Guest Post

Kieran Smith

Unfortunately, the long-awaited Ethereum Constantinople Network Upgrade has been delayed. An auditing team discovered that the upgrade to Constantinople would introduce a security vulnerability.  Before we go over the security vulnerability, let’s quickly answer a couple of questions I’ve been getting.

In a previous post we discussed the Ethereum Roadmap for the coming year. One of the key milestones on the roadmap update was the Constantinople hard fork. Constantinople was initially scheduled for 2018. However, due to inevitable software development delays, Constantinople was pushed to early 2019. That being said, the wait has definitely been worth it.

Constantinople has been much awaited by the community primarily because of the Block Reward reduction. The Block Reward reduction effectively reduces the inflation rate of Ethereum. I explain how in a simply post here: Ethereum Inflation Rate & Difficulty Bomb  However, aside from the Block Reward reduction, there are few other exciting improvement updates in Constantinople which is scheduled for Jan 16th 2019.

In this post I will explain these updates simply and briefly! 🙂

So what exactly is Constantinople? Is it a Hard fork? If so, will you be getting two coins? (like all the other hard fork fiascos?)  Yes, Constantinople is a Hard fork - but you won’t be getting two coins. Unlike the other fiascos, this isn’t a “contentious” fork. To understand this, let’s go over a couple of terms quickly & simply:

1. Block Reward Reduction ← A BIG ONE!

2. Cheaper Smart Contract Execution

3. Increased Efficiency on Verification of External Smart Contracts

4. State Channels!

5. Storage Cost Improvements

Block Reward Reduction:
Constantinople will officially mark the reduction of the rewards issued to miners from 3 ether to 2 ether. This effectively reduces miner rewards by ⅓  and is often referred to as “The Thirdening“. This reduction in Block Rewards will significantly reduce the inflation rate of Ethereum.

Ethereum Inflation Rate Definition (Quick'n'Dirty)
 The speed at which each Ether loses it's purchasing power/value.

Constantinople will include the EIP145 proposal which will introduce “Shifting operators” to the Ethereum Virtual Machine. Put simply, this will allow Smart Contracts to initiate certain instructions for only 3 GAS compared to the 35 GAS it would have costed without the Shifting Operators.

This is a drastic reduction in the cost of these operations and contributes to Ethereum’s efficiency improvements.

This is another key efficiency improvement in the 2019 Constantinople update. Smart Contracts often need to perform verification checks on other Smart Contracts. Currently this is done by copying the bytecode of the external Smart Contract and then performing the needed verification. However, this can unnecessarily expensive when dealing with large Smart Contracts.  EIP 1052 tackles this problem by introducing a new function that will allow the Smart Contract to pull a hash of the bytecode instead.  This will make verifications far more efficient.

The Ethereum Constantinople 2019 Update will also include a keystone update for State Channels in Ethereum. EIP 1014 will allow interactions be made with addresses on the main chain that don’t exist yet .  This may sound confusing but is a key milestone for the implementation of State Channels. The goal of State Channels is to have as little load on the main chain as possible while still remaining secure. Unnecessary calculations and processes will take place off chain – thereby increasing the efficiency of the main Ethereum chain.

Constantinople will also include an update that will reduce the storage costs in Ethereum. EIP 1283  proposes a change to how gas is charged for EVM storage operations. The primary initiative of this proposal is to reduce excessive gas costs where unwarranted. And to enable new use-cases for contract storage.

With this, transactions that are making multiple updates to the same storage slot will cost significantly less!

