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The dangerous in DeFi and ETH2 (Beacon Chain) hard fork HF1 

Ok folks here we are with a little practical understanding what the hardfork of Ethereum is and why this will have an impact to the DeFi sector and of course why the run is there so high.

Ok Ethereum is not a “hard copy of Bitcoin, where we changed the rules of terms” ! That is important to know. Ethereum has been copy coded what many people thought as impossible. That led to over six hundred bugs which are not that harmful except of 1 or 2. One of the biggest failures was Solidity ‘cause most of the problems and hacks today done by smart contracts which have been infringed. And through the half world even other chains who are compatible to ETH smart contracts because of exchange for tokens into Ethereum run a danger volume on fraud contracts or the possibility to change them as we have seen in the last DeFi hacks. 

Ethereum meanwhile listen to the cry of the community and changed from Proof of Work to Proof of Stake with Beacon Chain, where people get validators nodes in exchange of staking securing 51% of circulating coins to prevent an attack. This validators and stakeholder get the fees paid among their nodes as a reward and interest fee for stake holding andsecuring the network. Before Beacon started you could join stake holding to generate passive income by bringing in 32 ETH, which was cheap but actually with a price of 1800 Dollar a heavy load.

With PoS System Ethereum opened new problems. Against the Proof of Work, POS has a big Double Spend by reset problem and in danger by Division/0 attack causing / or adding  an Node Data overflow. Means the node get out of order because the hard drive is full and can’t work proper.

As we have seen now the HF1 Upgrade will open another door for attackers in Double Spend. 

The biggest practical change is the support for light clients — nodes that would have minimal resource requirements and could run on mobile devices. This would allow for “trust-minimized wallets” that are able to verify the blockchain on their own instead of relying on external service providers.

Light client support is introduced through special purpose “sync committees,” groups of validators that are randomly assigned to create special signatures that make it easier to determine the correct version of the chain.

Ok where is the problem? Light clients could not verify the whole blockchain because of speed and maximum output operations for an data input. Means operating a hundred transactions will reduce the checking time for the blockchain data preventing a double spend. Therefore sync committees should create a signature where the light client could be sure the whole process has been rechecked. But for an attack it is easy to find the connection in the beacon software where this randomized nodes of the validators connect to come together. It is now easy to create a data error on this group which will set the whole group out of order before creating the signature as a proof for the light clients. In this case the mobile system can’t verify and will reject itself the whole process and reset the chain. This is only in theoretically but it’s the same with the hardfork attack on PoS recovering off line transactions on the new chain and get the double amount of ETH. 

Take it easy. The new system must get a signature from a validator committee. This process can be broken because it is visible on the network when this strings comes together. A hack during creating this signature will set the whole system into a position to make a default reset because the trust is not given. 

For those who think it’s a great step on the moon, maybe it is like the first robot on mars it sticks on the first obstacle. A hack like that could also prevent a recheck for DeFi networks based on an ETH binary. 

For sure, it will take maybe six months for the first hacks. But ignorance is the same which led in all hacks today. 

The DeFi hype is on the highest point because of expectation in regulations. For sure the crypto ban is one topic. Master Card will serve Bitcoin and the first country (Jordan) is now banning master card. The regulations for crypto will also kill DeFi. The MICA Report of the European Commission says it would every token regulate in the way that the issuer of the token must registered by name. The decentralized character on a self-regulated market is taken away because not the users take response on their own risk. Instead, every system is now listed and can only act on a license. 

Written by : Prof. (Dr.) h. c. Joerg Molt

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CryptoCurrencyUSDChange 1hChange 24hChange 7d
Bitcoin54,087 0.86 % 2.74 % 13.88 %
Ethereum2,481.0 2.00 % 7.59 % 2.11 %
Binance Coin551.50 1.80 % 6.74 % 1.84 %
Tether0.9995 0.04 % 0.12 % 0.02 %
Polkadot43.88 0.58 % 0.43 % 36.39 %
Cardano1.200 1.23 % 5.48 % 17.40 %
XRP1.290 0.87 % 6.68 % 30.06 %
Uniswap38.02 3.23 % 16.59 % 5.38 %
Litecoin273.45 5.25 % 4.16 % 1.87 %
Chainlink36.69 1.26 % 2.49 % 11.06 %