Introduction
Recently, Guatian has frequently received inquiries from project parties, asking which public chain should be deployed, the performance differences of various public chains, their ecological layout, and platform traffic, and how they would impact the project in the short and long term. Coincidentally, this year has also seen the issuance of several popular public chain projects, including Arbitrium, Sui, and the long-awaited zkSync, and there is a strong demand for popularizing and analyzing the basic knowledge of public chains. Therefore, we have specifically formed a public chain research group to comprehensively analyze the highly active and influential public chains in the current market from the perspective of GameFi project parties and users.
We will conduct a comprehensive analysis of these public chains' performance, user-friendliness, and support for GameFi projects from the perspective of GameFi project parties and users.
Opening
In the wave of the digital era, Ethereum has shone as a bright star at the pinnacle of the blockchain world. Since its inception, Ethereum has been at the forefront of blockchain and smart contract technology, constantly creating new historical chapters. As the pioneer of blockchain games, Ethereum has been leading the development of the GameFi track. Guatian will lead you through the development and upgrade path of Ethereum, exploring how this ecosystem has evolved from an initial project into the world's most important public chain ecosystem.
Leading the development of the GameFi track, Guatian will lead you through the development and upgrade path of Ethereum, exploring how this ecosystem has evolved from an initial project into the world's most important public chain ecosystem.
I. The Origin and Development History of Ethereum
From its first day, Ethereum has been an exciting story filled with challenges, innovation, and struggle.
At the end of 2013, Ethereum's Vitalik Buterin released the Ethereum whitepaper, which not only inherited some of Bitcoin's design concepts but also opened a new chapter in the development of blockchain. Subsequently, in 2014, Ethereum launched its ICO and raised approximately 18 million US dollars' worth of Bitcoin in just 42 days, shocking the entire blockchain community.
On July 30, 2015, Ethereum successfully released the first version, Frontier, and proposed a standard with far-reaching industry impact at the end of the year - ERC20.
However, shortly after in 2016, it became the most turbulent year for Ethereum. In March 2016, Ethereum launched the Homestead upgrade, a significant network upgrade aimed at improving Ethereum's stability and security, marking Ethereum's entry into a more mature stage. Homestead upgrade improved Ethereum's virtual machine, smart contract development tools, and network protocols, attracting more developers and enterprises to participate. However, the good times did not last long. Between May and June 2016, the Ethereum community experienced a major crisis known as The DAO incident. The DAO was a decentralized autonomous organization with a flaw in its smart contract, allowing attackers to steal a large amount of Ether. This event led to community divisions, with one side advocating for a hard fork to recover the stolen Ether, while the other side insisted on not modifying the blockchain's principles. Ultimately, a hard fork occurred, splitting Ethereum into two different blockchains: Ethereum (ETH) and Ethereum Classic (ETC). Ethereum Classic adhered to the principle of non-interference with the code and continued to maintain the Ethereum genesis block unchanged.
If 2016 marked Ethereum's evolution from an initial project to a more mature and complex blockchain platform, then 2017 was truly a prosperous moment for Ethereum. In early 2017, the Ethereum Enterprise Alliance (EEA) was established to promote the application of Ethereum blockchain in the enterprise sector. The alliance attracted many well-known companies, including Microsoft, IBM, and Intel, to jointly research and develop Ethereum technology.
In October 2017, Ethereum completed the first phase of the Metropolis upgrade, known as "Metropolis Byzantium." This upgrade introduced a series of improvements, including better privacy protection, enhanced smart contract security, and reduced transaction costs. Metropolis Byzantium further strengthened Ethereum's functionality, paving the way for future development.
Accompanying the mainnet upgrade, the Initial Coin Offering (ICO) frenzy swept through the entire blockchain world. In 2017, Ethereum's smart contract platform became the preferred choice for many new projects, and many new cryptocurrencies and blockchain projects raised funds through ICOs. This frenzy led to a rapid increase in Ethereum's price and attracted a large number of investors and developers. Ethereum's price rose from a few dollars at the beginning of 2017 to several hundred dollars by the end of the year. This drew global attention and rightfully positioned Ethereum as the second largest market value currency in the cryptocurrency market. However, the downside of the frenzy, due to the surge in transactions and smart contracts, brought about increasingly severe transaction congestion and high gas fees for Ethereum. This prompted the Ethereum community to start paying attention to network expansion and performance improvement, laying the groundwork for subsequent continuous upgrades of Ethereum.
