundancies and network inefficiencies will remain post-merge, eventually needing to be addressed. A "clean up" period will be required, but it will also enable highly-anticipated functionalities like the ability for withdrawals and transfers of staked ETH from the Beacon Chain.
Unofficial Ethereum roadmap (with progress bars) spanning into 2023. Source
Scaling the Ethereum Network
On-chain scaling techniques are upgrades to a blockchain’s base layer to improve scalability. Ethereum’s long-term, on-chain scaling solution is sharding, which splits the base layer into 64 chains with shared security ensured by the Beacon Chain.
Off-chain scaling refers to scaling solutions that use external execution layers rather than the base layer. These Layer 2s, or “L2s” are secondary layers that sit on top of the base layer, providing more transactional capacity for the blockchain overall. Ethereum is pursuing both off-chain and on-chain scaling strategies.
Ethereum’s eventual transition to Proof of Stake is a response to these challenges. It’s a massive upgrade to the entire Ethereum ecosystem to accommodate continued growth and an increasing workload, consume less electric power in its verification process, and to be more secure from attacks. In essence, the Ethereum upgrade will make the network more scalable, sustainable, and secure.
Any human enterprise which is highly successful early on will quickly have to address how to do more to keep up with demand. This is a good problem to have, but not an easy one to solve because scaling up often challenges the core values that made the enterprise successful.
Ethereum, as we know it today, won't scale to meet the needs of the entire globe. Meaning, the Ethereum L1 is designed to remain a highly decentralized, global settlement layer above all else. However, Ethereum's web of L2s will be responsible for scaling Ethereum and serving as its execution layer. These layers will absorb much of the existing value on the Ethereum mainnet plus future inflows as Ethereum adoption grows. It's important to understand that Ethereum's web of L2s is a marketplace of independent projects competing with each other to help scale Ethereum.
The Scalability Trilemma
Ethereum’s ability to process transactions is (partially) constrained by the amount of computing power, bandwidth, and storage on the network. The scalability trilemma is a well-known issue among all blockchains.
The scalability trilemma, illustrated. Credits: Vitalik Buterin
A blockchain can achieve two of these traits but at the expense of the third. Many alternative layer 1 (L1) chains have chosen to sacrifice decentralization for scalability and security. However, it’s important to remember why decentralization is important. It provides the chain anti-fragility, robustness, reliability, and censorship resistance.
The goal is to increase the number of transactions while retaining sufficient decentralization. What are the decentralization sacrifices (tradeoffs) other smart contract L1s have made? Other chains typically make two sacrifices. They either design their network to be run/secured with high-powered, expensive nodes, which reduces the number of people that may participate in network consensus by pricing them out. Obviously, a network that can only be verified if you have X amount of dollars in computing budget is not an ideal, permissionless system.
Another tradeoff often considered is for the network to use fewer nodes to achieve consensus in less time. However, this makes the chain more vulnerable and centralized. It is easier to corrupt or destroy 10 nodes rather than 10,000 all over the globe.
Although often discussed as such, blockchain scalability does not just pertain to TPS. Many L1s, like Binance Smart Chain (BSC), currently boast high TPS numbers but suffer from “chain bloat” and ever-increasing hardware requirements just to keep the chain running. L1s must be able to process more transactions without creating more problems down the road. A node in a technically sustainable blockchain has to do three things:
- Keep up with the tip of the chain (most recent block) while syncing with other nodes.
- Be able to sync from genesis in a reasonable time (days as opposed to weeks).
- Avoid state bloat.
Requirement 1 above is a physical limitation based on computing power (RAM, CPU, etc.) and bandwidth. These are bottlenecks for every node, meaning there are upper, finite limits to how far you can push the network.
One way for Ethereum to increase its workload could be to increase the size of the computers participating in the Ethereum network (participating computers are called “nodes”). However, larger, more expensive, and fewer computers in the network (like Solana) is clearly a form of centralization. Having a small number of bigger players involved in maintaining Ethereum is not Ethereum’s goal.
Fewer computers in the network also create security issues. A hacker attacking just a few computers or a single central computer will have an easier time than attacking many computers all in agreement about the data they are using and creating. Just as with Bitcoin, more computers participating in the Ethereum network enhance the security and permanence of the data on the Ethereum blockchain.