​​​Ethereum’s soon approaching Constantinople hard fork, while significant, is still only a piece of the larger puzzle that is Serenity – Ethereum’s transition to Proof of Stake. ​​​

Follow up Reads:
1. Ethereum Roadmap Update
2. Casper v2: Beaconchain & Sharding
3. Ethereum Difficulty Bomb & Inflation Rate Explained

Radix DLT is beginning to garner increasing attention in the crypto-space. Radix rose from an obscure and exotic "coin" in 2017 to one of the most discussed technologies in 2018. Every week, I receive several questions on Radix’s Scalability & Sharding or on their Tempo Consensus Method.  But one of the more common questions goes something like this:

"Hey, what are your thoughts on the Radix Coin ? "​

It recently dawned upon me that while I’ve discussed Radix’s infrastructure, I haven’t really delved into the “Radix Coin”.  While Radix does indeed sport a crypto coin, it is so much more than that. Radix DLT is a fully fledged distributed ledger technology platform. The platform will feature decentralised applications, mass scalability, and of course, the Radix Coin as well – 'RDX'.

In this post, however, we focus our discussion on the Radix Coin (RDX) and its purpose in revolutionizing the digital economy. If you’re interested in the Radix  DLT Infrastructure – mainly its Consensus and Sharding approach, then you can read the following introductory & simple explanations:

• Radix Sharding  – Explained Simply
• Radix Tempo Consensus Algo – An Easy Analogy

The following sections will discuss how the Radix Coin will serve and benefit from the Radix DLT infrastructure.

The Radix Coin will be the token used on the Radix DLT platform to fuel various operations. However, the coin and the platform have special features that make the dynamic rather interesting. The Radix coin will be a relatively stable coin. Notice the word "relatively" – this is key. Several people mistaken the Radix Coin to be a stable coin. This can lead to confusion – especially for interested investors. 

Radix DLT designed the RDX token so as to have low-volatility. In that vein, the Radix Coin will initially be pegged against the US Dollar where 1 Radix Coin will be equivalent to $1 USD. However, after a certain period, the price of the Radix coin will float free.  Low-volatility and relative stability will be maintained by increasing the supply of the coins. 

“Wait, what the… what do you mean by ‘increasing’ supply of the coins? “

Don’t worry – we’re not talking about ‘Supply inflation’ here. Radix DLT will be using an algorithmic model that will monitor demand and accordingly increase as well as decrease the total supply of the Radix Coin at regular periods. The low volatility of the Radix Coin will help facilitate mass adoption. And the flexible supply should satisfy investor needs as well.

In the following sections, we will discuss how investors and merchants both benefit from this flexible supply system.

Upon first hearing “stable coin”, cryptocurrency investors are immediately skeptical. After all, why invest in something if it’s going to be stable in value? This is an understandable concern since we’re conditioned to the volatility of cryptocurrencies. The Radix Coin, however, functions sort of like a Bond with a variable interest rate.  The value of each Radix Coin may not rise and fall substantially. But the investor will receive more RDX at regular intervals which should increase his total amount of RDX.

For example, let’s say John has  2000 RDX. At the time, each RDX is valued at around $1.10.

• No. of RDX: 2000   
• Value of each RDX:  $1.10
• Total Value: $2200

In the coming months/years, the demand for the Radix Coin skyrockets! Now, each of John’s RDX will not increase drastically in value. Instead, the total number of RDX he has will increase.  His total Radix Coins will increase to 6000 RDX and each RDX will be worth $1.15 (Remember – the Radix Coin will be relatively stable.)

• No. of RDX: 6000  
• Value of each RDX:  $1.15
• Total Value: $6900

Note: This is just an example – as details on the calculations have yet to be released.

On the flip side – if the demand for the Radix Coin reduces, the platform has mechanisms in place that will perform a token-burn process to reduce the total supply of the Radix Coin. Again, details on how this process is yet to be revealed. We will all have to wait for the economic white paper that should be released closer to their mainnet launch.

However, we can rest assured that investors don’t have to worry about their investments being “stale”.

One of the biggest reasons the Radix Coin features relative stability is to facilitate mass adoption. Without stability, mass adoption across the world will be near impossible.

