[ETH Letter] Ethereum Issuance Reduction EIP Withdrawn... "Monetary Policy Requires Greater Consensus"

Ethereum. Source=Zoltan Tasi/ Unsplash
Ethereum is a network that holds the largest ecosystem base in the world in terms of key indicators such as the number of developers and total value locked (TVL).

The ETH Letter brings you the major news from the Ethereum ecosystem that Ethereum Korea has reported over the past week.

Ethereum Korea is an organization composed of Korean Ethereum Foundation officials and key contributors to the ecosystem.

Research Field News

1. Outline of the Hegota Headliner

The outlines of the Ethereum Improvement Proposal (EIP) candidates to be included in the upcoming Ethereum upgrade, Hegota, are emerging.

At the recent 246th ACDE meeting, a total of 10 EIPs, including 3 EIPs supporting frame transactions and proposals related to the removal of bloom filters, were elevated to the CFI stage.

ACDE is a meeting where core developers of the Ethereum execution layer discuss issues related to protocol upgrades.

CFI stands for Considered for Inclusion, meaning that specific candidates will be officially reviewed for inclusion in an upgrade.

The headliner for the execution layer of Hegota has already been determined as EIP-8141 frame transactions.

Frame transactions are proposals aimed at making Ethereum accounts and transaction structures more flexible, supporting native account abstraction and new signing methods.

Some of the newly added candidates are responsible for auxiliary functions necessary for the frame transactions to operate effectively.

Discussions on the removal of bloom filters were also included.

Bloom filters are data structures used to quickly check whether desired data exists in a specific set.

While they have been utilized for log and event searches in Ethereum, there have been criticisms that they are inefficient or create unnecessary burdens in the current network structure and usage patterns.

New candidates have also been added to the consensus layer.

At the 188th ACDC meeting, EIP-8198, which deals with quick slots, and EIP-8365, which prohibits the creation of new 0x00 validators, were nominated as candidates.

Quick slots are proposals aimed at reducing the Ethereum slot time, currently about 12 seconds, to increase block generation speed.

A slot is the basic time unit in which validators propose blocks and other validators confirm them.

EIP-8365 is a proposal to prevent the creation of new 0x00 validators under the existing method.

0x00 validators are those with withdrawal eligibility types used in the initial Ethereum proof-of-stake structure.

This connects to the trend of transitioning to a more flexible 0x01·0x02 structure to streamline validator integration and fund management.

Development networks for frame transactions and PoS have also begun to operate.

A development network is a network where developers test new features before applying them to the actual testnet.

PoS aims to reduce the concentration of block composition authority by allowing multiple participants to propose transactions to be included in a block.

In simple terms, Hegota is not just an upgrade that includes one core feature, but rather an upgrade that is becoming more defined in scope by preparing for account abstraction, fast block generation, improvements to validator structure, and decentralization of block composition.

However, since CFI is not the final inclusion but a review stage, the actual inclusion will be determined after further testing and developer discussions.

2. Withdrawal of EIP-8363

EIP-8363, aimed at reducing Ethereum issuance, has been withdrawn from the Hegota upgrade candidates.

EIP-8363 proposed to reduce the new ETH rewards paid to validators as the staking ratio increases and to bring the net issuance rewards close to zero at certain levels.

The core concern was to prevent an excessive amount of ETH from being staked in Ethereum.

If staking continues to increase, an excessive amount of ETH may be locked beyond the necessary level for network security, which could require issuing a large amount of new ETH as validator rewards.

However, the proposal sparked significant controversy immediately after its announcement.

In particular, it was pointed out that issuance policy is not just a simple technical parameter but a matter that affects Ethereum's monetary policy, security budget, and the entire staking industry.

There were also concerns that if staking rewards decrease, solo stakers with higher operating costs than large operators could be pushed out of the market first.

Moreover, Ethereum staking yields are utilized as a sort of benchmark interest rate across the entire on-chain economy, including DeFi lending, liquidity staking, and institutional financial products.

Therefore, a sudden change in the reward structure could have broader ripple effects than expected.

Ultimately, EIP-8363 was withdrawn from the candidates for inclusion in Hegota.

However, discussions on altering Ethereum's issuance model itself have not concluded.

In the future, there is a possibility that it will be discussed again in a different form after establishing separate consensus procedures such as forums and workshops.

In simple terms, this withdrawal is more of a conclusion that "we should not reduce ETH issuance" rather than "let's not change the issuance amount."

This case shows that the process of social consensus, as well as technical consensus, is an important element of protocol change in Ethereum.

3. Vitalik, "Cryptographic World Computer by 2030"

Vitalik Buterin, co-founder of Ethereum, has published an article advocating for the development of Ethereum into a "cryptographic world computer" by 2030.

Ethereum has long held the vision of being a "world computer" that anyone can access and run programs on.

Vitalik believes that this should be combined with strong cryptographic verification capabilities.

Key elements include recursive STARKs, automated formal verification, consensus algorithm optimization, and quantum-resistant cryptography.

Recursive STARKs are a method of verifying one proof within another proof.

By utilizing this, many computational results and proofs can be bundled into a single small proof.