In 2018, Ethereum faced severe challenges. In early 2018, Ethereum and other cryptocurrencies experienced a massive price collapse, leading to a sharp decline in Ethereum's price. This triggered market fluctuations and investor concerns, reflecting the instability of the cryptocurrency market. Despite the cryptocurrency winter, the development of Ethereum 2.0 made important progress, confirming the overall transition from Proof of Work (PoW) to Proof of Stake (PoS) to improve scalability and energy efficiency. Meanwhile, due to the increase in transaction volume, the Ethereum network continued to face congestion and high transaction fees in 2018. This led to more attention on network performance and scalability, sparking many discussions on solving these issues.
In 2018, regulatory agencies worldwide began to take stricter regulatory measures against cryptocurrencies and ICOs. This led to investigations and sanctions against some ICO projects, and the cryptocurrency industry began to focus on legal compliance issues. Despite market fluctuations, 2018 witnessed the rise of the Decentralized Finance (DeFi) ecosystem. DeFi projects rapidly developed on Ethereum, including decentralized exchanges, lending platforms, and stablecoins, bringing new opportunities and innovations to the Ethereum ecosystem.
2019 was a year of innovation for Ethereum. The Ethereum 2.0 project made significant progress in 2019, including the release of the Beacon Chain, marking Ethereum's gradual transition to a more scalable and energy-efficient network. 2019 also saw the explosion of the DeFi ecosystem. Numerous DeFi projects emerged on Ethereum, including lending platforms, decentralized exchanges, and stablecoins. These projects attracted billions of dollars in funds, bringing decentralized innovation to the financial sector.
With the rise of DeFi, regulatory agencies began to focus on the compliance of Ethereum and other blockchain projects. This led to some projects being required to take measures to comply with laws and regulations, sparking discussions on the balance between decentralization and compliance. Stablecoins on Ethereum, such as USDT, DAI, and USDC, became important assets in the cryptocurrency world, providing stability and liquidity for cryptocurrency trading. 2019 also witnessed the rise of blockchain games, with some games on Ethereum beginning to attract a large number of users. These games typically use Non-Fungible Tokens (NFTs) to give players true ownership and interoperability.
II. The Rise of Blockchain Games on Ethereum
To trace the development history of blockchain games, the first thing to focus on is the Ethereum ecosystem. From 2017 to the present, Ethereum has seen a flourishing of various blockchain games. We have selected several representative projects to discuss their development history and existing issues.
When it comes to the pioneer of blockchain games, most people would consider CryptoKitties in 2017. Although strictly speaking, it was not the first blockchain game, it was the first game to become popular on Ethereum and be widely known. It is a game based on collecting and breeding digital cats, and it was the first project to combine ERC-721, becoming the earliest NFT project. The adoption, breeding, and trading of these digital cats ignited FOMO sentiment in the crypto community, with some crypto cats fetching prices as high as millions, astonishing most ordinary players. The success of CryptoKitties sparked a lot of interest from players and project parties in NFT. Due to the game's popularity, transaction congestion and high fees became the norm, exposing Ethereum's scalability issues.
In 2018, Gods Unchained entered the scene. It is a "Hearthstone"-style card game on Ethereum, where players can collect, trade, and battle with cards of different attributes. The game uses NFT on Ethereum to ensure the security of the cards, leading to a deep honeymoon period for blockchain games and card games, ushering in the era of "Fi" for everything. However, due to Ethereum's limitations, the game still suffered from transaction delays and high fees during peak periods.