As things stand, the general public find it troublesome to hold cryptocurrencies for anything other than a speculative investment. You may hear increasingly more reports of merchants accepting cryptocurrencies as a form of payment. However, most of these merchants are immediately converting their cryptocurrency back into regular FIAT.  Why? Well, simply because merchants need to be able to rely on their revenue holding value in the months that follow. Cryptocurrencies are far too volatile to offer the level of reliability that merchants need in order to run an efficient and sustaining business.

Similarly, regular consumers will only hold a fraction of their purchasing power in cryptocurrencies for similar reasons. With the current state of the market, it’s a serious gamble to rely solely on your holdings of cryptocurrencies to pay your rent or mortgage. The Radix coin will safeguard against violent price swings using an elastic-supply. This will allow merchants and consumers to hold their Radix Coins with reduced risk.

Scalability has been one of the biggest limitations of current blockchain solutions. Most DLT consensus models have to make the tradeoff between throughput and decentralization. Radix, however, achieves high throughput, security and decentralization using a unique approach to Sharding along with their Consensus Method – Tempo .   The Radix DLT platform ensures that every single device can be part of the network and use the Radix Coin to transact with high speed across the globe.

With "Stable Coins", like the Radix Coin, being the latest talk of the town, its no surprise that investors and enthusiasts alike are blazing with questions on how to seize opportunity on this relatively new crypto class.

The concept of price stability around the radix coin will be primarily based on elastic supply. Depending on the demand of RDX, there will either be a coin issuance to each RDX holder, or a coin burn. While much of the economic structure behind the Radix coin is yet to be unveiled, their scaling solution - Radix Sharding & Tempo Consensus – has been fully implemented and tested. 

Follow up Reads:
1. Radix Sharding  – Explained Simply
2. Radix Tempo Consensus Algo – An Easy Analogy
3. Radix DLT – The Future of Crypto?

There’s been a great deal of confusion in regard to Ethereum’s new approach to Casper. Part of the confusion stems from the
updated timeline for Ethereum’s PoS (proof of stake). And the other part of the confusion stems from this new “Beacon Chain” thingy.  Yes, I said ‘thingy’.

So, in this post I’m going to try to break things down in an easy manner for you guys. What exactly is the Beacon chain? And what role does it play in Proof Of Stake and Sharding

As usual, I’ll keep it simple – and avoid the unnecessary details.

Before we go any further, allow me to break down the structure of Ethereum’s Casper V2.  There will be three chains that we are concerned with:

1. The Ethereum PoW Chain
2. The Beacon Chain
3. The Sharding Chain(s).

All three of which will be linked together in Casper V2.

This is the chain that Ethereum is currently using. It’s using the traditional Proof Of Work (PoW) consensus method. In Ethereum’s Proof Of Work chain, miners currently validate blocks by running the PoW Cryptographic Puzzle.

However, Ethereum will be using Proof Of Stake in Casper. Miners will have to transition to the Proof of Stake chain if they want to keep validating blocks for the Ethereum Network.  To do so, they will have to deposit 32 Ether into the Beacon Chain. Once they do that, they will become Validators on the Beacon Chain.

Important:  Miners are not the only ones who can become validators. Anyone can deposit 32 Ether from the Ethereum PoW Chain to the Beacon chain to become a validator

Alright, so the Beacon Chain is where all the confusion stems from. But it’s actually quite simple. The Beacon Chain serves two primary roles

1. The main Proof Of Stake chain

2. The base layer of the Sharding solution

To Simplify: The Beacon Chain will link to the Shard Chains and “signal” which blocks from the Shards should be added onto the main chain. The main chain will be validated & finalized using Proof Of Stake. The main chain also resides on the Beacon Chain. The Beacon Chain will also play a crucial role with the Shard Chains. It links up to the Shard Chains to listen for blocks that will be included onto the beacon chain (the PoS chain).

Yes, there are going to be multiple Shard Chains. Remember, Sharding is an attempt to avoid having “every single node validate every single transaction”. This will allow for more scalability.  In order to do so, instead of having one single chain, we will have multiple shard chains. I explain Sharding in more detail in this article:
Ethereum Sharding Explained Using An Analogy.

