Ethereum, the world's second largest blockchain platform after the bitcoin network, has acquired hundreds of thousands of users worldwide in the four years that it has been in business. Given Facebook's announcement that it will enter the sector and the increased competition in the market, however, it is not clear whether Ethereum will overcome the challenges and maintain its lead in the blockchain industry in the coming years. ConsenSys, the world's largest blockchain company, whose activity is based on Ethereum, recently held a gathering to discuss precisely this question.
ConsenSys is structured like a conglomerate; it is a group of private companies under the same ownership with different activities in the same sector. All of the companies' activities are based on the Ethereum platform, whose digital currency, Ether, is the second biggest in the market after bitcoin. Many of the other currencies in the cryptocurrency market are also based on Ethereum technology, and ConsenSys itself plays a significant role in the development of the Ethereum ecosystem. The company, however, emphasizes development of blockchain applications for corporations that are not necessarily interested in offers of digital currencies on cryptocurrency exchanges.
Ethereum's blockchain, launched in 2015, was the first to facilitate the creation and use of smart contracts, and quickly became the leading platform in the field. A smart contract is a software-based contract that enables the parties to contract a binding agreement without any trust between them and in a completely decentralized way, without any intermediary or supervising body. As with any software, the strength of a smart contract is dependent on the reliability of the code that created it. Such contracts are liable to be exposed to software malfunctions and security breaches, as has already occurred.
Blockchain developers for financial corporations
Besides Ethereum, other, competing blockchain platforms offering tools for creating smart contracts have arisen in recent years. Some of the better-known ones are NEO, NEM, Hyperledger, Cardano, and EOS. Last month, Facebook announced Libra, its digital currency project, which is also designed to offer smart contracts. Facebook's entry into the industry is likely to have a decisive effect on all the players in the market. Up until now, Ethereum's main advantage over its competitors was its large community of developers, which has grown up rapidly around it in the past four years, and is now estimated at 70,000 developers.
ConsenSys was founded in 2015 by CEO Joseph Lubin, a Canadian and one of the founders of Ethereum. Its startups develop software infrastructure and applications for large enterprises, based on Ethereum, including technology companies and financial corporations. Among the major corporations using Ethereum are JP Morgan Chase, the largest bank in the US, which recently developed its own digital currency, called JPMCoin. This currency is based on the Quorum platform - a private version of Ethereum for the bank's own use.
Other examples of business or commercial uses of Ethereum technology developed in cooperation with ConsenSys are the komgo blockchain platform, a network for trading in energy commodities held by a group of corporations, including Citibank and Royal Dutch Shell; a blockchain platform for securities trading of the BNP Paribas bank; and the Liquidshare blockchain platform for trading in shares of small and medium-sized businesses, which is jointly owned by nine international financial corporations.
Weakness in the market led to restructuring
Against the background of the negative trend that prevailed in the digital currencies market last year, including a steep slide in Ethereum's value, ConsenSys announced a restructuring plan in December 2018. 200 employees left the group, which now has 1,000 employees. The group's headquarters are in Brooklyn, New York, and the group's companies employ teams in North and South America, Europe, Asia, Africa, and Australia. As reported by "Globes" this week, Lubin is being sued for $13 million in New York by one of the managers who left the company.
Lubin visited Israel a year ago for a conference that his company held in Tel Aviv. He told "Globes" at the time that the company he headed "is developing software and building various systems based on Ethereum's dApps decentralized applications platform. We focus on this, and the value of the currency doesn't interest us." A few months later, the company began operating in Israel, with Dror Avieli, who joined ConsenSys in January 2018 and manages its customer relations, managing its local activity.
Lubin is scheduled to visit Israel two months from now for the Blockchain Week events, which will be held in Tel Aviv for the first time, and he will take part in the Ethereal Summit on September 15, together with Ethereum founder Vitaly Buterin, 25, and other leading blockchain industry figures.
Like bitcoin, the blockchain inspired by Ethereum is based on a proof of work mechanism as part of the digital currency mining process. Under this mechanism, the miners (who usually work through a mining farm with thousands of computers and special servers) participating in the currency network are required to solve a computational problem, the solution of which proves that they invested a specific quantity of computer resources. They therefore require expensive computing equipment that consumes a great deal of electricity. In contrast to bitcoin, however, Ethereum's community of developers has been talking for a long time about switching to a new mechanism for verifying the information on the blockchain and ensuring its security - a proof of stake mechanism. This is ostensibly a technical change, but it has the potential for a dramatic increase in the volume of activity on Ethereum. The Ethereum community regards this measure as a transition to the next generation of Ethereum, called Ethereum 2.0
Transition to the second generation will take over two years
Although Lubin told "Globes" a year ago that Etherium's new blockchain would be launched in 2019, it is now clear that the process will take far more time. In a meeting held by ConsenSys this month on the WeWork site in the Midtown Office Tower in Tel Aviv, Daniel Heyman, software engineering manager of PegaSys Protocol Engineering, one of the startups operating under ConsenSys, said that the launch of an Etherium 2.0 testnet was planned for January 2020, less than six months from now.
