V.1.0, December 20, 2018
All rights reserved
Executive Summary
The cryptocurrency market is going though one of its
most difficult stages so far. Ethereum and Bitcoin prices keep falling,
transaction processing times remain low, mining rewards are falling, and
suggested solutions for the issues of scaling and energy inefficiency are still
far from implementation.
These developments go against the established
expectation that the economy is about to undergo a fundamental shift, becoming
more decentralized. Blockchain enthusiasts have long hoped to see – and help
build – a world where cross-border transactions are instantaneous and free,
where individuals can conduct their business without the interference of banks
and other authorities, and where deals will not depend on trust between
parties. All this should be possible with blockchain – but can these advantages
be realized in the light of current problems?
Ethereum Classic Vision is a new cryptocurrency that
intends to bridge this divide of expectations and reality. A hard fork of
Ethereum, it will leverage most advanced solutions proposed for the world’s
second-largest digital currency, at the same time preserving the ideal of
decentralization. The project will combine such technologies as sharding, P2P
asset exchange, dApp development tools, and decentralized file storage using
IPFS. Starting out as a PoW-based system, it will later offer stable rewards to
transaction validators thanks to the implementation of Proof-of-Stake, at the
same time creating an optimal environment for deploying new assets.
The present White Paper provides a description of both
the challenges facing Ethereum and the technical
features of Ethereum
Classic Vision that will help the project
meet these challenges.
Further, the document outlines the upcoming hard fork, including a snapshot of
the Ethereum network that will allow all ETH holders to claim free ETCV coins.
1. Ethereum: current challenges and potential solutions
1.1. Ongoing crisis of
the Ethereum network
Ethereum Classic Vision is an upcoming hard fork of
Ethereum – a new cryptocurrency that proposes bold and efficient
answers to the crisis in the blockchain industry. Ethereum
– the world’s leading platform for development and
deployment of blockchain applications – currently finds itself in a deep crisis.
Numerous solutions are proposed, yet none of them have been implemented so far
– and the present course of Ethereum leadership does not instil much optimism
for the future. Fixing existing problems will take years, and the solutions
themselves can lead to even bigger issues down the line. The following list
describes only some of the major difficulties that have to be resolved if the
Ethereum community is to move forward:
1) Scaling. Ethereum currently processes only 15
transactions per second, and long backlogs of transactions often form in the
network. Since the Ethereum blockchain can only process one payment at a time,
its total capacity is only as large as that of each computer in the network.
Increasing the number of nodes cannot solve the issue, and as the number of
transactions increases, processing times will increase and gas fees will rise.
The solution is to switch from the Proof-of-Work consensus algorithm to
Proof-of-Stake (see below), but the transition is constantly being delayed, and
there is no indication of when it will happen.
2) Difficulty bomb. A special piece of code has been
introduced into Ethereum, making it progressively more difficult and less
efficient to produce new blocks. Eventually it will become so inefficient and
unprofitable that miners will abandon Ethereum and switch to other
cryptocurrencies. At this point all operations within the Ethereum network will
cease (this is known as the Ethereum ice age). The purpose of the difficulty
bomb is to stimulate the transition to PoS; however, seeing as developers
cannot reach an agreement on when and how to execute the switch, the “ice age”
is becoming an ever more probable scenario.
3) Declining rewards. Miners’
rewards have been in decline
for the past year due to rising complexity, a slump in
cryptocurrency prices, and excessive control acquired by large mining pools.
The leadership team of Ethereum has made the situation even worse: in an attempt to make the network more efficient and win some
time for the transition to PoS, they made the decision to decrease block
rewards to 2 ETH, provoking the anger of most miners.
4) Centralization. It is now clear that Ethereum has
failed its purpose as a truly decentralized network. The control exercised by
the Ethereum Foundation and its disregard for the opinion of the community, as
well as – perhaps most disturbingly – the growing concentration of mining
resources in the hands of ASIC producers (up to 70% of the hashrate is controlled
by just four or five pools) – testify to the fact that centralization in the
Ethereum network is growing.