Essentially, you can think of the Shard Chain as a group/block of multiple chains. All the transactions will take place on these Shard Chains – and will be split between each shard.  The account data will also be stored on these shard chains.

Above, I mentioned the Beacon Chain links up to a Shard. Well, there’s also a link from the Shards to the Beacon chain. This link needs to be attested/signed-off by a sub-group of Validators that will be pseudo-randomly picked.
​

Casper will be using Proof Of Stake which does not require “mining” to validate blocks. If a miner wants to continue validating blocks on Casper, he will have to deposit 32 Ether into the Beacon Chain like everybody else.

Once 32 Ether is deposited, the person will go into the “Queued Validator” pool and eventually get added to the “Active Validator” pool. Active Validators will be responsible for producing blocks, sign off on blocks and sign off on links (to shards).

You may be wondering why the Ethereum team chose the term “Beacon Chain?”.  The Beacon Chain was originally only part of the Sharding spec. It’s role was (and still is)  to link up to Shard Chains and signal which blocks should be added to the main chain. 

The Validators utilize the crosslinks between the two chains to “listen” for new blocks on the shard chains. They then sign off on the block and the crosslink if it is to be included on the main chain.

Beacon essentially means “Lighthouse/signal” – and that’s precisely what the role that the Beacon Chain serves.

Disclaimer: I’m sort of taking an educated-guess at this one. To be honest, a lot of the terminology in Sharding & Casper PoS is sorta...confusing (e.g: proposer, collator, validator, committee...come on Vitalik!)

As you can see, the Beacon Chain in the new Casper implementation isn't all that complicated. All you need to know is that it will serve as the foundation for the Proof Of Stake and facilitate the communication via the Shard Chains (via cross-links).  You can become a Validator on the Beacon Chain if you deposit 32 Ether from the current PoW Chain. Once you do that, you can take part in the Proof Of Stake consensus process as well. Validation & Finality  will take place on the Beacon Chain. Transactions & Account Data will be on the Shard Chain.

Simple, eh? Tbh, maybe all you need to read is the conclusion of this post. Damn. Oh well.

Follow up Reads:
1. Casper Roadmap Update Explained
2. ​Ethereum Sharding - A Simple Analogy
3. Finality: Understanding Settlement & Finality

The current process for clearing and settlement is wasteful – and blockchain tech is poised to change that. The results will be a net gain for everyone -- not just for businesses, but for consumers as well.

We tend to take our daily transactions for granted. It’s as simple as swiping your credit card or depositing a cheque, right? Wrong. It only seems that way. In truth, every transaction you make is simply a promise. Once the promise is made, a clearing house steps in to facilitate and  settle the promise .

The clearing house consists of a plethora of middlemen. They ensure that the finality & settlement of the promise made. And in return for their good-deed, they charge you hidden fees. Ding!

Businesses have to endure these unnecessary fees as well – but on a grander scale. They trade securities that have various risks managed by the clearinghouse. This leads to higher fees. Businesses are then forced to pass these costs down to their consumers.  Ding!

We essentially get Double-Dinged!  But wait – it doesn’t end there. Since we’re getting double-dinged, we have less money to buy stuff. And because we have less money to buy stuff, businesses lose profit. Businesses now have to either increase prices or close shop. As you can see, it’s just one never-ending loop of economic waste!

However, eliminating the middlemen like settlement Clearing houses has been all but a fantasy… until the advent of blockchain technology.

Our current models of eCommerce are facing a hasty demise. Enterprises have been swift to leverage blockchain clearing and settlement solutions. The efficiency and cost savings that the technology delivers has been far too enticing to ignore.

Traditional methods of clearing and settlement rely on middlemen to facilitate trust & security. But the friction is so severe that it can take weeks to settle a single transaction.

