Ethereum Glitches Twice but It’s Not the Hugest Crisis

May 17, 2023

Exploring the tech behind crypto

one block at a time

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Hi, Bradley Keoun here, editor of The Protocol.

When the Ethereum blockchain temporarily stopped finalizing transactions last week, a sense of panic spread across Crypto Twitter. In today’s feature, our Margaux Nijkerk explains how Ethereum’s mini-crisis over transaction “finality” unfolded and why top developers on the blockchain aren’t too worried.

In the news, we’re covering Bitcoin’s existential struggle with congestion-inducing “BRC-20” tokens – and, yes, now “DRC-20 tokens” on Dogecoin. Ledger’s crypto wallet recovery service has spurred an outcry (and lots of suspicions), Ripple agreed on a $250 million deal, and crypto projects raised more than $60 million.

Ethereum Briefly Stopped Finalizing Transactions – What Happened?

The Ethereum blockchain suffered two brief episodes last week where blocks weren’t finalizing – an unwanted bout of instability that presents risks to the blockchain’s security but isn’t considered dire.

There was a lot of confusion in terms of what the delay in “finality” meant for the functionality of the blockchain, prompting discussions about security concerns. So it bears unpacking a bit.

The cause of the temporary loss of block finality remains under investigation, though Prysm, a provider of client software used to run a node on the blockchain, just released a new version, describing it as “the first full release following the recent mainnet issues,” with “critical fixes.”

The chart shows a spike in missed validator slots last week as the Ethereum blockchain temporarily stopped finalizing transactions. (Glassnode)

When data blocks don’t finalize, there isn’t supposed to be any downtime or difference in end-user experience. That said, a loss in finality can lead to some security issues like reorgs.

Reorgs occur when a blockchain produces more than one block at the same time, usually because of a bug or an attack. This means that a validator node temporarily creates a new version of a blockchain, which makes it difficult to properly verify if a transaction has been successful, while the old version of the blockchain continues to exist.

However, snowball effects from this incident led to some end-user jolts. DYdX, a leading crypto exchange platform, had to temporarily pause deposits because of one of last week’s incidents, and Polygon’s zkEVM also experienced some delays with deposits.

Read the full piece by Margaux Nijkerk

Network News

Bitcoin’s existential debate continued over whether to allow the minting of thousands of ‘BRC-20’ tokens that have clogged up the network. The angst was on display on the bitcoin-dev mailing list, which hosts discussions on Bitcoin’s development. Fees have skyrocketed as a result of the congestion, forcing users to seek alternatives. But it’s been a windfall for crypto miners, creating a dilemma for purists of a blockchain designed to be a peer-to-peer payments network free from censorship. Lightning Labs, a developer focused on the Bitcoin layer 2 solution Lightning Network, this week released its own token-minting project that even the creator of BRC-20s agrees is better and more efficient.

On Ethereum, there’s not just a wait to get out, but a wait to get in. After last month’s “Shapella” upgrade allowed validators of the blockchain to make full withdrawals of their 32 ETH ($58,400) stake for the first time ever, the world learned just how long it can take to actually exit – a queue as long as 17 days at one point. What’s now jolting Ethereum watchers is just how long it can take to establish a new validator. Currently, the queue stands at 640 hours, or 26 days – nearly a month. The wait times are a function of Ethereum’s own design choices, which impose hard limits on inflows and outflows, to help stabilize network security. But staking apparently isn’t for fast money.

Also:

Ledger hits back against criticism of new wallet recovery service, as CEO insists “this is what future customers want.”
Dogecoin’s daily transaction volume rises 10-fold to lifetime highs after “DRC-20” tokens introduced.
Say it out loud: ‘Dencun.’ Ethereum developers are already planning the next big upgrade, which they’ve named using a Brangelina-style portmanteau similar to the recently completed “Shapella.”
Worldcoin, crypto project of Open AI co-founder Sam Altman, reportedly raises $100M from Andreesen Horowitz, Khosla Ventures, through sale of tokens.

Protocol Village

Here we highlight some of the latest blockchain tech upgrades:

Lido, liquid staking derivatives platform, upgrades to V2 on Ethereum, enabling users for ETH withdrawals.
MakerDAO founder Rune Christensen lays out plans for new stablecoin and governance tokens as part of “Endgame” restructuring.
Hydra Head, scaling tool for Cardano, goes live, allowing developers to build specialized, complex decentralized finance protocols.
Threshold Network, protocol for minting bitcoin derivative token tBTC on Ethereum, now working with cross-chain protocol Wormhole to expand to 20 blockchains.
Hourglass, crypto startup, releases marketplace for trading time-bound tokens (TBTs), with plans to tokenize staking platform Lido’s withdrawal queue.

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Money Center

Fundraisings

Red Beard Ventures closes $25M funding round (Marc Andreessen, Chris Dixon, Animoca Brands, SuperRare CEO John Crain)
River, provider of Bitcoin financial services, raises $35M Series B funding. (Kingsway Capital, Peter Thiel, Cygni, Goldcrest, Valor Equity Partners)
Asymmetry, creator of safETH token backed by basket of liquid staking tokens, raises $3M. (Ecco Capital, Republic Capital, GMJP and Ankr)

Deals and grants

Ripple, the blockchain firm that uses the cryptocurrency XRP in its payments solution, has acquired Swiss-based custody provider Metaco for $250M.
Endaoment, on-chain charitable funding platform, to rely on GlobalGiving partnership to expand number of verified nonprofits willing to accept digital assets.
Sandeep Nailwal, Polygon co-founder, and his venture firm, Symbolic Capital, announce Web3 fellowship program to fund annual cohort of 10 builders at $50K each.
Rise, Ohio-based startup, is the winner of CoinDesk’s PitchFest contest at Consensus 2023.

Data and tokens

Balancer, an automated market maker, is set to play a crucial role in a coordinated effort to recover $300,000 of frozen cryptocurrencies – before arbitrageurs can lay claim.
Bitcoin cash (BCH) prices bump ahead of ‘CashTokens’ upgrade.
Bakkt, crypto trading platform controlled by Intercontinental Exchange, delists 23 tokens, citing “up-to-date regulatory guidance.” They include Aave (AAVE), Avalanche (AVAX), Chainlink (LINK), Cosmos (ATOM), Filecoin (FIL), Maker DAO (MKR), Stellar (XLM) and Uniswap (UNI).

Data Corner

The chart below shows the Bitcoin blockchain’s “mempool” – the backlog of transactions waiting to be confirmed. The mempool surged to a record 480,700 transactions recently, according to Jochen Hoenicke’s website, as the explosion of BRC-20 tokens minted using Ordinals inscriptions backed up the network. Bitcoin miners have worked down the mempool by roughly half from where it was, but the absolute level is still well above the sub-100,000 unconfirmed transactions that prevailed for most of the past couple years.