5) Rental storage fees. Vitalik Buterin recently stated
that Ethereum will introduce fees for hosting smart contracts on Ethereum. At
present, there is only a one-time deployment fee; however, in the near future
developers will have to keep paying for their dApps to stay online.
1.2. Proof-of-Stake consensus algorithm: advantages
Proof-of-Work remains the main consensus protocol
utilized in the cryptocurrency space, mainly due to the fact that it is used by
the two largest blockchains – Bitcoin and Ethereum. Yet, PoW is highly
inefficient and lies at the root of many problems faced by these distributed
networks. At the same time, switching from PoW to Proof-of-Stake is a complex
undertaking that requires significant resources and careful balancing.
Ethereum Classic Vision is built as an advanced, fast,
easy-to-scale, and highly decentralized system, and Proof-of-Stake clearly does
not correspond to these objectives. Thus, after an initial period when the
platform will use PoW, a switch to PoS will be carried out. Unlike Ethereum,
which will most probably go through a lengthy partial testing stage (with one
block out of 100 validated using PoS), Ethereum Classic Vision will execute a
more decisive and confident transition. We firmly believe that introducing a
revolutionary upgrade in a highly limited form can only destabilize the
network, prolong discussions, create discord and ultimately make a full switch impossible.
The Proof-of-Stake concept is based on users staking a
significant number of coins (“freezing” them, as it were, so that they cannot
be spent) in order to be chosen as block validators, for which they get a reward. This consensus
algorithm has a number of important advantages over Proof-of-Work:
1. Energy efficiency. PoW-based blockchains are
notoriously inefficient when it comes to electricity. Bitcoin mining alone
consumes 0.33% of the global energy usage - more than the whole country of
Denmark (or any of other 150 countries, including most states of Africa).
Electricity spent on just one BTC transaction could power an average household
for a whole month. This inefficiency is caused by the fact that all validators
(miners) in a PoW network work on solving each block simultaneously, looking
for a solution to a cryptographic puzzle that changes every few seconds. By
contrast, running a PoS node does not require
much energy: it can be done using any computer
or even mobile
device.
2. Fair distribution of rewards. Proof-of-Stake networks
do not have block rewards – they offer only transaction fees to validators.
While these are naturally lower than the standard block reward in ETH or BTC,
the resulting long-term profits are comparable to those obtained with PoW,
since operational costs are so low. As a result, even a user with a basic $40
Raspberry Pi computer can become a validator, as long as he or she stakes
enough coins (which will come out much cheaper than buying a mining rig). All
users are put in equal conditions when earning rewards with a PoS system like
Ethereum Classic Vision.
3. Decentralization. Even if Bitcoin and Ethereum claim
to be decentralized, they are not. The creation of new coins in itself is ever
more concentrated in the hands of large mining pools (according to some data, 51% of the Bitcoin hashrate
is already controlled by pools, with over
40% owned by Bitmain alone https://www.ccn.com/bitmains-mining-pools-now-control-nearly-51-percent-of-the-bitcoi n-hashrate/) Independent miners without access to economy of scale have all but lost hope to
compete with large rights. Naturally, this is very far from the ideal of
decentralization and equality. PoS systems are just the opposite: there are no
mining farms, no economy of scale, and even staking more coins than anyone else
will never allow one validator to take over.
4. Security. It is often stated that PoW is safer than
PoW, since it would require a successful attack on 51% of all nodes to hack a
blockchain, which seems impossible (or at least economically unjustified).
However, one needs to keep in mind
that for smallprojects that have only just launched 51% of all nodes
can be a small number. In fact, it can cost less than a thousand dollars to
hack a smaller blockchain network (which was amply demonstrated by the 51%
attack on Bitcoin Gold, when $18 million was stolen: http://fortune.com/2018/05/29/bitcoin-gold-hack/ In this context, PoS offers equal security to
projects of all sizes, since block validators lose their deposits if they break
the rules or act maliciously.
5. Stability
The price of PoS-based cryptocurrencies, including
Ethereum Classic Vision, will remain more stable in the long run and exhibit a
steady growth rather than uncontrolled volatility that can be seen with
Bitcoin. Indeed, validators have no motivation to sell their ETCV coins, since
they would lose their stake and the right to validate transactions. By holding
coins one earns more than by speculating with them on an exchange.