Heyman told "Globes" that development of Ethereum 2.0 and fully installing the new technology would take over two years. He added that the first stage in the work plan was the most difficult - developing blockchain infrastructure, called Beacon Chain, based on the proof of stake mechanism. This stage will be completed by the end of this year. The next stage, on which research and development is now taking place, is construction of networks of shard chains on the blockchain. This will be completed by the end of 2020. The final stage, referred to as the state execution stage, will be completed by the end of 2021. Heyman says that Ethereum's new blockchain will be put into use in parallel with the existing blockchain based on proof of work, until Ethereum 2.0 gradually replaces the old blockchain, which will be removed from use.
"The two main goals in the development of Ethereum 2.0 are creating a proof of stake mechanism and creating a network that facilitates decentralization of data over segments (a software concept called sharding)," Heyman explains. "Today, every intersection in an Ethereum network has to process all of the information on the blockchain. This is very safe and decentralized, but it is also very inefficient. The idea with sharding is to facilitate more efficient information processing in the sub-networks system, so that the main network will know that the process is being done properly, and that all of the users on the network can trust it. We expect these segments to eventually make it possible to increase the volume of token transfers on the Ethereum network a thousand-fold to the same scale as the current volume of money transfers on Visa's credit card network, for example."
Heyman believes that increasing the network's output is the main added value in Ethereum 2.0. He says that in the work plan for Etherium 2.0, a switch is planned from the software language currently used on Ethereum to create smart contracts (Solidity) to a more advanced software language named Ewasm, which makes it possible to create more reliable and safer contracts.
"From outside, the development looks like chaos"
The difficult process of switching from Ethereum 1G to Ethereum 2G involves quite a few technological difficulties and professional disagreements, both within Ethereum's community of developers and outside it. "Because of disagreements on the development of Ethereum, the process is likely to appear like chaos to those observing it from outside," Heyman says, "but actually, this is the best way to create new ideas and obtain the best solutions."
Heyman compares it with the process of developing the Linux operating system in the 1990s. "There is a well-known article about the development of Linux, entitled "The Cathedral and the Bazaar." The argument there was that, up until then, most computer operating systems had been built like cathedrals, with only one or two architects. Linux, by contrast, was built like a street market, with hundreds of engineers and developers - and that looks exactly like chaos. In the end, however, an unstoppable force was created. I think that the process of building Ethereum 2.0 is similar to that."
"Globes": Who are ConsenSys's main customers right now?
Heyman: "The customers are mainly consortia of large corporations, for example groups of financial companies or logistical networks, which are looking for an Ethereum-based blockchain suitable to their needs," says Heyman. According to him, every Ethereum-based private blockchain network can create its own digital currencies, or "tokens," as they are called in the blockchain industry. "These tokens can represent securities or specific services, depending on the needs of the enterprise using the blockchain. In my opinion, the tokens are Ethereum's most important feature. One of our goals in the company is to enable corporations to create value from the tokens on blockchain."
What is the advantage of the tools offered by Etherium over those of other blockchain platforms?
"Ethereum has the largest community of developers in the industry. If you're a developer who wants to work on blockchain, it will be much easier for you to do it in an environment in which there are more developers," Heyman says. He nevertheless adds, "All of the blockchain technologies bring with them tremendous ideas, and there is value in them. They are likely to be better than Ethereum in certain things, and we can learn from them. It's good for everyone."
"No large Israeli concern has adopted blockchain"
On September 15, two days before the upcoming elections, the Ethereal Summit will take place in Israel in the framework of the Blockchain Week events in Tel Aviv. This series of events, which will be held in Israel for the first time, is expected to attract many visitors from the blockchain and digital currencies industry in Israel and all over the world.
"The date of the event was set long before this crazy country decided on another round of elections" Avieli tells "Globes" with a smile. In addition to the Ethereal Summit, led by ConsenSys, Blockchain Week will offer conferences, hackathons, and events at which developers and entrepreneurs dealing in bitcoin, Ethereum, and other blockchain platforms will meet each other.
The Ethereal Summit consists of a series of meetings related to various technological, financial, business, social, and cultural aspects of blockchain, with a focus on Ethereum solutions. "The Ethereal Summit has always been a place for cooperation and experiment, and for thinking, and discussion by blockchain industry leaders," Avieli says.
ConsenSy's first conference in Israel was in May 2018 at the Tel Aviv Stock Exchange. As part of the company's roadshow for local investors and entrepreneurs. "We decided following the roadshow that it was really necessary to establish activity here," says Avieli. "Today, in Israel, we focus on creating cooperation and finding blockchain ventures for investment, mainly in Ethereum." As part of this, ConsenSys invested in Israeli startup StarkWare, founded in early 2018 by Eli Ben-Sasson, Michael Riabzev, Uri Kolodny, and Alessandro Chiesa.
Avieli adds, "People in Israel really like jumping to the newest network, but ConsenSys has a clear direction in this matter. It's important for entrepreneurs and developers in Israel to know about our presence here, and that they can get our help and advice in the sector… Israel has many large business concerns and government agencies for which blockchain solutions could be suitable, but so far, although Israel is the startup nation, we have not yet seen large concerns adopting this technology."
Published by Globes, Israel business news - en.globes.co.il - on July 29, 2019
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