The Ethereum year was full of amazing successes, but nothing can be perfect.
The year 2020 has been spectacular for Ethereum. Between Ethereum 2.0 and the quest for scalability, the explosion of DeFi and the successes of interoperability and money settlements, just to name a few, the richness of the narratives behind Ethereum has possibly surpassed Bitcoin itself. While Bitcoin is the stoic and reliable guy, Ethereum can be described as the maverick cousin of the cryptomoney world.
But, of course, a volatile environment hits hard in both directions. The peaks of enthusiasm and success must almost be countered by moments of disappointment and failure.
Ethereum had much of both this year, and it is useful to recall and highlight the major events that shaped the project in 2020.
The greatest achievement: the launch of Ethereum 2.0
Ethereum 2.0 has been the dominant story of the project since even before its actual launch. The upgrade promised two major improvements: moving away from the consensus of trial work, which was considered a waste, and introducing scalability through a technique called fragmentation.
Fragmentation, in short, creates a set of parallel blockchain networks that are coordinated by a reference chain, called the Beacon Chain. In 2020, we finally saw the launch of Ethereum 2.0 and Beacon Chain, which allowed Ether’s (ETH) rethinking for the first time.
The launch took place on December 1st without any problems. Progress was palpable throughout the year, with several testnet iterations.
The pre-launch testnet, called the Medal, was launched on August 4. While it was not a perfect start, the team drew invaluable lessons from the experience and consistently fixed all errors and problems that arose.
The launch was an unquestionable success for Ethereum, as it finally marked the official start of an upgrade that took five years to complete. „I think we’re very pleased with how it went,“ said Ben Edgington, ConsenSys product owner for Ethereum 2.0 client Teku, in an interview with Cointelegraph.
After years of development, the teams were eager to send something tangible. „The will to deliver in 2020 came from consensus among the teams. And yes, we made a commitment,“ Edgington said. „The meme ‚when Eth2‘ has been around for a long time and we were eager to move forward and show that we can achieve a goal.
However, Edgington said that there were no cuts during the development. „If [we had been] aware of significant flaws, we wouldn’t have pushed for just a date,“ he said.
Roadmap Promises Faster Time Scale
Despite the launch of Phase 0, much remains to be done to feel the practical benefits of the new blockchain network.
Traditionally, the community was more enthusiastic about the later phases: Phase 1, which would introduce the first form of fragmentation for data storage, and Phase 2, which would make the fragmentation fully usable by the decentralized applications that are based on Ethereum. At some point along the way, the existing Ethereum 1.0 blockchain network would have been merged as one fragment and the working test would have been gradually removed.
During 2020, the Ethereum development community converged on an alternative vision: the rollup-centric roadmap. Rollups are a class of layer two solutions that promise to scale blockchains by removing much of the computational burden
But it’s not just about the abstracts. As Edgington explained, the concept of phases and linear development has been completely replaced by a more flexible approach:
„Phase 0 has not changed, that’s it. But now we are building the rest in parallel. So, there has been a decoupling between fragmentation for scalability and the merging of Eth 1.0 and Eth 2.0. Therefore, you can work in parallel and it can happen that the Eth 1.0 merge occurs first, or that the fragmentation occurs first. They can be delivered independently of each other.
All this means that Ethereum 2.0 could become much more exciting sooner than expected, provided of course that there are no major delays.
The success of DeFi and its positive effect on Ethereum
While the Ethereum basecoat has made slow but steady progress, DeFi has surprised the cryptomint world by 2020, and most of it, by far, has been in the Ethereum.
During the „summer of DeFi“ and 2020 as a whole, we have seen many tremendous achievements: Uniswap became one of the largest exchanges in the world, over $13 billion in value entered the Ethereum ecosystem in the search for yield, and entire and grassroots projects focused on decentralized, autonomous organizations became heavyweights in the cryptomoneum space.
The importance of DeFi, so far, comes not so much from what it does but from how it implements the financial infrastructure. Concepts such as compilation capability, where one protocol easily integrates another, or trading and non-custodial lending have shown their potential this year.
For the Ethereum itself, the fact that the DeFi infrastructure still remains stubbornly attached to its application layer consolidates the potential of the blockchain network. In a future where DeFi grows even more, Ethereum is ready to reap the benefits.
The Ugly Side of the DeFi Boom: Blockchain Congestion
The dominance of DeFi has clearly had a negative impact on Ethereum: the weakening of most other types of DApps. While one could justify paying $50 to interact with a smart contract that provides some sort of performance, this is a much less attractive proposition for buying an in-game item or other smaller interactions.
Ethereum suffered its worst congestion yet in the summer of 2020, due to a combination of DeFi, use of stablecoins and some alleged Ponzi schemes. That led to a sharp drop in blockchain game activity and many other categories of DApps that previously thrived in Ethereum.
Edgington has a bittersweet feeling about DeFi’s dominance, and points out
„Three or four years ago, there was a great vision about what Ethereum could do as a social base layer. All kinds of identity solutions and things like that, which DeFi just eliminated due to the rising costs of gas in Eth 1.0. And I hope that when we have enough bandwidth available in Eth 2.0, we can support a much wider range of solutions that go beyond DeFi.
Fixing congestion with layer two technologies
Mid-term scalability solutions based on layer two technology, including plasma and rollups, advanced this year. Plasma-based networks, led by OMG Network and Matic, were launched this year after several years of development.
The cumulative packages promise even better platforms that would enable smart DeFi contracts. Zk-Rollups, in the form of zkSync from Matter Labs and the decentralized exchange from Loopring, had fully functional releases in 2020. Optimistic Rollups, another type of second layer, published several proofs of concept and is steadily progressing towards release in 2021.