PoS does have its challenges - for example, staked
coins have to be stored in a secure offline location, which can lead to the
emergence of powerful centralized cold storage “vaults” that can become points
of failure. Moreover, miner rewards with PoS may not be as high as they were in
the best periods of PoW mining. However, the benefits of PoS for the crypto
community and for the environment easily outweigh these issues.
2. Technical
features of the project
Ethereum Classic Vision aims to resolve the major
issues facing Ethereum, including scaling, mining inefficiency, and high costs
of data storage. The transition to Proof-of-Stake, described in Chapter 1,
constitutes the key element of this plan, but a number of additional modules
and features will also play an important role. This section introduces the
solutions proposed by Ethereum Classic Vision, their advantages, and
implementation plan.
2.1. VisionDEX – a decentralized exchange
Ethereum Classic Vision follows the principles of true
decentralization and independence promoted by Ethereum Classic and lost in
Ethereum as we know it today. Therefore, one of the founding team’s priorities
is to provide Ethereum Classic Vision users with a way to conduct market
operations without relying on centralized exchanges. Integrating a
decentralized P2P cryptocurrency exchange – named VisionDEX – will ensure that
Ethereum Classic Vision holders will retain full control over their assets and
will not lose them to hackers as it happened at such exchanges as Coincheck
($500 million stolen), Coinrail ($40 million) and even the supposedly
decentralized (and actually hybrid) Bancor ($23 million). A P2P exchange like
VisionDEX also protects its users from closure by the authorities (as happened
to numerous centralized exchanges in China and Korea), bankruptcy, and
malicious or incompetent actions of the organizers.
At VisonDEX, all major functions – asset exchange,
order matching and handling order books – will be carried out using smart
contracts. In particular, a smart contract will function as a trustless
multisig escrow, holding the currency sent by the buyer until the matching
amount in the other currency is received from the seller.
The exchange will be built on the principle of currency
neutrality: it will allow users to store not only ETCV, but also also ETH, ETC,
ERC20 tokens, BTC, BCH, XLM, and others. All digital assets created using the
Ethereum Classic Vision dApp platform (see blow) can also be listed on the
exchange and made available to buyers even prior to a project’s launch. This
means that VisionDEX can be used as a fundraising platform for blockchain
startups and to conduct initial token offerings. Anonymous trading will be
available. Since VisionDEX will be hosted by multiple nodes across the Ethereum Classic Vision network, its downtime can be expected to
be close to zero. Liquidity will be provided by a combination of private and
public reserves.
Absence of a third-party authenticator will allow to
keep transaction fees on VisionDEX at a very low level. However, it will also
mean that the underlying smart contract will need to be heavily audited prior
to launch to exclude the risks of redundancy attacks, overflows, underflows,
and other vulnerabilities. The audit will be conducted by one of the leading
specialized companies and is scheduled for April-May 2019.
In the second implementation stage, we plan to
introduce a range of market tools that are presently absent from most existing
decentralized exchanges, including margin trading, stop-loss limits, limit
order, and trades in derivatives, such as cryptocurrency futures. Latency times
will be decreased to provide opportunities for high-frequency trading. This
second stage is preliminarily planned for Q2 2020.
2.2. Platform for decentralized application development
While a vast majority of new dApps are developed within
the Ethereum framework, it is far from the most efficient solution due to the
problems described in section 1. A constantly growing number of dApps (most of
which fail to achieve adoption and remain in the system as dead weight) creates
congestion, and the whole system is subject to unpredictable changes imposed by
the centralized leadership of Ethereum.
To provide an alternative environment for blockchain
startups, Ethereum Classic Vision will introduce its own subplatform for
developing new decentralized applications, with a range of tools, including a
sidechain development kit and a vast database of pre-made smart contracts,
plug-and-play applications, and modules created by the Ethereum Classic Vision
community and provided both for free and for a fee in ETCV. The Ethereum Classic
Vision dApp platform will feature both back-end and front-end development
tools, allowing users to build a complete application with an attractive UI and
added native apps for Android and iOS without recurring to third-party
services. There will be no smart contract storage rental fee, only a one-time
deployment fee. However, the Ethereum Classic Vision community will hold
regular votes to place unused smart contracts in the sleep mode to free up
resources. An app can be “woken up” from such sleep by a one-time payment of an
additional fee. This will address an issue plaguing Ethereum: a large number of applications are eventually abandoned
due to lack of interest or funding but are never removed
from the network.
