Ethereum needs three transitions to succeed, but new problems come with them

The main reason why Ethereum needs to change stems from the challenges of scalability, security and privacy protection.

I. Introduction

As an open and programmable blockchain platform, Ethereum is not only the infrastructure of digital currency, but also provides developers with an environment to build decentralized applications (DAPP) and smart contracts. Due to its flexibility and scalability, Ethereum has become a key player in the cryptocurrency ecosystem and has attracted developers and users worldwide.

In the content of the last issue of Cregis Research, we discussed the value of account abstraction (AA), so we extended a complicated topic: In June, V God, the founder of Ethereum, pointed out in his blog that Ethereum is currently Facing some important challenges and problems, these problems need to be resolved in order to promote the further development of Ethereum, otherwise Ethereum will fail, so the three directions of transformation are: smart contract wallet, privacy protection and Layer 2 expansion. After a successful transformation, Ethereum will improve in terms of performance, user experience, and privacy protection.

Of course, these shifts also bring new challenges. The problems and significance of smart contract (CA) wallets have been analyzed clearly in the previous issue. Cregis Research summarized some of the remaining questions, and selected a few key points that are closely related to your daily experience, and revisited V God’s point of view half a month ago.

New problems brought about by the three transformations of Ethereum

2. Why must Ethereum change?

The main reason why Ethereum needs to change stems from the challenges of scalability, security and privacy protection.

First of all, let us review the discussion in the last issue of Cregis Research: Cregis Research: The Archeology of Ethereum Account Structure and the Value of Account Abstraction, which mentioned: Ethereum running in a decentralized environment still faces the biggest pain point: linear environment It is impossible to perform high-concurrency transactions and complex code compilation, which is a scalability challenge.

Due to Ethereum's current limited transaction processing capacity, transaction costs can become high when network traffic increases. This high transaction cost hinders the popularization of Ethereum to the mainstream market, so Ethereum needs to increase its processing capacity and reduce transaction costs through L2 expansion, such as rollups.

Secondly, the security of the wallet is also an important issue. EOA wallets (represented by various plug-in wallets) that generate public-private key pairs purely through seed phrases have been stolen in an endless stream. From the large-scale leakage of ARB airdrop addresses to the Twitter KOL crying that the wallet was emptied by hackers, individual users have increasingly intensified demands for asset security. , and at the same time unwilling to sacrifice user experience (enterprise-level users will choose a fully self-hosted MPC solution for asset security, and are willing to sacrifice the convenience of on-chain interaction), which requires Ethereum to change wallet security and promote smart contract wallets The latest industry security standards (such as EIP-4337) provide stronger security and convenience for individual users.

Finally, privacy protection is another key challenge. All transactions on Ethereum L1 are public because EOA is bound to assets; whether it is ordinary individual users, giant whales or corporate institutions, they may currently suffer from the distress of asset addresses being marked and tracked. Therefore, Ethereum needs to be further improved to implement non-malicious privacy calculations to ensure that not only assets on the chain, but also DID information such as identities and credit systems on the chain can be protected in the future; The coping mechanism can ensure that perpetrators cannot escape tracking and cash out smoothly.

3. The 3 most important questions (Cregis Research summarizes and adds comments)

• How users manage multiple wallet addresses

Compared with Web 3.0, Web 2.0 has the same advantage that still remains: users can use a social feature (e-mail address, mobile phone number, etc.) to create different application accounts, although in the Web 3.0 world, public chain addresses with the same consensus mechanism can be used (For example: BSC, ERC-20, TRC-20), but with the advent of the L 2 expansion plan, users will have multiple completely different L 2 addresses, and different Layer 1 and Layer 2 networks may use different programming languages and intermediate components, which lead to problems in address reservation; and before the multi-chain bridging environment represented by Polkadot or the multi-chain general-purpose L2 environment mentioned in Cregis' future vision, users may also need to manage several Addresses of heterogeneous chains, which increases the complexity of address management.

Finally, the stealth address proposal for privacy protection, if widely used, will allow users to have more addresses to enhance their privacy protection. Therefore, it becomes more difficult to reserve an address.

