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What Ethereum’s hard fork to Istanbul means for token holders

Find out what Ethereum’s hard fork to Istanbul means for Ethereum token holders, as well as what zero-knowledge proofs are and why they are changing the world. Plus all the latest on staking Ethereum.

Harry Hamburg
Harry Hamburg
11 min read
What Ethereum’s hard fork to Istanbul means for token holders

Remember when computers used to run on MS-DOS?


How about Windows 95, or Windows 98?

Well, if you remember any of those operating systems, you’ll certainly remember when Windows XP took over.

The reason you’ll remember is because before Windows XP, computer operating systems (OS) were horrible.

Back in Windows 95 and 98 days, your computer would crash… a lot.

You’d need to be constantly saving whatever you were working on because you knew that at some point in the next 20 minutes your computer was going to crash.

Even to this day, with autosave and auto-recovery, I still find myself hitting “Ctrl + S” every few minutes.

But then, in 2001, Microsoft brought out Windows XP and changed everything.

Nowadays people don’t really get excited about OS upgrades. And reason for that is because of how game changing the Windows XP upgrade was.

Windows XP “just worked”.

You no longer noticed it, or even thought about it. It simply did what it set out to do and did it well.

In fact, Windows XP was so good that it led to some serious problems down the line.

Many people were still running Windows XP in 2017 – 16 years after its release, and three years after Microsoft stopped supporting it with security updates.

That year a slew of high-profile ransomware attacks thrust Windows XP back into the spotlight.

Telecoms giants, energy companies, national health services and major organisations around the globe were hit by a ransomware known as WannaCry.

How did it happen?

Because, incredibly, all of these organisations were still using Windows XP.

For hackers, it was child’s play to infect these systems with ransomware, given there had be no security updates for over three years.

Fast-forward to today, and Microsoft is still reluctantly releasing the odd security patch for its supposedly long-dead OS.

Okay, semi-interesting story, but what does it have to do with crypto?

Ethereum has just undergone a major operating system upgrade of its own: the hard fork to Istanbul

On Sunday the 8th of November, Ethereum upgraded to “Istanbul”.

Istanbul is the third and final upgrade in its Metropolis era. The previous two were Byzantium and Constantinople, which Crypto Briefing points out are both historic names for Istanbul.

The next era will be Ethereum 2.0, which will bring the long-awaited “Casper” upgrade and along with it proof of stake (POS).

So once Casper arrives – more on that a bit later in this article – you’ll be able to earn a passive income from Ethereum.

But to get back to the current upgrade… it’s actually pretty exciting.

The Istanbul upgrade makes it cheaper and easer to use zero-knowledge proofs with Ethereum, and zero-Knowledge proofs bring with them two major benefits.

1. private transactions – so that Ethereum can actually work as a currency or the backbone of a network.

2. Massively increased transactions per second (TPS). Again, so that Ethereum can actually work as a currency or the backbone of a network.

In fact, as Jeremy Allaire, CEO of Circle tweeted, Ethereum can now support upwards of 3,000 TPS.

Circle CEO tweets Ethereum is capable of 3,000 TPS
Source: Twitter

However, I should probably point out that VISA has a theoretical limit of around 60,000 TPS.

I think what he meant was it’s a higher TPS than VISA usually deals with, so it’s enough to support Ethereum – and Ethereum-based stablecoins – being used as worldwide currencies.

If this upgrade was via a hard fork, does that mean I now have twice as many Ethereum tokens as I did before?

You might remember the hard fork which created Bitcoin Cash.

At the time, back in the summer of 2017 Bitcoin’s network was highly congested and transaction fees were getting out of hand.

Proposals were put forward as to the best ways to do this and these proposals proved contentious.

Some miners and developers liked them, others did not. And the ones that did like them decided to “hard fork” their own version of Bitcoin that became Bitcoin Cash.

All Bitcoin holders woke up to an equal number of Bitcoin and Bitcoin Cash in their wallets.

Today, Bitcoin Cash is the 5th biggest crypto by market cap.

So many Bitcoin holders did pretty well out of the Bitcoin Cash fork.

A year or so later, Bitcoin Cash itself forked after even more arguing and in-fighting. That fork created Bitcoin Cash SV, which is now the 9th biggest crypto by market cap.

As an investor, you may think these kind of hard forks are great. In reality, they’re anything but.

The shambles that was the Bitcoin Cash SV fork ended up tanking crypto prices as the two sides, both headed by arrogant billionaires, went to war.

I covered this debacle back in May. So if you want to read more about that saga check out my article: What caused crypto’s latest surge, and could Bitcoin really reach $20,000 again this year?