The project that truly reached the peak of blockchain games in the last wave is Axie Infinity. Axie is a collect-and-battle game based on Ethereum, where players can earn tokens by collecting, breeding, and trading virtual creatures called Axies. When it was released in 2018, it remained lukewarm due to the bear market, until a bull market in 2021 led to its rapid rise. This not only greatly increased the game's playability and player enthusiasm but also sparked a new wave of "Play-to-Earn (P2E)" blockchain game popularity, giving rise to a large number of game guilds and gold farming studios. During its peak, Axie generated over 300 million USD in revenue in a month, surpassing "Honor of Kings" to become the world's most profitable game. The rise of the P2E model also marked the true arrival of the GameFi era, driving the development and trading of game assets based on blockchain technology through the DeFi + NFT model. In addition to Axie Infinity, a batch of similar games appeared on the market, such as Alien Worlds, Cryptoblades, Sorare, and Zed Run. However, due to Ethereum's network congestion and high transaction fees, the high entry barriers and transaction costs have limited the participation of many players.
Another major branch of blockchain games is the so-called "metaverse" faction, represented by Sandbox and Decentraland, which are metaverse games with land sales as the main economic model. Taking Decentraland as an example, it is a virtual trading platform based on Ethereum, where users can buy, collect, and trade virtual land and assets in the game. Decentraland uses NFT to ensure the true ownership of virtual assets. However, the game's lack of optimization, poor user experience, and Ethereum's performance limitations have hindered the game's further development. In the graph below, the transaction volume and quantity of Decentraland land peaked at the end of 2021 (approximately 34 million USD) and have since declined to less than 1% of the peak period.
01 Some Pioneering Aspects of Blockchain Games on Ethereum:
Ownership and Scarcity:
Blockchain technology has given virtual assets in games true ownership and scarcity. Players can truly own and control their game assets, and the supply of these assets is limited, giving them higher value and tradability.
Economic Ecosystem:
Blockchain games on Ethereum have created a real economic ecosystem for players. Players can earn income from virtual assets through their efforts and investments in the game, and trade, sell, or rent them to other players. This economic model provides players with the opportunity to earn real value and provides greater motivation for game development.
02 Challenges Faced by Blockchain Games on Ethereum:
The biggest problem with Ethereum is its scalability, as its architecture limitations lead to insufficient scalability and slow transaction speeds. The limited throughput also results in high gas fees, especially during the concentrated sale of NFTs and tokens, leading to gas wars that can paralyze the network and instantly drive transaction fees to extremely high levels, greatly affecting user experience.
III. Ethereum 2.0 Upgrade
In late April 2020, Ethereum launched the ETH2.0 testnet, and after six months of testing, it officially launched its 2.0 mainnet in December, marking the arrival of the Ethereum 2.0 era. Ethereum 2.0 is a major upgrade to the 1.0 mainnet, aimed at improving Ethereum's performance, scalability, security, and sustainability to accelerate its use and application.
Why Upgrade to 2.0
01 Ethereum's High Fees and Congestion Issues
As mentioned earlier, Ethereum's high gas fees, slow confirmation speeds, and low efficiency in blockchain game-related transactions have been criticized by users. Although some teams have optimized transaction efficiency and reduced fees to some extent through the development of external applications (such as Flashbots), it is still inadequate in the face of continuously increasing transaction demand. To fundamentally address this issue, it is necessary to upgrade Ethereum's underlying architecture from within the public chain to achieve a substantial performance leap for the network.
02 Rise of Competing Public Chains
Although Ethereum still holds an absolute leadership position in the current public chain market, newcomers continue to join, especially those that continuously surpass and innovate in terms of performance and architecture. This has to some extent shaken Ethereum's market share. Below are performance and data comparisons of several major public chains before the Ethereum 2.0 upgrade in 2020. Ethereum did not have an advantage in various data (TPS, transaction fees, block efficiency, etc.), and if left to develop, it is foreseeable that it will be easily surpassed in market share and market value in the near future.
Public chains represented by BSC and Solana are not only compatible with Ethereum's EVM but also have a large ecosystem and support from major players such as Binance and FTX. They naturally have user dividends and financial advantages, enabling them to grow rapidly and divert traffic from Ethereum. The congestion and high fees on Ethereum have given these public chains an excellent opportunity for development. These factors have forced Ethereum to upgrade quickly in order to maintain its position as the king of public chains.