Transitioning from PoW to PoS (“The Merge”)
The Merge is the term used for when Ethereum switches from Proof-of-Work (PoW) to a Proof-of-Stake (PoS) blockchain. It is a hard fork that moves consensus from the current PoW chain to the PoS “Beacon Chain.” Blocks are “proposed” to the network by a distributed community of “validators” and if enough validators come to the consensus that a given block is valid – meaning it contains only legitimate transactions – that block is added to the chain, and the process repeats.
In the staking model, there is no advantage to having more computational or electric power because validators are chosen randomly. Therefore, Proof of Stake eliminates the Proof-of-Work arms race for more electricity and computing power.
But what compels a Proof of Stake validator to do their job correctly? If a chosen validator erroneously confirms a transaction or colludes with other validators to confirm transactions falsely, their staked ETH will be taken (“slashed”) and their validator reputation tarnished. If a validator confirms transactions correctly (along with other validators until a consensus threshold is reached), they are rewarded with more ETH. Good behavior is rewarded, and bad behavior is decisively punished.
However, punishments (i.e., slashing) are not linear. Rather, they are executed via Quadratic penalties meaning a single validator going offline doesn't get penalized very badly, whereas a thousand validators doing it at the same time get penalized much more heavily.
This approach was implemented with the idea of encouraging decentralization. An ETH whale with thousands of validators is incentivized to spread them out across different clients and avoid using cloud hosting services.
This is slated to occur in mid-September 2022, assuming the next Goerli testnet merge goes well!
PoS removes the energy consumption often cited in the mainstream media. While PoW is not inherently bad, it’s inarguable that the world is highly critical of energy consumption. Now, with the transition to PoS, Ethereum will have eliminated this enormous criticism. Estimates from Ethereum core developers hypothesize that Ethereum’s energy use will drop by up to ~99%. Without the need for so much physical mining hardware and infrastructure, Ethereum can become a more energy-efficient, geographically-distributed, and nimble blockchain.
Source: arXiv
Overall, Ethereum can remain just as secure but with a lower overall “energy budget” because less energy is required to achieve consensus. In PoS, stakers deposit capital rather than building giant mining farms. While a dramatic oversimplification, both approaches are risking capital, but PoS is simply more straightforward.
Ethereum’s eventual transition from Proof of Work (PoW) to Proof of Stake (PoS) will represent the culmination of the original Ethereum protocol design, 5+ years of technical research and associated game theory design. It is ultimately designed for a simpler, more robust, stable, and secure base layer protocol with full lite client verifiability. PoS enables future improvements like light client, data sharding, statelessness, and more. After the full implementation is complete, the base layer can then “ossify” while leaving the flexibility for innovation on higher protocol levels like Layer 2.
The Beacon Chain serves as the epicenter of the future architecture and network consensus. PoS aims to lower the cost of participating in securing the network by allowing anyone with ETH to stake rather than needing a giant million-dollar mining farm, as is the case in most PoW networks.
@CryptoPragmatist
With PoS, the Ethereum base layer will be managed by validators rather than PoW miners. A validator is a person or entity who locks up (stakes) 32 ETH to run a validating node and secure the Ethereum blockchain. This means that rather than relying on energy/electricity for security, as in PoW, Ethereum security will rely upon capital instead. With PoS and staking rewards, ETH becomes a productive capital asset with yield as well as the money underpinning network transactions and executing smart contracts.
The PoS upgrade will reduce Ethereum’s inflation rate from ~3.5% to near zero. As of Q3 2022, the Ethereum protocol pays miners 2 ETH per block or ~13.5k ETH per day. Post-merge, the daily ETH issuance becomes variable based on the number of stakers. For example, if there are ~15 million stakers, the protocol will issue ~1,750 ETH daily. This amounts to a ~90% reduction in issuance i.e. token holder dilution/sell pressure.
Thanks to the implementation of EIP-1559 and its fee burning mechanism in mid-2021, Ethereum’s net issuance is expedited to become deflationary once the Merge is released. EIP-1559 changed Ethereum’s fee structure where transaction fees now have a base fee and a tip. The base fee is set by the protocol and adjusts every block based on network activity. The base fee no longer goes to miners but is instead burned. The tip is set by the market (can be zero in times of little congestion) and will go to the miners.