So we now have three cryptos in the top 10 that are essentially just slightly different versions of Bitcoin – none of which have solved bitcoin’s biggest drawbacks – scaling and energy usage.

Each new fork calls into question Bitcoin’s authority. And each new fork chips away at Bitcoin’s original premise – a money source with a fixed supply that can never be altered or corrupted.

Many anti-crypto economists point out that there is no point having a fixed supply if you can just fork Bitcoin, which in effect creates a larger supply itself.

So, although some welcome contentious hard forks that end up creating entirely new cryptos, there is a clear argument they are bad for the ecosystem overall.

But hard forks aren’t always contentious.

Ethereum’s upgrade to Istanbul was done via a hard fork. But it didn’t end up creating a new Ethereum network.

If a hard fork isn’t contentious, then all the miners simply mine the upgraded fork and the old one dies.

This is the way that blockchains like Ethereum upgrade. And that’s how Ethereum just upgraded to Istanbul.

With any luck, hard forks will soon become a thing of the past

Given the mess that hard forks can cause, newer cryptos have been searching for better solutions.

One of them that’s doing well so far is the idea of “on-chain governance”.

Usually, when a crypto wants to upgrade, its developers get together, hash out ideas and then implement them.

Fair enough, they’re the ones that created it after all, right?

Well, as we’ve seen, these developers don’t always agree. And things can get pretty out of hand. That’s why we now have things like the Bitcoin Cash SV shambles.

Plus, the idea of a small group controlling the fate of the entire network doesn’t really lend itself to the decentralised ideal of crypto.

What about all the other participants?

Well, that’s where the idea of on-chain governance comes in.

This has been implemented on a number of cryptos, but most notably Tezos.

One day I’m going to be able to write an article that doesn’t mention Tezos. But today is not that day.

The way Tezos works is proposed upgrades and changes are put before a vote. A vote in which every Tezos holder can participate. If the vote passes, the changes are implemented. If it doesn’t, they are not.

This is a much, much fairer and less shadowy way for a major blockchain to operate. It makes its network more like a democratic country, where everyone gets a vote.

And so far, it’s working well for Tezos.

But it is a fairly new idea, so we’ll se how it progresses over time.

Now to get back to Ethereum’s Istanbul upgrade.

As I said, the most exciting part is the work on zero-knowledge proofs.

What’s the big deal about zero-knowledge proofs?

Zero-knowledge proofs are without doubt, one of the key developments in crypto.

They let you prove you have certain data without ever showing anyone that data.

So, say you want to prove you’re allowed to leave the country to your airline operator, but you don’t want them to have your passport details on file, in case they get hacked.

(Which if you follow the news, you’ll know is a fairly regular occurrence. Just type British Airways hack into google).

Instead of giving the airline operator your passport details, you simply give them proof that you own your passport and you’re able to fly.

Without giving your actual passport details, this may sound impossible, but it’s not.

Or say you ring a call centre to transfer money between your bank accounts.

Instead of giving the call operator your name, address, account number, etc, you just give them proof you have all of that information. But you never give them any of the information itself.

If the call operator is looking to steal your money or sell your information on, they can’t. They don’t actually have any information on you.

This means you can prove your identity to any company without ever giving them any information about yourself.

If they get hacked, it doesn’t matter. They don’t actually have any of your personal information, just a line of computer code that proved you are who you say you are. The hacker can’t use it for anything.

Zero-knowledge proofs also allow cryptos to send and receive private transactions, which is fundamental to them being used as real currencies.

Without private transactions, people won’t spend their crypto because anyone they send it to will instantly know exactly how much they own.

Would you really want a street vendor, or even a department store knowing exactly how much money you have and exactly where you’re spending it?

Private transactions are about a lot more than making illegal payments. They are a necessity for society.

(If you want to know about the current most private crypto, and how it works, you can read my feature on Monero here.)

And that’s before we even get into the need for privacy when it comes to GDPR and other regulations.

So Ethereum’s Istanbul upgrade, and the processes it introduces for zero-knowledge proofs is a major milestone in the evolution of crypto.  

The leader in zero-knowledge proofs for Ethereum comes from an unlikely place

One of the biggest companies in the world – “big four” accounting firm, EY – is at the forefront of bringing cheap zero-knowledge transactions to Ethereum.

From CoinDesk in April 2019:

EY’s protocol, internally code-named Nightfall, has been developed over the last year by the consulting firm’s team of over 200 blockchain developers and will be published in May. The protocol was created for such use cases as supply chains, food tracing, transactions between branches of a company and public finance.