For example, it is possible to compress the fact that thousands of transactions have been processed normally into one proof for verification.

Automated formal verification is also a crucial aspect.

Formal verification is a method of mathematically proving that code or protocols operate exactly according to intended rules.

Currently, a lot of work is needed to determine which parts to verify and to design proofs manually.

However, as AI and automation tools advance, it will be possible to continuously verify clients, smart contracts, and cryptographic algorithms over a broader range.

The consensus algorithm is also suggested to be simplified and accelerated.

The consensus algorithm is the rule that determines which block numerous validators will recognize as the official Ethereum record.

By reducing unnecessary complexity, block generation and finality can be made faster while lowering verification costs.

Quantum-resistant cryptography is also key.

Some signature schemes currently used in Ethereum may be threatened by the emergence of powerful quantum computers in the future.

Therefore, in the long term, it is necessary to transition to structures that are safe against quantum computers, such as hash-based signatures.

In simple terms, the cryptographic world computer that Vitalik speaks of is not just a computer that performs calculations, but a computer that cryptographically proves that the results of those calculations are accurate and secure.

This article shows that the focus of Ethereum's roadmap is shifting from mere competition in transaction speed and throughput to provability, security, and quantum resistance.

Ecosystem News

1. Blast, Layer 2 Shutdown

Ethereum Layer 2 Blast has announced the termination of network operations.

Blast explained that its operating costs have exceeded the revenue generated from Layer 2, and it is finding it difficult to find a sustainable business path.

To operate Layer 2, it is necessary to continuously maintain sequencers, nodes, bridges, data publishing, developer infrastructure, and security monitoring.

If there are not enough users and transaction volumes, it may be difficult to bear these fixed costs.

Blast is gradually recovering user assets according to the termination procedure.

After recovering the assets deposited in Lido, the withdrawal waiting time has been shortened to 24 hours.

Withdrawals through the general interface are expected to be supported until October 26.

However, approximately $63.5 million worth of assets remain in the canonical bridge.

The canonical bridge is the official bridge that moves assets between Layer 2 and the Ethereum mainnet.

In the event of a chain termination, it is important for users to withdraw their assets directly within the specified period.

In simple terms, Blast is not closing due to technical failures but has determined that the money it earns is less than the cost of continuing to operate the chain, making it unsustainable.

This termination shows that in the Layer 2 market, without securing users, liquidity, and a sustainable revenue model, long-term survival is difficult.

2. Pay, $1.9 Million Leakage Due to Bridge Exploit

A security incident occurred where approximately $1.9 million was withdrawn without authorization from the Ethereum bridge of the privacy Layer 2, Pay.

Pay is an Ethereum-based network aimed at enhancing privacy in payments and asset transfers.

The cause of this incident was the bridge validator.

According to Pay's post-mortem, the deployed validator accepted an incorrect burn proof as a valid proof.

In a bridge, it is generally required to confirm that tokens have actually been burned or locked on one chain before allowing withdrawals of assets of the same value on another chain.

Therefore, the process of verifying whether the proof that "assets have actually been burned" is correct is very important.

However, this time, it is reported that the validator passed a non-existent or incorrect burn fact.

The attacker used this to withdraw funds from the Ethereum bridge based on assets that were not actually burned.

The funds used for the attack are said to have been raised through the privacy protocol Railgun.

The stolen USDC was later exchanged for ETH.

While using Railgun does not necessarily imply an attack, the privacy features may make it more difficult to trace the attacker's initial source of funds.

In simple terms, this incident is similar to the bridge accepting a "receipt" that assets were eliminated on another chain without proper inspection.

The attacker submitted a fake receipt and took the actual assets.

This case highlights the importance of not only the smart contract code in bridge security but also the proof system that verifies messages between chains.

3. MetaMask Staking Infrastructure Breach

MetaMask has announced that a security breach occurred in part of its staking infrastructure.

This incident is related to issues with the validator infrastructure previously operated by ConsenSys staking, not the MetaMask wallet itself.

As a precaution, MetaMask is sequentially exiting validators operated on platforms like Lido.

Validator exit is the process of terminating the role of Ethereum validator and converting staked ETH into a withdrawable state.

MetaMask stated that there are currently no signs of harm to wallet users or customer funds.

In other words, there is no evidence that this incident led to the leakage of private keys or user seed phrases from the MetaMask wallet.

However, since part of the staking infrastructure has been compromised, they are proactively terminating the validators in operation to mitigate additional risks.

The validator exit from Lido is expected to be completed by October 7.

In simple terms, this incident does not involve a breach of the MetaMask wallet itself, but issues have been found in part of the Ethereum validator infrastructure operated by MetaMask, leading to the withdrawal of validators to reduce risks.

This incident demonstrates that the security of validator keys and server infrastructure in staking services is as important as the security of user wallets.

4. Fake Giwa Mainnet, 766 ETH Stolen

A large-scale incident occurred on a fake mainnet impersonating Giwa, an Ethereum Layer 2 project promoted by Upbit.

Giwa has not yet launched an official mainnet.

However, the attacker created a fake RPC and bridge that looked like the real Giwa to deceive users.