• How do users realize invisible payment? (especially in a multi-address environment)

Assuming that L2 in the Ethereum ecosystem develops as expected in the future, even if most of the native assets are ERC-20 tokens, users may have multiple L2 addresses, and choosing the correct address to send assets or pay becomes more complicated . Traditionally, users only needed to know the other party's address to send a payment, but now they need to know the Layer 2 networks and corresponding addresses accepted by the other party, and require additional steps to ensure that funds are sent to the correct destination.

Multi-account stealth payment problem in L2 environment

Although the contract account (CA) constructed by using smart contracts can easily solve the addressing problem, it cannot directly provide the function of privacy protection.

Vitalik proposed a privacy protection solution in the early days of Ethereum: stealth address. Stealth addresses can help you maintain privacy when conducting digital currency transactions without being tracked by others. Next, Cregis will share some steps to solve privacy issues:

A stealth address is an address that can be generated by either the sender or the payee, but only controlled by the payee. This kind of address can improve the privacy of Ethereum in various scenarios. In this mode, Bob (the payee) generates a consumption key and uses this key to generate an invisible meta-address: B, h = hash(x). He passes this meta address to Alice (the payer). Alice can perform a computation on this meta-address, generating the stealth address belonging to Alice to Bob: b-1. She can then send any assets she wants to this address and Bob will have full control over them.

The generation process of the stealth address needs to operate the elliptic curve function: Bob generates a key m, and calculates M = G * m, where G is a public generation point of the elliptic curve. Alice generates a temporary key r, and publishes the temporary public key R = G * r. Alice can compute a shared secret S = M * r, and Bob can compute the same shared secret S = m * R.

After Bob’s stealth address: b-1 is generated, when it is necessary to trade with Alice, Alice generates a value: c, and publishes an encrypted data of c that only Bob can decrypt; when the transaction is executed, it is verified by zero-knowledge proof: Bob provides The value x provided by Alice and the value c provided by Alice can make k=hash(hash(x), c), and the transaction is completed after the verification is correct. Since Bob's original address is not exposed during this process, and only the encrypted value x is provided, the zero-knowledge proof is only responsible for verifying the content of k, and will not show the relationship between B and b-1.

• ** How does the wallet product protect the user's assets and privacy at the same time? **

In a traditional on-chain environment, wallets are primarily concerned with the protection of private keys, but in a ZKP (Zero-Knowledge Proof) world, wallets need to protect both authentication credentials and user data. An example is ZKpass, an identity system based on ZK-SNARK and MPC, which allows users to generate basic proofs for identity verification, and at the same time makes the process of verifying identity without presenting any real information through MPC.

However, since the encrypted data tag (key shard) itself replaces the EOA's private key, the custody of the encrypted data tag becomes more problematic, as users need to make a trade-off between keeping the data locally or relying on a third party to hold an encrypted copy. At the same time, wallets that support social recovery need to manage asset recovery and encryption key recovery to ensure a balance between security and usability. Therefore, in the foreseeable future, the security strategies of enterprise-level wallets and personal wallets will have completely different directions. Taking enterprise-level wallets as an example, users of enterprise-level wallets need the most stringent security environment to protect funds. There is a high probability of abandoning: 1. Contract wallets that may have human vulnerabilities; 2. Mixed custody MPC wallets with third-party risks, choose privatized MPC wallets with the same security level as hardware wallets; In some scenarios, because you always want to get the best user experience, you may choose a product with some centralized operations.

In addition, the blockchain address does not meet the identity verification requirements in the ecology, so the solutions of ENS (blockchain domain name) and SBT (soul binding token) are gradually accepted by the public, but there are still problems that have not been resolved: the former It is difficult to solve the problem of duplicate names brought about by the traditional world. Although the latter does not have the problem of duplicate names, there are not enough ecological applications to fully utilize the DID functions carried by it, and even the current application scenarios can be said to be very thin.

4. Summary

I believe everyone already understands that the wallet is only an important part of the [Ethereum Transformation] topic that has been raging in the global currency circle for nearly 3 months. The ambition of V God is not only to realize the ambition of "Ethereum complements the defects of Bitcoin", but also hopes that Ethereum can truly create a world that everyone can enter, is highly connected with the real world, and retains the concept of decentralization.