Ethereum’s year was rich with astounding successes, but nothing can be perfect.
The year 2020 has been nothing short of spectacular for Ethereum. Between Ethereum 2.0 and the quest for scalability, the decentralized finance explosion, and the successes of interoperability and money settlement — just to name a few — the richness of narratives underpinning Ethereum has arguably surpassed Bitcoin itself. Whereas Bitcoin is the reliable, stoic uncle, Ethereum can be described as the maverick cousin of the crypto world.
But of course, a volatile environment hits hard both ways. Peaks of excitement and success almost need to be counterbalanced by troughs of disappointment and failure.
Ethereum had plenty of both this year, and it’s useful to reminisce and highlight major events that shaped the project in 2020.
The biggest achievement: Ethereum 2.0 launch
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 proof-of-work consensus, which was seen as wasteful, and introducing scalability through a technique called sharding.
Sharding, in a nutshell, creates a set of parallel blockchains that are coordinated by a reference chain, called the Beacon Chain. In 2020, we finally saw the launch of the Ethereum 2.0 Beacon Chain, enabling Ether (ETH) staking for the first time.
The formal pre-launch testnet, called Medalla, was launched on Aug. 4. While it wasn’t a perfect start, the team drew invaluable lessons from the experience and steadily fixed all the bugs and issues that cropped up.
The launch was an unquestionable success for Ethereum, as it finally marked the official start of an upgrade that was five years in the making. “I think we’ve been delighted with how it’s gone,” said Ben Edgington, ConsenSys product owner for Ethereum 2.0 client Teku, in an interview with Cointelegraph.
After years of development, the teams were anxious to ship something tangible. “The will to deliver in 2020 emerged by consensus amongst the teams. And yeah, we committed to it,” Edgington said. “The ‘when Eth2’ meme has been around for a long time and we were keen to move on from that and demonstrate that we can meet a target.”
Nonetheless, Edgington reassured that there were no corners cut during development. “If we [had been] aware of significant flaws, we wouldn’t have pushed on the basis of simply a date,” he said.
The roadmap promises a faster scalability timeline
Despite launching Phase 0, much remains to be done to feel the practical benefits of the new blockchain.
The community was traditionally more excited about the later phases: Phase 1, which would introduce the first form of sharding for data storage, and Phase 2, which would make sharding fully usable by decentralized applications building on Ethereum. Somewhere along the way, the existing Ethereum 1.0 blockchain would have been merged as a shard and proof-of-work would have been phased out.
During 2020, the Ethereum development community converged on an alternative vision: the rollup-centric roadmap. Rollups are a class of layer-two solutions promising to scale blockchains by taking away much of the computational burden
But it’s not just about the rollups. As Edgington explained, the concept of phases and linear development has been entirely superseded by a more flexible approach:
“Phase 0 hasn’t changed, that’s done. But now we’re building the rest in parallel. So there’s been a decoupling between the sharding for scalability and the merger of Eth 1.0 and Eth 2.0. So they can be worked on in parallel and it may happen that the Eth 1.0 merge happens first, or sharding happens first. They can be delivered independently of each other.”
All of this means that Ethereum 2.0 might become a lot more exciting sooner than expected — provided, of course, there are no significant delays.
The success of DeFi and its positive effect on Ethereum
While Ethereum’s base layer saw slow but constant progress, DeFi has taken the crypto world by storm in 2020 — and most of it, by far, has been on Ethereum.
During the “summer of DeFi” and 2020 as a whole, we have seen many tremendous achievements: Uniswap became one of the highest volume exchanges in the world, more than $13 billion in value entered the Ethereum ecosystem in the search for yield, and entirely grassroots projects based on decentralized autonomous organizations became heavyweights in the crypto space.
DeFi’s significance has, so far, come not so much from what it does but how it implements financial infrastructure. Concepts like composability, where one protocol effortlessly integrates another, or noncustodial trading and lending have proven their potential this year.
For Ethereum itself, the fact that DeFi infrastructure still remains stubbornly bound to its application layer cements the blockchain’s potential. In a future where DeFi grows even further, Ethereum is so far poised to reap the benefits.
The ugly underside of the DeFi boom: Blockchain congestion
The domination of DeFi has had one clearly negative impact on Ethereum: the weakening of most other types of DApps. While one could perhaps justify paying $50 to interact with a smart contract that grants some form of yield, 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, owing to a combination of DeFi, stablecoin use and some alleged Ponzi schemes. That led to a sharp drop in activity for blockchain gaming and many other DApp categories that previously thrived on Ethereum.
Edgington has a bittersweet feeling about DeFi’s dominance, noting:
“Three or four years ago, there was a huge vision about what Ethereum could do as a social base layer. All sorts of identity solutions and things like that, which are just being pushed out by DeFi because of the rising gas costs on Eth 1.0. And I’m hopeful that when we have plenty of available bandwidth on Eth 2.0, we’ll be able to support a much wider range of solutions that go beyond DeFi.”
Fixing the congestion with layer-two technologies
Medium-term scalability solutions based on layer-two technology, including Plasma and rollups, all made strides this year. Networks based on Plasma, spearheaded by OMG Network and Matic, were launched this year after several years of development.