RPC is an access point that allows wallets or apps to communicate with blockchain networks.

For example, when adding a new chain to MetaMask, users input the RPC address and chain ID.

The problem is that just because a chain appears normally in the wallet after entering the chain ID and RPC address does not guarantee that the network is a chain operated by an official project.

The attacker exploited this to create a fake Giwa mainnet.

A total of 1,335 addresses deposited approximately 767 ETH into the fake bridge.

Subsequently, the operator is reported to have changed the bridge code and withdrawn about 766 ETH at once.

A bridge is infrastructure that moves assets between different blockchains.

When a user deposits ETH on one chain, they can receive corresponding assets on another chain.

However, in this case, both the bridge and the target chain were fake, created by the attacker.

In simple terms, the attacker created a fake bank and a fake exchange that resembled the real Giwa, then took the real ETH deposited by users.

This incident shows that when using a new chain, one should not rely solely on chain ID or wallet screens, but must verify RPC and bridge addresses through the project's official website and official social media.

5. Chainlink CCIP 2.0 Introduces Fast Finality Rules

Ethereal Labs has integrated fast finality rules into Chainlink CCIP 2.0.

CCIP is Chainlink's cross-chain interoperability protocol.

It is used to securely transmit tokens and messages between different blockchains.

In existing cross-chain systems, it was common to wait until transactions occurring on Ethereum were fully finalized.

Currently, Ethereum's finality is about 13 minutes.

Finality refers to the state where a specific block or transaction is effectively irreversible.

Because of this, sending assets from Ethereum to another chain could take several minutes for the cross-chain protocol to wait for safety, even if the transaction itself was included in a block in just a few seconds.

The fast finality rules are a technology that significantly reduces this waiting time.

With this integration, Chainlink CCIP can confirm Ethereum transactions with high reliability in about 12 to 24 seconds.

Fast finality rules determine that the current block is unlikely to be reversed based on multiple signals, without waiting for official finality.

In simple terms, whereas previously one had to wait 13 minutes for assets to be sent to another chain until "fully stamped," now, once sufficient verification is completed, the next steps can be taken in just a few seconds.

This application is significant as it can greatly improve the user experience of bridges and cross-chain apps without immediately changing the protocol finality of Ethereum itself.

6. Hester Peirce SEC Commissioner Resigns

Hester Peirce, known as "Crypto Mom," resigned from the U.S. Securities and Exchange Commission on October 2.

Peirce has consistently advocated for a relatively friendly regulatory approach to the digital asset industry within the SEC.

In particular, she has repeatedly stated the need for clear regulatory standards and a safe harbor that allows for innovation.

With Peirce's resignation, the SEC now has only Chairman Gary Gensler and Commissioner Mark Uyeda remaining.

The SEC is generally composed of up to five commissioners, including one chairman.

If the number of committee members decreases, the influence of the remaining members may increase in the process of determining new rules or enforcement directions.

During the same period, the SEC's Division of Corporation Finance staff also released a FAQ related to digital assets.

The FAQ mentioned the possibility that liquidity staking tokens with a certain structure could be classified as commodities rather than securities.

Liquidity staking tokens are tokens like stETH that are received after staking ETH.

Users can trade these tokens in DeFi or use them as collateral while receiving staking rewards.

In simpler terms, at a time when a prominent digital asset-friendly figure within the SEC is leaving, the SEC staff has suggested a more flexible interpretation regarding liquidity staking tokens than before.

How the SEC's appointments and regulatory direction for digital assets will unfold in the future is an important point to watch.

Community News

1. Vitalik Completes Sci-Fi Novel 'Snow Moon'

Vitalik Buterin, co-founder of Ethereum, has completed his sci-fi novel 'Snow Moon', which focuses on decentralized governance.

'Snow Moon' consists of a total of 32 chapters.

Through the novel, Vitalik explores how decision-making, governance, technology, and power can operate in a decentralized society.

A notable aspect is its distribution method.

'Snow Moon' has been released under the GPL v3 license.

GPL allows anyone to freely use and modify the work or software but requires that derivative works be released in the same manner, making it an open-source license.

Vitalik has applied this principle to the content creation process in the AI era.

For example, if someone were to turn 'Snow Moon' into a movie or video content, they would be required to disclose not only the final product but also the AI prompts and scripts used in the production process.

In simple terms, Vitalik believes that "if it's open source, the final work should not be the only thing disclosed; the entire production process used by AI to create the work should also be made public."

This experiment is interesting as it attempts to extend the concept of open source from software code to the AI content creation process.

Additionally, it can be seen as a new experiment within the Ethereum community for addressing decentralized governance through a novel rather than a technical document.

Weekly Ethereum Data

Annual inflation rate: 0.851%

Weekly net supply: 19,922.28 ETH

Staking ratio: 35.18%

Stablecoin market capitalization: $146.127 billion

Net outflow of U.S. Ethereum spot ETF: $10.7 million

Source: Ultrasound Money, DeFi Llama, Dune, Fasaid Investors

This article was written by a contributor from Ethereum Korea and The Ticker is ETH.

You can view individual real-time news from this letter here.