The next year will likely mark the stage of adoption of fully developed layer two solutions.
ProgPow and Ethereum’s governing hell
ProgPoW’s proposal, which sought to change the mining algorithm to eliminate specialized ASICs, generated shock and bitter political battles within the community in February.
For Edgington, governance is a clear Achilles‘ heel of the Ethereum. „If we want to talk about the negative aspects of Eth 2.0 or future challenges, then governance is written in capital letters at the top of the list.
The ProgPoW debacle highlighted a worrying dynamic for the future of the project: its inability to formally reject or accept the contested proposals. The debate dragged on for two years, apparently ending only out of sheer exhaustion.
Nevertheless, Edgington is optimistic that the community will begin to address the governance issues:
„Now we have to start converging and thinking about how governance looks around the developments of Eth 2.0 and how we intersect with the governance of Eth 1.0. And maybe there’s an opportunity here to do a little reboot and deal with some of these questions.
A brief but notable incident: lack of communication results in a split in the chain
Ethereum briefly suffered an involuntary hard bifurcation this year. For several hours on November 11, there were two Ethereum networks, each with its share of nodes and mining power. In particular, the node provider used by many Ethereum developers, Infura, was stuck in the minority chain.
The problem occurred when the developers of a major Ethereum client, Geth, fixed a validation error without notifying anyone of the problem. Some researchers unknowingly triggered the error, causing older software, including Infura’s, to get stuck in another network. This could have resulted in the theft of money from exchanges or other serious consequences.
The incident prompted discussions about the proper disclosure of future errors of this magnitude, as the problem was hidden to prevent it from being exploited by evil actors. Most community members argued that the main actors in the ecosystem should be aware of these problems in the future.
Ethereum becomes Bitcoin’s second largest home
An unexpected trend in 2020 has been the phenomenon of Bitcoin tokenization (BTC) in Ethereum. Between Wrapped Bitcoin (WBTC), RenBTC and tBTC, there are now more than 134,500 BTCs bridged to Ethereum, worth more than $2.7 billion.
Bitcoin’s native layer two solutions, such as Lightning Network, Liquid Network and RSK combined, have approximately 4,100 BTC, or $84 million.
The increase in Bitcoin tokenization in Ethereum was rapid, led by the adoption of Wrapped BTC in most of the major DeFi protocols and exchanges. Despite being a centralized tokenization solution, the market clearly spoke in favor of using Bitcoin on the Ethereum blockchain network.
Ethereum becomes the main place for Tether (and other stablecoins)
In a similar line to Bitcoin, the stablecoins saw a fertile ground to plant their roots in Ethereum. For Tether (USDT), their ERC-20 iteration left all the competing blockchain nets in the dust as the year progressed. USDT has consistently been the largest consumer of gas in the Ethereum blockchain network, where over 12 billion USDT are currently located.
Combined with other stablecoins such as USD Coin (USDC), Binance USD (BUSD), Dai, Paxos Standard (PAX) and others, there are over $17 billion in tokenized dollars in the Ethereum. The next closest competitor is Tron, with its $6.4 billion USDT supply.
A Bad Year for Ethereum Conferences
The crypto coin industry has been relatively protected from the pandemic and its aftershocks. But real-world events have still left their mark on the crypto coin scene, and nowhere is that more evident than with the Ethereum conferences.
In early March, many prominent Ethereans gathered in Paris for the EthCC, also known as the Ethereum Community Conference. The conference ended up being the most famous COVID-19 super diffuser event in the cryptomint industry, with at least 17 confirmed cases among its attendees.
Many other events had to be held virtually or cancelled. In particular, the Ethereum Foundation cancelled its Devcon event this year and rescheduled it for August 2021.
Interestingly, Edgington was not entirely unhappy with the previous tradition this year. „Of course, I miss seeing everyone. But, on the other hand, we’ve done a lot of work this year that otherwise wouldn’t have been done,“ he said.
The year of smart contract hacking
With the rise of DeFi, there has also been an increase in opportunistic hackers who have sold out smart contracts for millions of dollars at a time.
Some of the most notable hacks this year were the three bZX exploits, the $25 million dForce hack, Balancer’s $500,000 loss and the four hacks in just one week in November. Some of these blur the lines between a hack and market manipulation, but overall, 2020 has highlighted the many possible traps of managing money through smart contracts.
Writing secure software is a challenge and Ethereum’s programming language, Solidity, doesn’t really help. The language documentation presents an extensive list of security best practices that could lead to the loss of funds if not addressed. Ethereum’s smart contracts can also be encoded in another, more secure language called Vyper, but this language is not particularly widespread. With more experience in the developers‘ belt, fewer impact attacks are expected in 2021.
The Ethereum Influencers Scandal
In the last stages of the DeFi boom, around September, airdrops were in fashion. Uniswap’s $1,200 „stimulus check“ was the most famous, but then there was Meme, whose most exclusive airdrop ended up being worth $650,000 at one point.
It seems that some Ethereum influencers tried to recreate a similar path to wealth by launching FEW, a token that refers to the popular Twitter meme of adding „few understand“ to a tweet that supposedly says something intelligent.
The leaked Telegram conversations suggested that some of the more active participants in the group saw it as a way to make quick money by taking advantage of their combined follower count. After the leak, some were quick to distance themselves from the project and minimize their participation.
Regardless of the group’s intentions, the leak quickly ended the FEW project and resulted in a significant impact on the reputation of those involved.