The platform will support Ethereum Virtual Machine and
Solidity; however, it is important to note that developers working in the
Ethereum Classic Vision environment can also use other established languages,
such as JavaScript, and new languages, including Vyper and Red. It will be
possible to migrate existing dApps from Ethereum and Ethereum Classic to
Ethereum Classic Vision with relative ease. Both fungible and non-fungible
coins and tokens can be created on the Ethereum Classic Vision dApp platform,
and each new asset can be immediately added to the VisionDex P2P exchange (see
below).
In the second implementation stage, we plan to
introduce a comprehensive set of features aimed at users will limited or no
programming skills in accordance with the principles of the zero-code movement.
Even non-tech startup founders will be able to compose their own prototype or
MVP with a functioning blockchain using drag-and-drop elements. The second
stage will also introduce sidechains for hosting individual dApps, which will
ensure that potential vulnerabilities of new applications will not cause
stability issues for Ethereum Classic Vision. Support for mobile smart
contracts will also be introduced. Finally, we plan to add the option of
migrating dApps from virtual machines other than EVM, including EOS, NEO, and
Lisk.
2.3. Sharding
Scaling is perhaps the most urgent challenge faced by
blockchains. With all their advantages – decentralization, immutability of
records, low fees, etc. - the inability of networks like Ethereum to scale threatens
their entire future development. Indeed, while Visa processes 24 thousand
transactions per second, Ethereum can currently process only
25. This creates a long backlog of transactions
awaiting confirmation and can at times stall the whole system, as it happened
in December 2017 at the height of the Cryptokitties craze. The scaling problem
is not an unexpected development – it is a logical consequence of the very
structure of the network.
An ideal blockchain system should have three
properties: security, scaling, and decentralization. In reality, networks
normally have only two of these: for instance, Ethereum Classic is properly
decentralized and secure, but it doesn’t scale. By contrast, Cardano is both fast (that is, it scales well) and
secure, but it is centralized. As explained above, slow speeds on Ethereum are
caused by the consensus algorithm, which requires the majority of nodes in the
network to approve each transaction. This has to be done in sequence – one
operation after another, meaning that transactions cannot be parallelized.
While switching to PoS will already put Ethereum Classic Vision in a good
position to solve the scaling problem, additional measures will need to be take
to make the network as fast as necessary to satisfy the needs of future growth.
The best solution proposed so far – and the one that
Ethereum Classic Vision will implement – is sharding. The concept is already
widely used in databases and is expected to become the new standard for
cryptocurrency network in the next two years. In this model, the entire network
state is divided into a number of fragments, or shards, each of which has a
decentralized structure. Since each node only processes information related to
its shard and does need to occupy itself with the transactions happening on
other shards (except for cross-shard operations – see below), processing of
payments is effectively parallelized, with the capacity increased manifold.
Each shard also has its own set of validators, all of whom have to stake enough
coins to be included in the validator pool (see section 2.1. - PoS).
To implement sharding, Ethereum Classic Vision will
introduce a special beacon sidechain that will function as a source of
pseudorandomness when selecting validators for each shard. A sharded system is
more vulnerable to attacks, since it potentially takes only 1/n of the hashrate
(where n is the number of shards in the system) to compromise a whole shard.
The key to protecting the Ethereum Classic Vision network against such attacks
is to ensure that validators are selected pseudorandomly (that is, the
selection process for all shards has a common source of randomness) and that
they cannot know in advance which shard they will be assigned to. The beacon
chain will also contain information about the current state of each shard,
acting as a connecting link between them, though the sidechain by itself forms
a separate Merkle tree and does not act as a part of the Ethereum Classic
Vision blockchain.
