#12

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Ethereum 2.0

The aftermath of Medalla’s crash

Shortly after publishing our previous newsletter, the final Ethereum 2.0 multi-client testnet, Medalla, crashed due to a time-related bug in the Prysm client, taking almost all of the validators offline.

Even though the initial bug was minor and it was quickly fixed, the consequences were serious enough. The whole network completely stopped after more than 70% of validators were slashed out. It took a few days to reach the necessary 66% of network participation to finalize new epochs — batches of blocks with transactions. Reaching finality over new epochs is essential for the network to function properly.

This issue comes as a good reminder about the importance of diversification and decentralization on all levels. The whole network wouldn’t have crashed if there was a fair distribution of nodes among the 5 existent Eth 2.0 clients. However, almost 75% of all validators preferred to use Prysm because it provided a good onboarding tutorial.

Despite all the issues with the testnet, developers stated that Medalla’s incident helped fix a few bugs and didn’t delay the launch date of Eth 2.0. Also, it’s important to clarify that the bug was not found in the protocol itself, but in one of the open-source clients — which allow users to interact with Ethereum 2.0 network by running a node.

Medalla is the final public testnet before the launch of Phase 0 of Ethereum 2.0 — a long-awaited transition from the current proof-of-work to a proof-of-stake consensus algorithm. This update is expected to help with network congestion, reduce transaction fees, and bring ETH staking rewards on the mainnet.

Ethereum ecosystem

DeFi is growing despite network congestion

While Eth 2.0 is still on the horizon, Ethereum’s mainnet continues struggling with high on-chain transaction fees amid growing interest in decentralized finances.

Aave, an open source non-custodial lending protocol, made a number of headlines by overtaking MakerDAO in total value locked (TVL) in a protocol, reaching over 20% TVL dominance among all other DeFi protocols. The crypto startup experienced a rapid growth in adoption after its U.K. business entity, Aave Limited, was granted an Electronic Money Institution license by the U.K. Financial Conduct Authority earlier in July.

Meanwhile, decentralized exchange Uniswap surpassed Tether’s USDT stablecoin as the largest gas spender on the Ethereum network, despite the latter has recently moved 1 billion USDT from TRON to Ethereum blockchain, allegedly due to a request from one of the major exchanges, according to The Block. Tether has also announced that due to high onchain transaction fees on the Ethereum network, the company integrated USDT into the OMG Network — one of Ethereum’s current scaling solutions.

On another note, Ethereum’s founder Vitalik Buterin raised once again his concerns over security of some DeFi protocols in a historical clash with Blockstream CSO Samson Mow on the What Bitcoin Did podcast episode, called “Bitcoin vs Ethereum”.

In other news

  • In response to a series of 51% attacks on the Ethereum Classic blockchain, ETC Labs published a multi-stage action plan to prevent similar attacks in the future. The plan includes immediate changes and long-term fixes, from enhanced network monitoring to switching to a different mining algorithm. Critics argue that on a decentralized censorship-resistant, network miners should simply follow the longest chain. The action plan reveals a common struggle of many minority chains to resist 51% attacks.

  • Pro-democracy Hong Kong newspaper Apple Daily published a full-page ad on its front promoting Bitcoin to its readers with the message that “Bitcoin will never ditch you”. According to Reuters, major banks in the region are screening their clients for potential ties to city’s pro-democracy movement, which many fear can lead to difficulties with accessing banking services.

  • New York-based startup ConsenSys acquired open-source blockchain platform Quorum, which was developed internally by American investment bank JPMorgan. As part of the deal, the bank made an undisclosed strategic investment in ConsenSys.

  • The Boston Fed, one of 12 regional Federal Reserve banks in the U.S. central banking system, confirmed its collaboration with the Massachusetts Institute of Technology (MIT) in actively testing a digital dollar. The end goal of this collaboration is to publish a joint research over the next two years, which might help create an actual tokenized version of the U.S. dollar, issued by the Fed.

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