03 New User Demands for Public Chain Security and Privacy
Since its inception, Ethereum has seen a thousand-fold increase in transactions, stabilizing at the million level from a few thousand daily transactions. The rapid growth has brought a large influx of funds into the cryptocurrency field, along with more high-quality applications and a large number of users. At the same time, user demands for security and privacy protection in blockchain technology continue to increase.
In financial applications, users have a strong demand for address privacy. The excessive transparency of the blockchain world is clearly a significant constraint on its development. How to achieve privacy protection while ensuring security is also one of the important issues that Ethereum needs to address in its future development.
Upgrade Main Content
You may have heard of the blockchain trilemma, which refers to decentralization, security, and scalability. The Ethereum 2.0 upgrade addresses these three aspects and constructs the main content of this upgrade.
01 Shard Chains - Solving Scalability Issues
Shard chains are a mechanism that can significantly improve Ethereum's transaction efficiency and scalability. In Ethereum's latest sharding solution (Sharding 2.0), all network resources will be divided into different shards, each of which can be understood as a new chain connected to the beacon chain (hub chain). This way, each node does not need to process all transactions, only needs to run a shard, and only needs to store a small amount of data, greatly improving work efficiency and largely alleviating Ethereum's scalability issues.
The Shard 2.0 solution is tailored for the Rollup solution (which we will further explain in subsequent articles, along with Layer2 projects), and the Rollup solution is an extension of the sharding solution. Through Rollups, all exchanges and executions are carried out off-chain, and the Ethereum main chain only stores transaction data. The implementation of a hybrid of data sharding and Rollups theoretically allows Ethereum to process over 100,000 transactions per second, making Rollups the most ideal scaling solution.
02 Proof of Stake (PoS) - Solving Decentralization Issues
Another important upgrade in Ethereum 2.0 is the introduction of the Proof of Stake (PoS) consensus mechanism. Previously, Ethereum operated based on Proof of Work (PoW), which required a significant amount of computing power and energy consumption. The transition from PoW to PoS will reduce Ethereum's energy consumption by over 99%.
In Ethereum 1.0's PoW consensus mechanism, miners process and package transactions to earn ETH. In the PoS mechanism of ETH2.0, users only need to stake ETH to become validators on the network and earn proof of stake representing shares. In the PoW mechanism, becoming a validator requires purchasing expensive mining machines and generating sufficient computing power to be competitive. In the PoS mechanism, the entry barrier for validators can be effectively reduced. Any user who stakes 32 ETH has the opportunity to join the validator committee, selected by the beacon chain's random algorithm to propose new blocks and validate them, making the network more decentralized.
03 Beacon Chain and Casper Mechanism - Solving Security Issues
The introduction of sharding and the PoS consensus mechanism solves scalability and decentralization issues but also brings new security challenges. Ethereum addresses these risks through the beacon chain and the Casper consensus mechanism to solve security issues.
To address the 51% attack problem, the beacon chain provides randomness, making each validator unpredictable and reshuffling all validators after each validation task to avoid collusion and improve security. The beacon chain also facilitates cross-shard communication, recording the state and information of all shards to prevent double spending.
Casper is the core consensus protocol of Ethereum 2.0, responsible for managing system nodes and implementing rewards and penalties for validators. Validators need to stake and apply to become nodes on the beacon chain to run the protocol. If a validator fails to complete the assigned tasks, there is a risk of losing staked tokens or being kicked out of the node pool, preventing them from continuing to participate in validation work. This forces validators to act honestly and comply with consensus rules through a system of rewards and penalties, largely addressing the issue of no-stake attacks in PoS.
Long-range attacks involve creating a chain longer than the original main chain from the genesis block and altering transaction history to replace the original main chain. Simple attacks involve creating as many blocks as possible in a unit of time on a forked chain to surpass the length of the original main chain. After the upgrade, Ethereum will set the first slot block of each Epoch as a checkpoint and use voting to achieve the final determinism of the chain, making the blocks immutable and avoiding these risks.
ETH2.0 Upgrade Roadmap
Ethereum founder Vitalik Buterin has outlined the future Ethereum 2.0 upgrade roadmap in six concise stages: The Merge, The Surge, The Scourge, The Verge, The Purge, and The Splurge. Each stage focuses on a specific theme and functionality upgrade.