Like other enterprise blockchain platforms, Nightfall takes advantage of a technology called zero-knowledge proofs to allow private transactions on a shared ledger. But unlike most such endeavors, EY’s software is intended to run on top of the public ethereum network, not a private variant.

Further setting the project apart is the unusual approach EY is taking to intellectual property. The firm said it will not merely open-source the code – that is, release it with a permissive copyright license – but put it in the public domain, with no license at all.

“We want to maximize adoption and community involvement, we want people to adopt it, and adapt it, and improve it. If we retain ownership, people may not invest that much time and energy in something they might not control,” EY’s global innovation leader for blockchain, Paul Brody, explained at a press briefing. “The cleanest way to make everybody use it is just to give it away with no strings attached.”

And Nightfall’s latest release came just days before the Istanbul upgrade.

According to EY’s head of blockchain, Paul Brody (who has become a bit of a superstar to the crypto community) Nightfall can now offer zero-knowledge transactions at a cost of just $0.24.

From Paul Brody on the Eth Finance subreddit:

“[Nightfall’s latest] version drops your gas cost to approximately $0.24… We promised <$1 per transaction by the end of 2019, and we nailed it by a wide margin.

“It’s not possible for me to describe how proud I am of the research team here or how proud I am of my fellow EY partners in allowing us to donate research this valuable into the public domain.”

(If you want to know more about how Nightfall works, you can check out the entire Eth Finance reddit thread on it. That way you can hear directly from Paul Brody on the developments.)

How zero-knowledge proofs work – I promise the concept is actually very simple

Zero-knowledge proofs may sound like magic, but the idea is actually very simple.

And the best explanation I’ve found on them comes from Wikipedia:

Imagine your friend is colour-blind and you have two balls: one red and one green, but otherwise identical.

To your friend they seem completely identical and he is sceptical that they are actually distinguishable. You want to prove to him they are in fact differently-coloured, but nothing else, thus you do not reveal which one is the red and which is the green.

Here is the proof system.

You give the two balls to your friend and he puts them behind his back.

Next, he takes one of the balls and brings it out from behind his back and displays it.

This ball is then placed behind his back again and then he chooses to reveal just one of the two balls, switching to the other ball with probability 50%. He will ask you, “Did I switch the ball?”

This whole procedure is then repeated as often as necessary.

By looking at their colours, you can of course say with certainty whether or not he switched them. On the other hand, if they were the same colour and hence indistinguishable, there is no way you could guess correctly with probability higher than 50%.

If you and your friend repeat this “proof” multiple times (e.g. 128), your friend should become convinced (“completeness”) that the balls are indeed differently coloured; otherwise, the probability that you would have randomly succeeded at identifying all the switch/non-switches is close to zero (“soundness”).

The above proof is zero-knowledge because your friend never learns which ball is green and which is red; indeed, he gains no knowledge about how to distinguish the balls.

Within blockchain these zero-knowledge proofs have moved on and can now work without any interaction between the person providing the information and the one verifying it.

If you want to know more about how this works in detail, you can read Zcash’s page on zK-SNARKs here.

But what about Ethereum staking, wasn’t that supposed to be coming next?

If you’re an Ethereum follower, you are probably getting pretty tired of waiting for staking, and the passive income that it promises.

Well, Ethereum staking will not be implemented until Ethereum 2.0.

The latest Ethereum upgrade to Istanbul was still just an Ethereum 1.x upgrade.

However, there’s good news when it comes to Ethereum 2.0 and staking.

Phase zero of Ethereum 2.0 is happening in the first half of 2020. Likely even in the first quarter. And with it will come “Casper” and the switch POS, which will mean staking.

I will be writing an in-depth feature on Ethereum’s switch from proof of work (POW) to POS in the coming months.

But given this week’s article has been all about Ethereum upgrades, I thought I should mention that yes, Casper is coming, and yes it will bring with it the ability for Ethereum holders to stake and earn a passive income.

What remains to be seen is how difficult it will be for the average Ethereum holder to take part in staking.

However, given Coinbase’s latest moves, it’s looking likely that you’ll just be able to do it through them. So long as you don’t mind their fees.

Okay, that’s all for this week.

Thanks for reading.


PS If you found this article useful, or even entertaining, there’s an easy way to support me, without actually paying any money.

Just download Basic Attention Token’s Brave Browser with this link.

If you use it for 30 days, I’ll get a referral reward of about $6.50. And you’ll get a much faster, fairer and ad-free browsing experience.

See, in the world of crypto, everyone can be a winner.

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Harry Hamburg

This is all, just like... my opinion, man.

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