Crypto Market Commentary 

1 March 2020

Doc's Daily Commentary

 

The 2/26 ReadySetLive with Doc and Mav is listed below.

Checkmate's Corner

Ethereum’s Next Big Test

There is currently an ongoing debate regarding an upgrade to the Ethereum PoW consensus mechanism which has been going on for some time. This is a fascinating case study in rough consensus governance, game theory and constraints on hard forking live networks.

If you are like me and entered this market after the Bitcoin Cash hard fork, you have probably never seen something like this play out. Many experts have called out the ProgPoW debate as Ethereum’s equivalent to the scaling wars.

I want to provide a brief overview of what this debate is all about and provide some commentary regarding the merits and challenges behind each side of the debate (at least from my perspective).

ProgPow in a nutshell

Ethereum is currently a proof-of-work blockchain which utilises the Ethash algorithm. This algorithm has been designed to be what is called memory hard. The way it is designed is to utilise a significant portion of hardware memory (RAM) which makes building ASIC hardware difficult and makes mining most favourable for GPU miners.

The idea behind keeping GPU miners as the dominant mining hardware is to combat miner centralisation. The nature of PoW is that efficiencies of scale in hardware, energy contracts and competition do tend to centralise over time. By making ASICs hard to build, it allows more home scale miners to participate in mining pools and keeps the hash-power distributed.

In 2018, Bitmain released their first iteration of an Etheruem ASIC miner with an order of magnitude greater efficiency over commodity grade GPUs. Given they are the only manufacturer, this becomes somewhat of a monopoly and indeed does put pressure on miner centralisation.

Programmatic Proof-of-Work is a technical solution to this problem. It updates the PoW algorithm again making the present ASICs either bricked (useless) or diminishes the efficiency down to 1.2x a GPU, basically nullifying the competitive edge.

Pro-Prog Argument

My understanding is that ProgPoW, from a technical solution standpoint, is well developed. It has gone through rigorous code audits, research suggests it will be effective in its goal of neutralising ASICs and in general, the core developers are all in favour of the code being implemented.

The FOR position is that it is technically sound and keeps Ethereum with the social contract of being mineable by commodity hardware. There is also the advantage of keeping mining on GPU dominant hardware as GPUs can be sold or repurposed to other chains after the switch to PoS occurs. If miners with ASICs dominate mining at the time of the switch, the fear is that they will act to prevent rolling of ETH 1.0 into 2.0 as it is against their interest.

By shutting down ASICs, this also sends a clear signal to chip manufacturers that there is a low incentive to build these chips in the future as the investment can be invalidated in response.

ProgPoW has been debated for a couple of years on and off and the reason it has emerged back onto the scene is that the developers on the latest conference call, basically signalled full approval for implementation. This raised a lot of eyebrows from the community who felt they had been ignored and that the developers were going over and above the wishes from outside.

One side note, which is speculation on my part, I do wonder whether one motivation for the developers ‘ninja approving’ ProgPoW is because the timeline for integration of ETH 1.0 into 2.0 is in fact not just around the corner. ASIC manufactures are basically calling out the developer bluff, believing it is years away and thus there is time and opportunity for them to build ASIC chips and still make a profit.

I will caveat the above by saying that it is possible that 1.0 could be forked and then rolled into 2.0 at the time. However, this would mean trying to attract GPU miners to keep the chain secure during the transition and really, is a messier solution.

To summarise the FOR argument, I will borrow from this newsletter by Camila Russo by the defiant (a good read for more information. https://thedefiant.substack.com/p/progpow-uproar-pits-ethereum-core

Who is for ProgPoW? The Developers and GPU miners primarily.

Against-Prog Argument

Despite the technical reasons and desire to keep mining decentralised, there is a dominant majority of the talking heads on Twitter and within the community who vehemently oppose ProgPoW. What is very interesting about this is that the reasons against are actually not technical at all, they are POLITICAL.

When you read through these core arguments against, in my personal view, it is ideological, not technical. Basically the community want to put their foot down in a UASF type resistance. The claim is that ProgPoW is contentious and the developers and GPU miners do not own Ethereum governance.

Despite any technical benefits, the fact that it is contentious and risks a chain split is reason enough to not implement it. This is a governance issue.

Who is against ProgPoW? Bitmain and ASIC miners and the community.

How do you work out consensus?

Well, the reality is, this is rough consensus is action and it is messy. The methods which have been employed so far are:

* Yelling about it on social media with hashtags

* Twitter Polls

* Petitions

* Open Letters issued as an EIP-2538 (link)

* On-chain vote by MolochDAO

All of these methods are counting a small subset of people but are attempting to form a unison of voice. The more voices sing the same chorus, the more likely it is to be heard. Remember, we are talking about less than a few thousand people participating in these polls and systems for a global money system. This is very very very small and puts light on how tiny Ethereum and crypto in general actually is.

Checkmate’s view

Basically, the debate over ProgPoW is a debate over who truly owns Ethereum. Who controls governance. This is a power struggle.

From a technical standpoint, I personally believe Ethereum is better placed implementing the upgrade. Even though I am an ASIC bull, Ethereum dominates GPU mining and maintaining decentralised mining in the lead up to the PoS switch is sensible.

However…

Given the community clearly want no part in this, it is absolutely not worth a chain split. If the community want to run the gauntlet of PoS with ASICs on 1.0, then let them run the gauntlet. Despite all the legitimate reasons to roll the code in, it is contentious and Ethereum cannot deal with a chain split.

The risk to DeFi is immense. If the uncertainty or realisation of a chain split drops ETH price, or creates two tickers, it will liquidate much of the infrastructure. It is a real recipe for destruction and should be avoided at all costs.

I will certainly be watching the governance experiment very closely. Gut feel, ProgPoW probably won’t go ahead. I sense the developers will probably bend the knee. What it does make exceptionally clear, rough consensus is extremely rough. The truth is, there is risk and uncertainty. For a system like Decred or even Tezos with a formalized process, this risk gets hashed out and resolved to achieve consensus before it reaches this stage.

 

Keep the popcorn handy and your stops close.

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