01 The Merge
The Merge marks Ethereum's transition to a PoS system, a significant step towards achieving Ethereum's vision of a highly decentralized, scalable, secure, and sustainable network. The Merge unfolds through two key upgrades: Bellatrix and Paris (proposals EIP-3675 and EIP-4399), merging Ethereum's original execution layer with its newly established PoS consensus layer (Beacon chain). This was completed in October 2022.
The Merge brings some significant changes, with the most important being that full nodes need to run both the execution layer and consensus layer clients simultaneously. Before The Merge, a single client could handle all tasks related to transactions and blocks, but after The Merge, the execution layer and consensus layer clients each maintain a peer-to-peer network, with the consensus layer client handling block propagation, proofs, and penalties, while the execution layer client continues to manage transaction execution and state maintenance.
One of the important upgrade contents of The Merge is Single Slot Finality (SSF). SSF aims to shorten Ethereum's block finality time to one slot, instead of the current 64 to 95 slots (approximately 15 minutes). To achieve SSF, three key challenges must be addressed: developing precise consensus algorithms, optimizing the signature aggregation process, and determining the best economic method for validator participation. While solutions to these challenges have been proposed, they will take a long time to implement. Interested individuals can follow Vitalik's articles, which explore these issues.
Secret Leader Election establishes a mechanism for secretly electing proposers, ensuring the unpredictability, fairness, and uniqueness of proposer elections through random numbers and shuffling, reducing the likelihood of attacks.
02 The Surge
The Surge is another important aspect of Ethereum's upgrade, aiming to address the long-standing scalability issues that have plagued blockchain technology since its inception, enabling its performance to reach a level of 100,000 TPS, close to the speed of traditional electronic payments (e.g., Visa). This upgrade is achieved through Danksharding ("DS"), or sharding.
Proto-Danksharding (EIP-4844) is the first step of Danksharding and an important step in Deneb-Cancun (Cancun upgrade), as well as an important step for Ethereum to implement sharding and complete its scaling roadmap, significantly reducing the transaction and operational costs of Layer2 Rollup. By directly including each shard block in the beacon chain, shard blocks no longer contain executed transactions but only contain large data blocks, with specific transaction tasks handled by Layer2 rollup protocols.
After the original transaction data is submitted to the Layer1 mainnet, two different rollup routes have emerged based on different solutions: Optimistic rollups and ZK rollups.
1) Optimistic rollups
Optimistic rollups are a solution based on fraud proofs or challenge proofs, taking an optimistic approach to the validity of data. If no one challenges the data and submits a fraud proof within a specified time (e.g., one week), the data is considered to be true and accurate.
However, when someone challenges and points out fraudulent behavior in a transaction, Optimistic rollups need to implement a set of EVM logic in L1 smart contracts to simulate the execution of the transaction, thereby verifying the legitimacy of the data and penalizing the fraudster while rewarding the challenger. Unlike Optimistic rollups, Arbitrium takes a different approach. It does not implement a set of EVM logic but instead allows the challenger to interact with the contract in multiple rounds to narrow down the range of problematic instructions. Finally, the problematic instructions are verified.
2) ZK rollups
ZK rollups are a solution based on zero-knowledge proof technology, where L1 outsources the computation process of transactions to L2, while L1 can verify whether L2 has correctly executed the transaction. This is the charm of zero-knowledge proofs. Additionally, because the execution of transactions in L2 has already verified the transaction signatures, the zero-knowledge proof part already includes signature verification, allowing submitted transactions to L1 to not include signatures, further saving data space. The legitimacy of transactions can be immediately confirmed, and with smaller data, ZK rollups are considered to be more in line with the future direction of L2. However, the challenge is how to design a universal circuit system zkEVM for ZK rollups to be compatible with all applications.
03 The Scourge
Scourge includes a series of upgrades aimed at reducing the centralization of MEV while maintaining fair and transparent transaction inclusion. MEV is a measure of the additional income that miners or validators can earn beyond block rewards and transaction fees, achieved by strategically including, excluding, or reordering transactions within a block. In a well-functioning market, competitive block builders will bid to extract the full value of MEV from a block, allowing decentralized validator sets to receive most of the MEV rewards. Therefore, PBS effectively combats the centralizing force of MEV.
