The Benefits of Altair Update

On October 27th, Ethereum changed some features from the beacon chain, mostly known as the Altair fork, the first fork from the beacon chain.  The changes can be viewed in detail in EIP-2982. It improves light client support, minor patches to incentives, per-validator inactivity leak accounting, increases slashing severity and cleanups to validator rewards accounting to improve state management.

Its main features are (Buterin, 2021):

1. Sync committees:  It is a committee of 512 validators randomly selected every day approximately that allow light clients (help users access and interact with a blockchain in a secure and decentralized manner without having to sync the full blockchain) to keep track of the chain of beacon block headers with very low computational and data cost. Light clients could run inside any environment (mobile, embedded hardware, browser extension and even inside another smart-contract-capable blockchain).
2. Incentive Accounting Improvements:
   1. Bitfield format instead of storing “Pending attestation” objects which reduces spec complexity.
   2. Making the “inactivity leak” quadratic per validator instead of quadratic globally.  The inactivity leak penalty occurs when the network stops finalizing (transactions that cannot be changed) blocks due to a number of validators going offline simultaneously.  Making the “inactivity leak” quadratic per validator would mean that for a validator that is active more than 75% of the time and goes offline, the penalty is 0.3% of its balance. And for a fully inactive validator the penalty would be 15.4% of their balance.This makes inactivity leaks more forgiving to honest-but-imperfect validators and creates an incentive to validation continuity. And on top of that, it increases the participation of more validators and decentralization.
3. Penalty parameter updates: Inactivity leaks and slashing are more punitive.  

Source:beaconscan.com

These changes do not affect users in the sense of user experience, they did not feel the change. Instead it changed some ground rules for validators making the consensus protocol more efficient and fair.  

Why is the Altair Update important?

Source: Ethereum Foundation (2021)

Is the first step towards the merge where the data stored in the Ethereum 1.0 blockchain will pass to the Beacon Chain allowing the new consensus protocol, Proof of Stake. The next step will be reached in Phase 1.5 when the existing network is merged with the beacon chain and Phase 2.0 will add execution to the shards. As mentioned in The Impact of Ethereum 2.0, one of the top benefits of the change to Proof of stake is scalability. In order to increase the transaction and database speed, there is a second layer that handles transactions off the main Ethereum chain (Layer 1). The beacon chain (coordination layer) allows people to “stake” and coordinate the validators on the platform and the Shard chain (data layer) splits the database horizontally increasing the capacity to store and access data (from 15 transactions per second to more than 2,000 TPS). These changes are necessary for reducing fees, encouraging open participation, and allowing faster transaction throughput.

In addition, Proof of Stake is secured by the fact that an attacker would need 51% of the total staked ETH to defraud the chain and the attacker’s stake would be reduced for malicious behavior. The risk of an attack is reduced as there is a higher probability of losing the stake. Validators will lose part of their stake if they approve fraudulent transactions. As long as the stake is higher than what the validator gets from the transaction fees, they will not risk more money than they gain.  

Another important change when reaching Ethereum 2.0 would be the decentralization of the blockchain. When using “Proof of Work”, miners with better equipment had the advantage and a greater probability of being elected for mining rewards, in contrast, “Proof of Stake” randomly chooses proposers of the block and validators (attesters) vote for the proposed blocks. The votes determine the head of the Beacon chain and the head of the shards. In consequence, the validator receives a reward if other validators vote for the proposed block.

This happens every 12 seconds (1 slot). 

Source: beaconscan.com

The Altair update is the beginning of a more conscious blockchain that adapts itself to the current environmental conditions. The change from proof of work to proof of stake is the first attempt towards energy consumption reduction.  By switching to PoS, the Ethereum Foundation says that the energy cost of each transaction could be cut by 99.95 percent. Being climate change one of the top challenges worldwide we can expect innovation and new changes in this regard.

Source: Ethereum Official blog

Does the Altair update affect micobo?

micobo’s clients benefit from Ethereum network developments and updates, even if they do not see it. Updates are set automatically for users and Altair changes only affected validators who needed to update their systems to avoid penalties. micobo’s clients will benefit from reduced costs per transaction, the scalability of the Ethereum network, security, and their stability in the near future. 

micobo’ Security Token Offering uses ERC20 and ERC1400 compatible standard smart contracts that will logically benefit from a solid and scalable network. On one side, transactions will be validated faster due to the scalability implementations, continuing with the decentralization of the Ethereum network and the energy consumption efficiency (which goes along with the Environmental, Social and Governance-ESG goals). 

About micobo

micobo GmbH is a leading European software company for Security Token Offerings and Blockchain Software Development (DLT). It provides fully compliant software solutions for Security Token Offerings and advises on structuring DLT- and Blockchain-based Securities. micobo empowers financial institutions with state-of-the-art technology focusing on providing a better customer experience and achieving measurable results.

Author

Laura Andrade (la@micobo.com)

Bibliography

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• Beaconscan. Charts and Statistics.2021.  Retrieved from https://beaconscan.com/statistics. Last Accessed 17.11.2021.
• Ethereum. The Beacon Chain Ethereum 2.0 explainer you need to read first. 2020. Retrieved from https://ethos.dev/beacon-chain/. Last Accessed 17.11.2021.
• Ethereum. Minimal Light Client. 2021. Retrieved from  https://github.com/ethereum/annotated-spec/blob/master/altair/sync-protocol.md Last Accessed 17.11.2021.
• Ethereum. The Beacon Chain. 2021b. Retrieved from https://ethereum.org/en/eth2/beacon-chain/.  Last Accessed 17.11.2021.
• Sardan, Thibaut. What is a light client and why you should care?.2018. Retrieved from https://www.parity.io/blog/what-is-a-light-client/. Last Accessed 17.11.2021.