Donut Hardfork to improve Celo’s interoperability

Celo, a protocol which lets users access financial services on their mobiles, has scheduled a far-reaching upgrade for May the 19th.

The Donut Hardfork makes the network more gas efficient and improves Celo’s interoperability within the Ethereum ecosystem. The mouth-watering update goes live at block number 6,774,000.

James Prestwich, a leading protocol engineer at Celo Labs, described the Donut Hardfork as an exciting next step for the platform. He told Accointing.com:

Donut is the first major hard fork in Celo history, and has a lot of big features.

It removes major barriers to dapp deployment and usage on Celo, and provides new cryptographic tools for building complex systems. I’m looking forward to using Celo dapps with Metamask, just like any other EVM chain.

While Prestwich confirmed ‘no network outage is expected’ as a result of the upgrade Binance announced it will suspend CELO withdrawals and deposits from 4:00 PM (UTC) on the 19th until the network is stable.

How does Celo work?

Before digging in to the technical details of the upgrade, you need to understand how Celo works. 

Diagram courtesy of Celo showing how its Proof of Stake system works.

The Celo blockchain uses a Proof of Stake system rather than Proof of Work. 

  • A random beacon selects validators to sign off on new blocks containing transactions. Validators use a Byzantine Fault Tolerant (BLT) consensus algorithm to reach agreement on new blocks without needing the approval of the entire network.
  • Full nodes forward requests from light clients on to validators and pick up transaction fees.
  • Light clients are users who connect to full nodes in order to make requests and submit transactions. 

The light client option allows users on mobile or restricted devices to use Celo without downloading a full version of the blockchain. Instead, they sync their devices once a day to keep up with changes.

What’s on the Menu for the Donut Hardfork?

The rather tasty upgrade consists of 9 CIPs (Celo Improvement Proposals) that increase Celo’s interoperability and make synchronisation more efficient. Delicious…

Let’s bite into the technical details.

Interoperability

  • CIP-25 – Ed25519 Precompile. The new precompile should make verifying smart contracts containing ED25519 signatures cheaper and faster and will let Celo create bridges with blockchains like Solana, Cosmos and NEAR.
  • CIP-35 – Support for Ethereum-Compatible Transactions. CIP-35 adds support for Ethereum-compatible transactions. This means Celo will be able to accept transactions generated and signed by Ethereum wallets and other Ethereum tooling.

Changes for the Community

  • CIP-28 – Split Etherbase. When validators are paid transaction fees and receive rewards for signing off on blocks their fees are sent to an etherbase account. CIP-28 splits the etherbase so that the fees are paid into separate addresses.
  • CIP-21 – Governable Lookback Window. The ‘lookback window’ is the number of blocks a validator can fail to sign off on before their node is slashed. Currently, it is set at 12 consecutive blocks. With a block added every 5 seconds this means validators can be punished for just 1 minute of inactivity. The update lets Celo’s community vote on the length of the lookback window.
  • CIP-22 – Epoch Snark Data. Light clients have to download SNARKs once every epoch (once per day) when new validators are chosen. CIP-22 makes sure SNARKs function when the validator pool is below its maximum threshold. It also cuts gas costs for using SNARKs when slashing occurs.

New Precompiles

  • CIP-20 – Extensible Hash Function Precompile. CIP-20 creates a precompile for generating hash functions to encrypt data. It should allow transaction data to be encrypted faster and more cheaply.
  • CIP-26 – Precompile for BLS. CIP-26 adds a precompile for BLS signatures which allow users to verify the authenticity of signatures. BLS precompiles will help light clients sync with the blockchain.
  • CIP-30&31 – BLS Curve Operations on 12-381 & 12-337. These CIPs add new precompiles for BLS12-337 and BLS12-381 which provide 120+ bits of security – a big improvement on existing BN254 precompiles that only provides 80 bits.

Price

Short term

CELO price is up 15.13% this week while trade volume hit $308,454,425 on May 17th, 1,020.5% higher than a week earlier.

James Prestwich attributes surging trade volume to hype surrounding Celo’s upgrade and the launch of the liquidity mining dapp Ubeswap on Celo’s blockchain at the end of April. He told Accointing.com:

I think the recent launch of Ubeswap and the upcoming Donut hard fork have generated a lot of excitement.

Graph comparing trade volume and price with Churrito Hardfork and Ubeswap Launch dates. Courtesy of Messari.

The graph shows that CELO’s price correlates closely with trade volume. During Celo’s Churrito Hardfork in January and the Ubeswap launch in late April, spikes in volume and price coincided.

In the two weeks after these two upgrades volume followed a backwards J shape curve as price dropped and then rebounded – a trend which could be repeated after Donut.

Long Term

In the long term, CELO’s price shows positive correlation with the release of new tokens into circulation. CELO has a maximum total supply of 1 billion tokens which will be released gradually between 2020 and 2050.

The second graph shows a correlatory relationship between circulating supply and closing price in 2021. Both price and supply form a k-kink shape between March and April 2021 when CELO allocated 12.6 million tokens to its team, advisors, founders and contributors, a figure 10.6 million higher than the previous month.

If this trend continues CELO could make its sharpest gains between April 2020 to May 2022 (month 0 to 25 on graph 1) when the rate of token allocation is steepest.

Closing Thoughts

Ultimately, price will depend on Celo’s ability to attract new users to the platform. Celo, which currently has just 735,447 total addresses, is aiming to do just that with the Donut Hardfork.

Increased compatibility with Ethereum transactions and wallets such as metamask lowers barriers to entry for new users. Meanwhile, creating a bridge with Solana, a scaling solution, will help Celo to expand its network and services.

According to Prestwich, Celo has ambitions to create further bridges with other blockchains. He said:

We intend to bridge to as many chains as possible. Polkadot, Solana, and Near are high on our list after Bitcoin and Ethereum.

Celo’s plans don’t stop there. Prestwich told Accointing.com that another hardfork is already in the pipeline.

We’re focused on reaching new users, building bridges, developing the Celo DeFi ecosystem, and planning our next hard fork.

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