However, blockchain and distributed ledger technology provide trust & security
without  a middle man. This reduces friction and costs for all parties. Furthermore, transaction settlement is conducted within seconds! The resulting cost savings are massive – which are then passed down to consumers.

Across the globe, big name firms and established players have been experimenting with blockchain and distributed ledger technology. The list extends from one end of the world to the other

USA based Broadridge Financial Solutions will be using blockchain trade settlement in the repo market.  Broadridge believes that blockchain technology can

1. Reduce counterparty risk

2. Eliminate wasteful manual intervention

3. Streamline current processes for confirmation

4. Increase audibility, and transparency

London based SETL already utilizes a blockchain platform for settlement of payments. They empower participants to deploy their own blockchain within minutes.

In 2016, India based uTrade was the first Indian company to  employ a blockchain technology for trade settlement. Their “uClear” blockchain platform allows for real time clearing and settlement of securities.  Fast forward to 2018, and we have the Security and Exchange Board of India (SEBI) have begun exploring blockchain technology for trading the stock market.

The Australian Securities Exchanges (ASX) isn’t interested in falling behind either.  ASX will be launching their blockchain based financial services by 2021. The goal is to allow stockbrokers & fund managers to use the blockchain for real-time settlement and tracking.

Established processes and policies have firm roots in modern day operations. Uprooting these policies and redistributing resources will be the biggest challenge firms will face. Change is not easy – and will face strong resistance and certain junctions. Furthermore, the technology itself requires to be battle-tested some more. The complexity combined with the shift in mindset may cause onboarding issues.

Even with the political and regulatory resistance, the adoption of the technology has been moving forward. As understanding increases, decision makers will be coaxed into action by the following advantages:

1. Drastically reduced transaction costs

2. Near instant settlement and clearing

3. Easier Risk management

4. Increased Transparency

Blockchain technology is paving the way for a financial revolution that eliminate a lot of economic waste.

Businesses – small or large – face issues with finality of payments quite often. A consumer can attempt to reverse his payment made via VISA or PayPal. In these scenarios, settlement finality conflicts are handled by the middleman.

However,  middleman-solutions are always going to be a point-of-weakness for finality. What if people in key positions are bribed?  What if  centralised servers are hacked? In a centralised solutions, there's always a chance that finality is reverted. Each intermediary will pose a risk point.

Comparatively, a blockchain uses no intermediary. It achieves finality via it's consensus method. Notable consensus methods are Proof Of Work and Proof of Stake. Both of which eliminate several weaknesses of centralised systems. However, neither of them achieve true finality. Finality will always be probabilistic (i.e there's a chance – however small – that a transaction can be reversed) 

First, let's go over finality in proof of stake and proof of work.

Settlement Finality: Proof of Work & Proof Of Stake

In this post, Krisha explains the 2 Types of Blockchains - Public vs Permissioned Blockchains

We have witnessed the term “blockchain” evolve from something dark and unknown, to the hottest topic on the block. While many are drawn to the ‘Investment’ opportunities that the technology presents, others have latched onto the efficiencies that blockchain promises.

This disparity in interests has prompted questions on the multiple
types of blockchains available. Questions like, 'Which type of blockchain would best serve an individual's or company’s interests?"

However, when broken down simply, you’ll realize that there’s only one pivotal difference between each of these blockchain types: 

The need for Permission to participate in each of them.

In essence, every blockchain can be categorized under one of these 2 types:
​Public (Permissionless) Blockchain
​Permissioned Blockchain

A Blockchain's Consensus Mechanism allows participants to come to agreement on a truth that the network was intended to acertain.

The context of “permission” in blockchain lies within this Consensus mechanism.

Depending on the type of blockchain, an individual or entity may or may not require permission to participate in the consensus process.

A Little Perspective - The blockchain consensus mechanism is akin to a jury in a case trial. A jury reaches consensus on the final verdict - they agree on the truth. Consensus is as crucial a function to blockchain, as it is to a case trial.