Ethereum Istanbul issues: Wider uncertainty for users & miners

Some Ethereum smart contract operators ran into problems in the immediate aftermath of the network’s “Istanbul” hard-fork upgrade. While neither widespread nor fatal, the issue did shine light on problems the Ethereum network faces as it attempts to scale—and the dangers of running vital enterprise and infrastructure contracts on a platform where the rules are still being decided.

Some companies found their contracts were “running out of gas” (the currency, or “fuel” with a fluctuating price that Ethereum users pay for the network’s computing functions). Network data showed contract failure rates “quadrupled” following the fork at block #9069000 on December 8th. The upgrade altered the pricing of certain opcode functions.

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While technically successful, the recent Ethereum hardfork wasn't without negative consequences.

Some EVM operations were repriced to be cost more in fees which affected some smart contract activity.

— Antoine Le Calvez (@khannib) December 9, 2019

Istanbul also introduced five other Ethereum Improvement Proposals (EIPs), including changes to allow interoperability between Ethereum and anonymous cryptocurrency Zcash, and allowing “contracts to introduce more creative functions.”

Out of gas…and steam

“Smart contract calls running out of gas” is not a phrase enterprise blockchain users want to hear. Nor do they want years of uncertainty over something as fundamental as Ethereum’s planned protocol switch from proof-of-work to proof-of-stake. And even that is setting aside all the inherent technical and economic problems facing PoS systems.

To be fair, Ethereum protocol devs did warn contract operators in advance of changes to the pricing structure. Included in Instanbul was EIP 1884, which re-priced the use of certain opcodes to better match the computing resources they consume.

This reduces the chance of cheaper functions being used in a spam attack, or blocks with similar gas confirming too quickly or slowly. As Ethereum grew, some opcodes had proved to be more resource-intensive than they had been initially.

Apparently though, the changes still took some major companies by surprise—including crypto exchange Gemini, which reportedly had trouble moving deposited funds into its hot wallet.

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Digging deeper, some exchanges were also affected, @gemini for example hasn't been able to sweep user deposits into its hot wallet after the fork, each attempt resulting in an out-of-gas error. pic.twitter.com/bZHsrVSrfN

— Antoine Le Calvez (@khannib) December 9, 2019

Ethereum’s past (and possible future) facepalms

Ethereum has a history of running into issues following hard-fork changes, or programmers using the network for unforeseen purposes. 2017’s rash of ICOs slowed network speeds dramatically, as did the novelty “CryptoKitties” project, where users used Ethereum to hatch virtual pets. Its most infamous move of all was to roll back the Ethereum blockchain in mid-2016 to return investor funds “stolen” in the DAO hack, where a creative coder salami-sliced hundreds of millions of dollars in tokens from the crowdfunding platform with a simple recursive call.

The overloading concerns have caused regular doubt that Ethereum can scale to the level needed to serve global enterprise at volume. Developers building on the platform endure by putting faith in protocol devs to work it all out somehow. So far that has not been working out that well for the ETH developers and many of them are starting to look for alternative protocols that are more stable to build their enterprise applications.

And that’s far from all. Ethereum has for years promised to switch the entire network from a proof-of-work (like Bitcoin) to a proof-of-stake mining system. This would drastically change Ethereum’s economic model, especially for miners whose job is to keep the network functioning and secure.

“Ethereum 2.0”, as the switch is called, has been postponed several times over the past few years. This necessitated several hard-fork alterations to also postpone a built-in “difficulty bomb” in the protocol code—put there initially to make mining harder and unprofitable, thus forcing miners to switch to the PoS algo.

Were the difficulty bomb to go off during the Ethereum 1.0 PoW phase, the blockchain would freeze in its tracks. As each difficulty bomb deadline approached, Ethereum saw miners quit the network as the hashrate grew. The network also has built-in regular reductions in ETH block reward for miners (similar to Bitcoin) which made miners’ life even tougher.

Where’s the stability, then?

The bigger picture is that uncertainty over Ethereum’s ability to perform to expectations, who will keep the network secure and how, or whether future “creativity” could cause another DAO-like disaster, means users are looking for alternatives.

Enter BSV. The planned 2020 Genesis upgrade to Bitcoin removes the block size limit entirely and introduces new power to run smart contracts. Bitcoin’s PoW miners, however, can be rest assured there are no plans to render them obsolete. They can feel more secure as they invest in costly equipment to do their job.

Remember that miners are the blockchain participants who keep everything running, and take the biggest financial risks in doing so. Making their role less certain by design isn’t a great strategy. The BSV protocol aims to restore the miner’s prominent role in Bitcoin, which was originally envisioned in the whitepaper by Satoshi Nakamoto.

Ethereum transaction volumes declined throughout 2019. In early December, BSV’s daily transaction volume passed Ethereum’s for the first time. Both almost doubled transaction volumes on BTC in the same week.

Ethereum miners have already begun voting with their feet. Starting early 2020, Bitcoin BSV will begin to seriously challenge Ethereum directly for miners and users — and with a locked protocol promising no dramatic changes, ever. Large-scale and enterprise applications demand certainty.

Whichever blockchain platform gives them that option is more likely to prosper. All the momentum in the blockchain developer community is moving into Bitcoin SV. This tsunami of projects will start to emerge more clearly to the rest of the wider crypto space after the Genesis hard fork but you can see it happening now if you know what to look for.