Another feature of PBS is the increased cost of censorship. In the PBS scheme, block builders will add as many transactions as possible because of price competition among builders. If a builder wants to exclude a transaction under review, their potential bid may be completely lower than their competitors, making it impossible to win the auction. To win the auction and exclude the reviewed transaction, they need to invest more, thus increasing the cost of censorship.
04 The Verge
The Verge aims to achieve a minimal block verification method, where downloading a small amount of data and performing basic calculations can complete verification. To achieve this goal, the existing Merkle Patricia Trie (MPT) needs to be upgraded to Verkle Trie.
Currently, Ethereum manages state data through MPT. To verify the correctness of results, the entire MPT proof is required, followed by hash verification at each level. Each full node in the current Ethereum maintains a complete state tree, allowing for independent transaction and state verification but making the entire verification process very inefficient and cumbersome. Verkle Trie proofs do not require the involvement of sibling nodes, and the tree's width can be large with shallow depth, significantly improving proof efficiency, expected to increase by 5-10 times.
05 The Purge
The Purge aims to achieve a simpler protocol and lighter-weight nodes by relieving the burden of storing historical data, with block validation introducing finality and checkpoints. The synchronization of beacon chain data no longer needs to start from the genesis block, greatly increasing data synchronization speed. With the introduction of EIP-4444, clients will no longer store historical data from a year ago, and expired data will be archived, with specific read and write rules for accessing archived data.
06 The Splurge
The Splurge represents a series of miscellaneous category upgrades, including account abstraction, multidimensional EIP-1559, and verifiable delay functions. Account abstraction will significantly lower the barrier to wallet usage by abstracting all accounts into one type of account, a contract account. Wallets can be upgraded to contract wallets, creating a smart contract for each user to manage their assets and on-chain interactions. Contract wallets can define more business logic, such as security limits, multisig, and gas fee delegation, and there will be corresponding wallet templates for users to choose from, making it easier to configure contract wallets.
Subsequent Impact and Outlook
The Ethereum 2.0 upgrade has brought positive impacts to the market. Firstly, the upgrade will improve Ethereum's transaction performance and scalability. By introducing sharding technology and improved consensus mechanisms, it will significantly increase network throughput and transaction confirmation speed, greatly enhancing the availability and competitiveness of the Ethereum network, attracting more developers and businesses to join the Ethereum ecosystem. Secondly, Ethereum 2.0 will also enhance security and stability. By introducing the beacon chain and Casper mechanism, as well as token staking, reducing reliance on energy, it will improve the network's security and overall stability. Furthermore, the Ethereum 2.0 upgrade will bring more innovation and functionality. By adjusting revenue distribution, reducing node burdens, lowering node thresholds, and introducing sharding technology, Ethereum will be able to support more complex smart contracts and decentralized applications. In addition, with the integration of Layer 2 solutions, Ethereum will be able to handle more transaction data and better meet market demands. This will provide developers and businesses with more opportunities to create more valuable applications and services.
However, the implementation of the Ethereum 2.0 upgrade also faces some potential risks and challenges. Firstly, due to the significant changes required for the upgrade, there may be issues with inconsistent node versions, leading to reluctance or inability to upgrade. Secondly, the upgrade's impact on the Ethereum ecosystem is uncertain, and existing applications in the Ethereum ecosystem may experience compatibility issues due to the upgrade. Finally, the upgrade schedule also has uncertainties, and technical challenges and delays during the upgrade process may affect the progress of the upgrade.
The upgrade from Ethereum 1.0 to 2.0 is an important milestone for the Ethereum ecosystem, but its development never stops. With a clear roadmap, the development team is advancing the implementation of upgrades to various modules, unleashing the full potential of Ethereum and realizing the ideal decentralized network. It is expected that in the near future, we will see a more powerful and efficient Ethereum ecosystem. The flourishing development of Layer 2 will continue to inject new momentum into the Ethereum ecosystem, enabling more applications (including games) and data to be put on the chain. In future articles, we will delve into the public chain projects of the two Layer 2 tracks from the perspectives of Optimistic Rollups and ZK Rollups. Stay tuned!
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