After the Oct. 22 expiration of the $435 million options, the price of Ether (ETH), nearly reached a new record high. However, it fell below $4,000 to regain its original level. With the Altair upgrade of Beacon Chain, Ethereum 2.0 will be taken another step towards its goal. Eth2 will be a completely proof-of-stake network (PoS), which is what the community has been working towards for more than a year.
Altair, an update to Ethereum’s Beacon Chain, is explained in an Ethereum Foundation blog post. It supports light clients, pre-validator leak accounting, an increase in severity and clean-ups of validator rewards. This allows for simplified stated management. This is the first planned upgrade to the Beacon Chain.
This blog post states that the update is a “warm up upgrade” for both the Beacon Chain as well as its clients. The update will add several key features to Ethereum 2.0 network.
First, sync committees have been created for light client functions. This allows light clients to sync up the header chains with minimal computational and data cost.
The second is that the incentive accounting reforms include three major changes. First, the storing actions use an efficient bit field format that reduces complexity. Second, the “inactivity leak” quadratic is calculated per validator rather than globally. Finally, there are some bug fixes to the reward accounting.
Co-founder of cryptocurrency exchange Huobi Global, Du Jun said to Cointelegraph that “Pre-Altair if a chain ceases finalizing for two week, fully inactive validators loose 11.8% of balance and validators actively 75% lose 3.1%.” Post-Altair would see the loss of the fully inactive validator to be 15.4%, while the loss of the 75% active validator would only be 0.3%.” This will make inactivity more forgiving to honest but irregular validators.
Be calm and upgrade your client ASAP to Altair HF compatible beacon chain Altair! Please ensure the version of your beacon node and validator client is greater than what https://t.co/pK78fogKbd listed. Altair will be live at epoch 74242 (Oct 27, 2021 at 10:56:23 UTC). pic.twitter.com/d6vPzUT09U
— Hsiao-Wei Wang (@icebearhww) October 25, 2021
Third, the update introduces changes to penalty parameters. Inactivity leaks will be reduced and penalties will be more severe than they were in the pre-Altair days. These parameters will see three major changes. The inactivity penalty ratio has been reduced by 25%. This reduces the time for balances leakage by almost 13.4%. The minimum slashing percentage has been reduced from 128 to 64. This is the fraction of total balance that a validator who was slashed will lose. This means that the minimum slashing penalty is now 0.5 ETH. This is double the 0.25 ETH penalty.
In other words, the proportional slashing multiplier will be increased from one-to-two. This means that the slashing penal will double the percentage of validators who were slashed in the first 18 days. Jun further explained the change: “For instance, if you were slashed within 18 days (in both direction), 7% of all validators are also slashed. Pre-Altair, your slashing penality would have been 7%; post-Altair, it would be 14%.”
These tweaks to the incentive structure can be very critical for the security and stability of the network. They reward higher levels of contribution and adjust across all spectrums accordingly. This upgrade will only affect the Beacon Chain and not users or decentralized apps (DApps).
This will impact Ethereum users when Eth2 transitions to its final form. Jun stated that this upgrade will lower eligibility for Ethereum 2.0 users.
“One of the main goals of Altair is to make a light client easy and efficient enough that it can be run inside any environment (mobile device, embedded hardware, browser extension, and even inside another smart-contract-capable blockchain).”
Redistribution of validators’ benefits will result in the redesigning of the rewards/penalization structure for validators. This will make the incentives for network contributors more systematic, logically based and easier to understand.
Warm-up for the Merge
This update serves as a “warm up” for future Beacon Chain upgrades. The economic stakes right now are low so it makes sense. The node operators will already have experienced a simultaneous upgrade to the chain. Any future upgrades toward the Merge will roll out more smoothly, which is even more important, since there will be a lot riding on the network after the Merge.
Cointelegraph spoke to Ben Edgington about Altair’s connection with ConsenSys’ upcoming Merge.
“The Merge will be Ethereum’s largest proof-of-stake upgrade. The Altair upgrade will provide us with valuable experience that will help ensure that The Merge runs smoothly when it is ready to deploy in 2022.”
Edgington answered a question about the effect of the upgrade on Beacon Chain stakers and said that they would not notice any differences with Altair. The upgrade is basically a “tidying-up” exercise and doesn’t affect the expected rewards stakers will receive or the way they interact the chain.
The Ethereum Improvement Proposal 2982 explains that the new punitive parameters will be applicable to both inactivity and slashing leaks. Edgington stated that the Beacon Chain’s initial reduction in penalties was made to give stakers the chance to get to grips and build confidence. Altair will increase their penalties slightly in this direction, while the Merge will eventually set their penalties at their maximum “cryptoeconomically optimal” values. He also explained how this will benefit the network’s security.
These penalties are theoretical since the beacon chain has not been affected by an inactivity leak and only 0.06% have been slashed. These penalties are intended to make it very costly to attack the beacon chain. They can be increased with Altair to increase security.
Rick Delaney is a senior analyst at OKEx Insights, the research group behind cryptocurrency exchange OKEx. He stated that this is an essential component of the network’s security and said: “If incentives don’t align, malicious actors might be able to manipulate the system.”
Merge could alter the dynamic of “Ethereum killers”.
After the London hard fork in August, the Altair upgrade will be the next major update. EIP-1559 was mainly introduced by the hard fork. This changed the transaction pricing mechanism to ensure that a portion of the gas costs are burned. This put ETH on a deflationary track.
Ultrasound.money data shows that the current Ether burn rate is 5.31 Ethereum/min. To date, more than 628,000 Ether — valued at over $2.6 billion — have been consumed. Current supply growth is 2.2% per year. Ultrasound.money’s website simulates the Merge and shows that this supply rate will drop to -2% per year.
Delaney explained the effects of gas fees on the ecosystem by saying that it was part of an ongoing upgrade that should lower Ethereum gas fees. The dominant smart contract network’s high fees have been a boon to ‘Ethereum Killers’. It will be interesting for those chains to retain market share, assuming Ethereum’s sharding implementation goes smoothly and lowers transaction cost.
Related: How to stake Ethereum 2.0
After the Merge, the PoS consensus mechanism will be distributed to the entire Ethereum network. Scalability is expected to improve as more data sharding is implemented on the network. Due to their low gas costs, other blockchain networks with a functioning smart contract utility like Binance Smart Chain and Solana could gain ground until then.
Edgington also noted that the network supports layer-two solutions, which allow users to access lower gas prices than those on the existing layer one network.
“As developers, we don’t worry too much about Ethereum Killers. […] Layer-2 roll-up technologies for Ethereum have already delivered huge scalability and an ecosystem of exciting new capabilities. They are fully supported by Ethereum’s base layer security. All of the layer-2 protocol improvements over the next year will enhance and support everything.
Although the Altair upgrade is not significant to end-users of Ethereum, it is important for developers and other community members who eagerly await the Merge in 2022. In October, 40 representatives of Eth1 & Eth2 teams, ConsenSys, the Ethereum Foundation and ConsenSys gathered for a week to build a PoS testnet with multiple clients from Eth1 & Eth2.
This achievement gives Ethereum a lot of confidence and will allow it to transition completely to PoS, effectively shutting down the Eth1 proof -of-work network.