Eth2 is neutral infrastructure for our financial future

Ethereum 2.0 is not a panacea, but its unbiased platform by design and mechanism might solve some of society’s problems.

We are in an unprecedented period of social, political and economic turmoil. As the decentralized financial infrastructure powering billions of dollars of value and building thousands of companies grows, we need to recognize instability around us. The systems, protocols and incentives we create now can be less susceptible to censorship, government overreach and misinformation.

Ethereum 2.0’s design has a number of attractive attributes that make it exceptionally well-positioned to reliably operate through the choppy waters ahead as a neutral infrastructure, not as a biased platform. Individuals, enterprises and governments can be confident that Ethereum 2.0 will continue functioning in the instance of individual or state-actor level attacks. It is a solid foundation on which to build economic and financial infrastructure.

Related: Ethereum 2.0: Less is more… and more is coming

Eth2’s features are particularly relevant when viewed through a broader socioeconomic context:

• Governance through rough consensus.
• Robust and performant in the face of censorship.
• Reliable money for the decentralized economy.
• Empowers and enables self-sovereignty.

Eth2 is credibly neutral

Vitalik Buterin, co-founder of Ethereum, wrote a convincing post suggesting credible neutrality, or “a basic effort to be fair,” which should be a guiding principle in protocol design:

“Note that it is not just neutrality that is required here, it is credible neutrality. That is, it is not just enough for a mechanism to not be designed to favor specific people or outcomes over others; it’s also crucially important for a mechanism to be able to convince a large and diverse group of people that the mechanism at least makes that basic effort to be fair.”

As he continues: “Mechanisms such as blockchains, political systems and social media are designed to facilitate cooperation across large, and diverse, groups of people. In order for a mechanism to actually be able to serve as this kind of common substrate, everyone participating must be able to see that the mechanism is fair, and everyone participating must be able to see that everyone else is able to see that the mechanism is fair, because everyone participating wants to be sure that everyone else will not abandon the mechanism the next day.”

Today, if there’s anything that people tend to agree on (at least in the United States) it is that “The economic system unfairly favors the powerful.” To avoid this fate and remain credibly neutral, Eth2 follows in Ethereum’s footsteps, eschewing on-chain governance, in favor of technical governance through rough consensus.

Related: DeFi-ing the odds: Why DeFi could rebuild trust in financial services

This design decision has two nice properties:

1. Eth2 has rough consensus (finding general agreement, not simple majority rule) and a lack of on-chain governance (a rejection of plutocratic rule). This makes Eth2 governance difficult to capture. By design, it is much harder for entities to force Eth2 to favor or censor others.

1. Keeping the community together is one of the highest priorities of rough consensus. Rough consensus largely avoids highly contentious or controversial changes whenever possible, since it is difficult to find rough consensus on them. This leaves the decision space of rough consensus to primarily technical topics, which are grounded in facts and logic, and seek to minimize controversy.

Rough consensus isn’t just applicable to or decided by the core developers, but the entire community. There have been many times in Ethereum’s history when the community made its voice heard on important issues to impact Ethereum’s direction. Programmatic proof-of-work, or ProgPoW, is the most recent example: Core developers achieved rough consensus to implement it, but the community did not, and therefore it was not implemented.

In a world that is increasingly polarized, Eth2 cannot favor or disadvantage any individual, entity or group, as it has no mechanism by which it can do so in the first place.

Eth2 is robust and performant in the face of censorship

Cypherpunks were always worried about censorship by governments, but recent times have shown that censorship can also originate with individuals, enterprises and institutions. Eth2 is starting to underpin an entire parallel financial system, making it more important than ever that Eth2 can remain operational in the face of this type of attack.

Most importantly, Eth2 prioritizes liveness over correctness. Ethereum 2.0 researcher and tech developer Carl Beekhuizen outlined how Eth2 can continue producing blocks, even if there is a massive disruption that knocks a large number of validators offline, preventing the network from reaching finality. This robustness allows essential business functions to continue operating on Eth2, despite massive network disruptions.

Robustness is also why it’s so important that Eth2’s design is incredibly forgiving of downtime. Short amounts of uncorrelated downtime (minutes, or even days) have a relatively minor impact on rewards. Validators can change setups or migrate their nodes with confidence in the event of deplatforming, service interruptions or attacks.

On Eth2, validators default to being anonymous with no delegation. When someone attempts to censor, they will have a difficult time coercing a sufficient number of globally distributed, and mostly anonymous, validators to execute their will over an extended period of time.

Eth2 is reliable money for the decentralized economy

In a time of irresponsible money-printing and rampant asset inflation, experts disagree on how to best protect yourself and where to invest your savings. The Federal Reserve has stated repeatedly that “There is an infinite amount of cash at the Federal Reserve,” and that it can print digitally at will, which leads many to question the long-term viability of the dollar and the safety of their savings.

Related: Bretton Woods 2.0 is knocking at our door, and it’s not here to help

Ether (ETH) incentivizes participation on Ethereum via mining rewards. It also serves as the base asset for the decentralized economy built on top of Ethereum by functioning as a base trading pair, loan collateral and more.

Eth2’s design builds upon and expands ETH’s moneyness characteristics in two ways:

1. Eth2’s rate of inflation is expected to be less than 1%, one of the lowest inflation rates of any protocol and much lower than the dollar.

1. EIP-1559 (which will likely be active on Ethereum even before the transition to Eth2) will make ETH more scarce, and therefore potentially more valuable, as Eth2 usage increases.

Related: Ethereum Improvement Proposal 1559: Is the squeeze worth the juice?

The Ethereum community follows a policy of minimum viable issuance to keep the chain secure against attacks, such as double-spending. This approach is markedly different from today’s economies, in which central banks have tremendous control over monetary policy. Users, enterprises and governments can feel confident working with Eth2 because its base unit issuance is only used for one specific purpose: security, and that raison d’être cannot be repurposed to serve alternate goals. Additionally, the entire monetary policy is known and public, so everyone has equal insight and access to understand all protocol rules.

Eth2 empowers and enables self-sovereignty

Many people, across the political spectrum, feel disempowered today, as politics and the economy seem totally disconnected from the real world and our everyday lives. The promise of crypto, for many, is flipping that dynamic on its head and giving power back to the individual. Eth2, in particular, shines here.

Eth2 allows any individual, enterprise or government to run validators, actively opt in to the rules of the protocol and enforce them for all other participants. It enables a sense of ownership, confidence and self-sovereignty that is harder to achieve solely as a consumer. It also enables all entities to trustlessly build and verify the state, which makes us all work from the same set of facts — a rare occurrence in today’s world.

Eth2 does not cap the validator active set, and only requires 32 ETH to spin up a validator. While not equally accessible to everyone, this sum is not unreasonable, as running a validator allows an entity to support the decentralized economy in perpetuity, while earning the crypto equivalent of the risk-free rate of return. And those with less than 32 ETH (most people) can always pool their funds using Kraken, Rocket Pool or other services to participate on Eth2.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Author thanks Vitalik Buterin for providing feedback on this piece.