CoinShares Report: Ethereum Failed to Deliver on Scalability Upgrades in 2018

The Constantinople upgrade exemplifies the pattern. Planned for the first quarter of 2018, it missed its window three separate times. The final postponement came at the last moment after developers discovered a critical bug. A temporary chain fork resulted, though network participants resolved it within days. The fallout fell hardest on miners. Those caught on the minority chain suffered what CoinShares described as "significant monetary losses." The timing amplified the damage. Ethereum's development team had already angered miners by cutting mining rewards 40 percent through a developer vote. Ether prices had collapsed, already squeezing mining margins. "This incident probably did not serve to foster any further goodwill from miners—who were already publicly annoyed by the decision of Ethereum developers to reduce mining rewards by 40% via committee vote—in a time where mining profitability is already under severe pressure from falling ether prices," the CoinShares team noted.

Plasma and sharding showed little forward motion. "While we keep hearing that they are moving forward, with the minor exception of improvements added by EIP 1014, we can find no trace of them in any of the upcoming Ethereum Improvement Proposals," CoinShares wrote. The planned shift toward proof-of-stake faced even steeper obstacles. Casper, the protocol intended to replace proof-of-work, hit a wall when peer reviewers examined its pre-specification design. Muneeb Ali, Jude Nelson, and Aaron Blankstein conducted a scathing analysis. They found that Ethereum researchers had essentially rewritten the definition of Byzantine Fault Tolerance, a term with strict meaning in distributed systems since the late 1970s, bending it to fit their own approach. "The structure was given more or less a complete fail in peer review by Muneeb Ali, Jude Nelson and Aaron Blankstein," the CoinShares report said. "In their analysis, they noted that Zamfir et al. had essentially redefined Byzantine Fault Tolerance—a strictly defined term used in distributed systems since the late 1970s—such that their results could fit within their new narrow definition."

CoinShares struck a measured tone on what comes next. The firm said it remains "cautiously optimistic" about protocol improvements arriving in 2019. But the report notes one sobering fact: Ethereum has spent six consecutive years working toward a switch to proof-of-stake. The gap between stated goals and delivered results shows no signs of narrowing.