When an ETCV payment is sent by a user on one shard to
somebody on another shard, a system of Vision Receipts will be used to process
them. An initial transaction sent to Shard 1 reduces the Ethereum Classic
Vision balance of User A (sender) and creates a receipt, which is stored separately from the main state; a second transaction, which includes the receipt, is sent to Shard 2, where the
receipt is checked; finally, the balance of User B (recipient) is increased
accordingly.
We expect that the introduction of sharding will allow
to increase the capacity of Ethereum Classic Vision to 10 000 tps in the first
implementation stage with 100 shards in the system. We expect to launch the
beacon chain and begin sharding in the testnet by August-September 2019. In the
second phase (scheduled for early 2020), we expect to introduce a dynamic
growth of the number of shards.
2.4. IPFS data storage integration
For all dApps and blockchain platforms that must store
large volumes of data, the file storage challenge becomes just as important as
the scaling challenge. Indeed, projects in fields as varied as medical care,
insurance, design, coding, and social networking rely on heavily on files
created by users – mages, code repositories, videos, technical manuals, etc.
However, blockchains themselves cannot be used to store such items – they
simply were not designed for the purpose. Standard blockchain transactions are
cheap because the amount of data transmitted is limited to several bytes. Any
attempt to store larger files on a blockchain would push transaction fees
beyond a reasonable limit – for instance, it would cost thousands of dollars to
cost 1 GB of data.
For this reason, any blockchain project that requires
data storage presently has to use centralized servers to store files, which
goes against the concept of decentralization and creates single points of
failure for the whole system. Luckily, new, far more decentralized solutions
already exist and will be implemented by Ethereum Classic Vision as part of its
plan to become a major platform for dApp development.
Decentralized data storage
implies renting out one’s unused hard drive space. All kinds of users can be included in such a network
– from owners of average laptops and home computers to mining farms seeking to compensate
for falling profits. The leading solution in the market is IPFS, or
Interplanetary File System, which is fully decentralized, operational, and
already connects many thousands of users.
IPFS has a lot in common with the more advanced
blockchains, though it uses a very different technology. Each large file stored
in the system is sharded, with each shard receiving its unique cryptographic hash (just like a
transaction on a blockchain). All hashes are stored in a table, which is updated
automatically whenever a new file enters the system. Each shard of each file is
stored in numerous copies by multiple users, making sure that it remains
available even when some users are offline. For storage of proprietary and
confidential data, standard cryptographic mechanisms can be used (both
symmetric, such as SHA-256 hashes, and asymmetric – taking into account
possible threats presented by the advance of quantum computers to asymmetric
cryptography as a whole).
It is important to note that IPFS itself is not a
project or platform – it is an underlying protocol that can be easily
integrated with any other system, including Ethereum Classic Vision. Our
implementation of a decentralized data storage module will introduce monetary
rewards for storing files (paid in ETCV coins). Prices for storage will be low
compared to traditional cloud storage solutions like Amazon and Azure (and
below the pricing levels of other decentralized storage platforms like Storj),
while download speeds will be high enough even for such resource-hungry
applications as design and rendering platforms.
Storage fees will contribute the necessary revenue to
promote further development of the Ethereum Classic Vision network in its more
advanced stages, including research into superquadratic sharding, second-layer
payment protocols, and hardware-driven consensus protocols.
According to the Ethereum Classic Vision implementation
plan, the introduction of our Vision Storage module will closely follow the
launch of the dApp platform and is scheduled for July-August 2019. Full
integration of the storage module and rewards system is expected in late 2019.
3. Project implementation
The section describes the major steps in the process of
implementing Ethereum Classic Vision and its modules, starting from the
snapshot of the Ethereum network. A detailed roadmap is provided, listing both
development stages and a promotional campaign.
3.1. ETH network snapshot and
distribution
The initial distribution of free Ethereum Classic
Vision coins will take place after a snapshot of the ETH network, which is
scheduled for January 11, 2019 (20:00 GMT). Taking a network snapshot
constitutes a standard practice for cryptocurrency hard forks and produces a
list of all blockchain addresses containing a certain coin or token.
