cryptoknowmics.com
The upgrade, which is set to be live in 2022, still has a long way to go before it is fully integrated into DeFi.
Ethereum: The Trail-blazer of the DeFi Market
With over 230 DeFi projects listed and over 200 built on it, the Ethereum Network is home to the most significant and most potent decentralized financial projects.
Ethereum is a development leader in the blockchain sector, with a decentralized and programmable platform that can be used to create anything, including stablecoin projects like USDT, virtual reality worlds like Decentraland, and decentralized exchanges like SushiSwap.
Ethereum is more than just a digital currency. It's a whole ecosystem with a market cap of $516.982 billion at the time of writing, and it's always running, uninterrupted and unchangeable. Despite being the world computer, Ethereum suffers from issues like clogged networks, lack of enough disk space, and high computing power used by PoW mining. Thus, ETH 2.0 aims to solve these issues!
ETH 2.0 to the Rescue
ETH 2.0 has been under development since 2014 and is a game-changing upgrade for the protocol, with higher throughput (up to 100,000 transactions per second or TPS), lower gas prices, and improved network security.
Ethereum will transition from a PoW to a Proof of Stake (PoS) mechanism once ETH 2.0 is released. Miners are not required to create new blocks in PoS protocols. Staking, which entails becoming a node validator and actively engaging in transaction validation on a PoS blockchain, is used instead to generate new blocks.
Say No to Mining: Staking for Transaction Validation
Staking Ether will be the primary method of generating and validating blocks. In October, the total amount of Ether staked in ETH 2.0 deposits topped $138,855.04 billion, exceeding the team's expectation of $5 billion.
To become a validator, you must first deposit 32 ETH, which is now worth US$136,194.55 (up by +$45,255.80 in the previous 30 days) at the time of writing. Users stake to assisting the network's security via staking.
Nonetheless, due to a technical flaw discovered by the staking infrastructure business Staked earlier in February, 75 Ethereum 2.0 (Eth2) validators were eliminated. When the network rules in Eth2 are breached, slashing happens. Eth2 validators or node operators are removed from the network during this procedure, and a portion of their stake is burnt.
The slashing penalty for Staked is roughly 18 ether (ETH), which was around $30,000 at the time. To prevent this from happening again, Staked has made adjustments to the way new nodes are deployed, preventing them from interacting with validators until they are fully synced.
The more decentralization there is, the safer the system becomes!
Replacing mining with staking will eliminate the need for computational power as a security mechanism, lowering Ethereum's carbon footprint by 99.95%. Stakers commit funds rather than computational power to safeguard the network.
For instance, if the network has 10,000 nodes and the cost of running a household computer is around 525kWh per year, For the entire network, this equates to 5,250,000kWh1 every year.
This is significant for DeFi space because it improves energy efficiency while maintaining Ethereum's decentralization and security. Many other blockchains may use staking in some form, but they are secured by a small number of stakers, not the thousands that Ethereum will have. Thus, the system's security increases with enhanced decentralization.
Risks and Rewards of Staking ETH
As an incentive for helping to safeguard the network, users can earn up to 5% APR on each ETH they stake. Staking payouts for ETH2 are calculated based on how much ETH is validating and what rewards the network is paying overtime. Total ETH staked on Ethereum is 8,364,763 ETH, with a total number of 251,615 validators at the time of writing.
When a small amount of ETH is staked, the protocol payouts grow to encourage additional ETH to be staked. When a large amount of ETH has already been staked, however, the payout is lowered.
Despite the above rewards for the DeFi enthusiasts, staking with ETH is experimental and comes with some risks, including the possibility of the network failing. The chance of losing your staked assets (sometimes known as your "principal money") due to slashing is an important risk to be aware of. However, exchanges like Coinbase protect users against such losses.
If you have a slashing incident, Coinbase will instantly replace your cut principle at no further cost. If you began staking after August 30, 2021, Coinbase would only cover slashing fines if they are the consequence of an action or omission within Coinbase's reasonable control.
Ethereum in Space
SpaceChain, an open-source satellite network, launched the first Ethereum node into space on June 4 to demonstrate Ethereum technology's full potential. With a blockchain-enabled payload flown on a SpaceX Falcon 9 rocket, the business completed the first demonstration of the Ethereum blockchain into its hardware on the International Space Station (ISS).
DeFi customers will be able to conduct enterprise business transactions and use fintech applications once the Ethereum node is operational.
What Does ETH 2.0 Imply for the Investors?
Token holders aiming to become validators of transactions on the new network are storing an increasing amount of Ether for a stringent multi-year "lockup" term.
This might limit the supply of Ether, potentially raising its value if demand outstrips supply. This will drive innovation in the DeFi space as investors seek liquidity by borrowing against their locked-up Ether holdings.
Richter (CEO of blockchain software business Blockdaemon) believes that "within five to ten years, these decentralized networks will be on par with centralized systems." “Then the centralized platforms are doomed.”
Thus, Ethereum 2.0 focuses on improving 3S- scalability, security, sustainability in the DeFi space. The move to Eth2 involves a significant set of events that will address the network's problems and lead to widespread adoption of the blockchain, while also strengthening the Ether price.