Rollups promise even better platforms that would allow DeFi smart contracts. Zk-Rollups, in the form of Matter Labs’ zkSync and Loopring’s decentralized exchange, saw fully functional launches in 2020. Optimistic Rollups, another type of second layer, published several proofs-of-concept and is making steady progress for a 2021 launch.
The next year will likely mark the adoption stage of fully developed layer-two solutions.
ProgPow and the governance hell of Ethereum
The ProgPoW proposal, which sought to change the mining algorithm to eliminate specialized ASICs, generated commotion and bitter political battles within the community in February.
For Edgington, governance is a clear Achilles’ heel of Ethereum. “If we want to talk about negatives of Eth 2.0 or the challenges ahead, 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 contested proposals. The debate raged for two years, seemingly ending only due to sheer exhaustion.
Edgington is nonetheless optimistic that the community will begin addressing governance issues:
“Now we need to start converging and thinking through how governance around Eth 2.0 developments looks like, and how do we intersect with Eth 1.0 governance? And perhaps there’s an opportunity here to do a bit of a reset and deal with some of these questions.”
A brief but notable incident: Miscommunication results in a chain split
Ethereum briefly suffered an unintentional hard fork this year. For several hours on Nov. 11, there were two Ethereum networks, each with its share of nodes and mining power. Notably, the node provider used by many Ethereum developers, Infura, was stuck on the minority chain.
The problem occurred when developers for a major Ethereum client, Geth, fixed a validation bug without notifying anyone of the issue. Some researchers unwittingly triggered the bug, resulting in older software — including Infura’s — to be stuck on another network. This could have resulted in money being stolen from exchanges or other serious consequences.
The incident triggered discussions about proper disclosure of future bugs of this magnitude, as the issue was hidden to avoid evil actors exploiting it. Most community members argued that major ecosystem players should be made aware of such issues in the future.
Ethereum becomes Bitcoin’s largest second home
An unexpected trend of 2020 has been the phenomenon of tokenized Bitcoin (BTC) on Ethereum. Between Wrapped Bitcoin (WBTC), RenBTC and tBTC, there is now more than 134,500 BTC bridged to Ethereum, worth over $2.7 billion.
Bitcoin’s native layer-two solutions such as the Lightning Network, Liquid Network and RSK combined hold just about 4,100 BTC, or $84 million.
The rise of tokenized Bitcoin on Ethereum was swift, spearheaded by Wrapped BTC being adopted across most major DeFi protocols and exchanges. Despite being a centralized tokenization solution, the market clearly spoke in favor of using Bitcoin on the Ethereum blockchain.
Ethereum becomes the primary venue for Tether (and other stablecoins)
In a similar vein to Bitcoin, stablecoins saw fertile ground for planting their roots on Ethereum. For Tether (USDT), its ERC-20 iteration left all competing blockchains in the dust as the year progressed. USDT has consistently been the largest gas guzzler on the Ethereum blockchain, where more than 12 billion USDT is currently located.
Combined with other stablecoins such as USD Coin (USDC), Binance USD (BUSD), Dai, Paxos Standard (PAX) and others, there is more than $17 billion in tokenized dollars on Ethereum. The next closest competitor is Tron, with its $6.4 billion USDT supply.
A bad year for Ethereum conferences
The cryptocurrency industry has remained relatively shielded from the pandemic and its aftershock. But events in the real world have still left their mark on the crypto scene, and nowhere is that more apparent than with Ethereum’s conferences.
Back in early March, many prominent Ethereans were gathering in Paris for EthCC, otherwise known as the Ethereum Community Conference. The conference ended up being the most famous COVID-19 superspreader event in the crypto industry, with at least 17 confirmed cases among its attendees.
Many other events needed to be held virtually or canceled. Most notably, the Ethereum Foundation canceled its Devcon event this year and rescheduled it for August 2021.
Curiously, Edgington was not entirely unhappy with foregoing tradition this year. “Of course, I miss seeing everybody. But on the other hand, we’ve got a lot of work done this year that might not otherwise have been done,” he said.
The year of the smart contract hacks
With the rise of DeFi, there has also been a rise in opportunistic hackers who have drained smart contracts for millions of dollars at a time.
Some of the most notable hacks this year have been the three exploits against bZX, the $25 million hack of dForce, 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 pitfalls of managing money through smart contracts.
Writing secure software is challenging, and Ethereum’s programming language, Solidity, does not really help. The language’s documentation features an extensive list of security best practices that could lead to the loss of funds if not heeded. Ethereum smart contracts can also be coded in another, more secure language called Vyper, but this language is not particularly widespread. With more expertise under the developers’ belt, 2021 should hopefully see fewer impactful hacks.
The Ethereum influencer scandal
In the later stages of the DeFi boom, around September, airdrops were all the rage. Uniswap’s “stimulus check” of $1,200 was the most famous, but there was also Meme, whose more exclusive airdrop ended up being worth $650,000 at one point.
It appears that some Ethereum influencers attempted to recreate a similar path to riches by launching FEW, a token referencing the popular Twitter meme of adding “few understand” to a tweet that supposedly says something clever.
Leaked Telegram conversations suggested that some of the group’s more active participants saw it as a way to make a quick buck by leveraging their combined follower count. Following the leak, some were quick to distance themselves from the project and downplay their participation.
Whatever intentions the group may have had, the leak quickly put an end to the FEW project and resulted in a significant hit to the reputation of those involved.