Any user who is found to hold Ethereum coins in their
private wallet at the moment of the snapshot will receive free Ethereum Classic
Vision coins at a 3:1 ratio. For example, a user who holds 100 ETH in a private
wallet (such as Coinomi, Jaxx, or Ledger Nano) will be able to claim 300 ETCV
for free. It is crucial to stress that only ETH stored in personal wallets
(desktop, mobile, or cold storage) are eligible for free ETCV after the hard
fork. Users who hold their ETH in exchange wallets cannot claim the reward.
Once the snapshot is completed, ETH holders will be
able to dispose of their coins as they wish, including transferring them to an
exchange, selling them, or exchanging them. The amount of free ETCV airdropped
to ETH holders depends only on how many coins they own at the moment of the
snapshot – not before or after it.
3.2. Project Roadmap
Q3-4 2018 ETH hard fork ideation & development;
formation of the team; negotiation with and signing up first advisors
Jan 11, 2019 Snapshot of the ETH network &
distribution of Ethereum Classic Vision coins
Q1 2019 Introduction of the dApps platform (initially
with new dApps residing on the mainchain and support for migration from Ethereum
and Ethereum Classic virtual machines); establishment of key technological
partnerships; listing Ethereum Classic Vision at a number of major digital
exchanges; testing the P2P exchange module
Q2 2019 Implementation of the P2P decentralized
exchange module; onboarding of an advisory board specializing in sharding and
decentralized storage technology; work on the sharding protocol; development of
the decentralized storage system based on IPFS; testing the PoS consensus
protocol; roadshow covering major coding events and hackathons in Europe and Asia.
Q3 2019 Switch to the PoS consensus protocol;
integration of the dApp platform with VisionDEX; Sharding implementation;
testing of the file storage module and the associated rewards system;
attracting advisors from the field of the zero-code movement.
Q4 2019 IPFS integration with rewards for storage space
providers, launch of a marketing campaign for the storage system; establishing
partnerships with blockchain foundations in North America and East Asia;
expanding the number of digital exchanges where Ethereum Classic Vision is listed.
Q1
Beta testing of additional features for VisionDEX (margin lending, limit
orders, etc.)
Q2 2020 Integration of new exchange features:
stop-loss, limit orders, margin trading; implementation of a Sidechain
Development Kit for the dApp platform
Q3 2020 Implementation of cryptocurrency derivatives
trading; introduction of a migration tool for dApps developed outside of EVM
(NEO, EOS, Lisk, Stratis)
Q4
2020 Integration of a zero-code, drag-and-drop dApp development module
3.3. Concluding comments
The main objective of Ethereum Classic Vision is to
create a truly decentralized, trustless economy that can serve as a base for a
wider adoption of cryptocurrency payments and real-life applications of
blockchain. To make this a reality, we will combine the integrity and
commitment to decentralization that is characteristic of Ethereum Classic with
the power and variety of technological solutions developed for Ethereum. With
its decentralized exchange, platform for dApps, and upcoming decentralized file
storage and sharding features, Ethereum Classic Vision will be a fast, secure,
cheap, and user-friendly environment. The implementation of a Proof-of-Stake
consensus protocol will ensure energy efficiency, equal level of security for projects
of all sizes and at all stages of development, and fair distribution of mining
rewards.
ETCV coins will be distributed for free among ETH
holders after a network snapshot on January 11, 2019. In the following several
months, ETCV will be listed at a number of large cryptocurrency exchanges (the
project team is currently conducting negotiations with several of them) and
launch its dApp development framework, where blockchain startups will be able
to create and deploy new services, adding their assets to a specially build P2P
exchange – Vision DEX.
The team of Ethereum Classic Vision firmly believes
that the current problems of Ethereum cannot be resolved in the short term.
Recent protracted discussions on the switch to PoS and implementation of
sharding and second-layer payment protocols (like Plasma and Raiden), which are
not accompanied by any concrete actions, demonstrate that the expected
evolution of Ethereum will take years. As the ETH network becomes slower and
more congested and consumption of electricity by the mining industry keeps
growing rapidly, faster and more decisive measures need to be taken to produce
real change. Ethereum Classic Vision presents a model of such change – a
versatile environment that looks decisively forward and looks to efficiently
balance decentralization, scaling, and security.
