Ethereum is the second cryptocurrency in the world in terms of market capitalization, being second only to Bitcoin in popularity. Recently, it had to deal with a wave of decreased values due to the market having to deal with successive waves of regulatory pressures. Yet, investors have remained interested in the coin, with many looking to buy Ethereum with credit cards in order to add it to their investment portfolios. The market has not yet regained its full strength, and many challenges are still ahead.
As the market continues to change, investors must find ways to guard their assets and create strategies that guarantee they can see returns and revenue from their investments.
Record-breaking staking
While the Ethereum blockchain sees a lot of engagement due to the trading of its native coin Ether, it is also widely recognized within the more prominent digital finance market because of its innovative solutions and pioneering technological developments. One of the most recent was the much-awaited and highly-anticipated Shanghai upgrade. Launched mid-April, the update came with several functional features for users, the most noteworthy of which was the ability to withdraw staked coins.
This wasn’t possible previously, leading to many investors rushing to complete the process on their own staked funds. Back then, some warned that doing so en masse could potentially destabilize the network and even impact short-term price movements. The effects weren’t as drastic as initially predicted, but then a new phenomenon began to replace withdrawals.
The amount of staked coins began to climb, recently surpassing an incredible milestone of no less than $40 billion. These price movements are likely to result from renewed interest in staking, as users have deposited well over 4 million ETH coins since the upgrade launch on April 12th. By the last week of May, the figure stood at nearly 23 million Ether, or $41.1 billion. The effects on the price haven’t been immediate, however, yet ETH is still making slow and steady steps towards progress, gaining nearly 1% over the past week. So far, it is still trying to recover from the 1.30% drop of the previous month.
Consensus layer overload
Vitalik Buterin, the founder of the Ethereum blockchain, has recently discussed the importance of preserving consensus minimalism within the blockchain. This process refers to the tasks necessary to validate the mechanism. Currently, Ethereum is operating on the basis of a proof-of-stake protocol, implemented after the September 2022 upgrade known as the Marge.
Buterin has urged users to avoid putting too much pressure on the core functions of the consensus in order to avoid challenges in validation and network security. Overloading the system by using it for other procedures can bring significant risks to the ecosystem and should be discouraged among validators.
Some of the other initiatives that have been discussed over the years when it comes to the use cases for the blockchain have included data oracles, initiatives for re-staking, as well as using the soft forks of layer-1 to recover any layer-2 projects and tasks if they encounter any problems.
According to Buterin, while the desire to expand the core in order to add more functionality is understandable, each change would make the system fundamentally more vulnerable. The probability of systemic risks, such as a 51% attack, bugs or glitches, would be highly elevated, as well as possible issues with validators that can be bribed to reduce the money of specific participants within a price oracle.
The complexities of the blockchain, as well as the costs, would grow as well. Regardless, the Ethereum founder believes that it isn’t impossible to envision a scenario in which the use case could be extended in this manner. The important thing is that its development would be carefully crafted to ensure the benefits are much more significant than the potential pitfalls.
Re-staking
The re-staking feature can also present additional burdens on the blockchain since the validators have to secure several different chains as a result. Vitalik Buterin has discussed the importance of re-staking, which doesn’t provide an entrance to extending the role of the consensus too rapidly and without complete control of the procedures. Alternative strategies must also be created to protect the blockchain from any possible issues along the way, which are likely to intervene due to re-staking.
The process should also seek to avoid complex financial primitives, generic blocks that can perform a single task reliably. However, in the context of re-staking, they can actually be detrimental and spiral out of control very quickly. Subjective slashing can also intervene, as well as an over-reliance on the blockchain to fork mistakes within the application layer, all of which would further complicate procedures.
There are, however, some low-risk scenarios that include re-staking, including the implementation of re-staking for attributable misbehaviours, such as double signing, which occurs when a validator signs two blocks at the same time, whether accidentally or intentionally. As a result, validators can receive different penalties depending on the specific rules of each blockchain. Suppressing future rewards or reducing their stakes are some of the most common measures. Re-staking can also be used for the decentralized benefits of the coins while simultaneously avoiding slashing.
Price changes
The current Ethereum price is below $1.9k, a figure which analysts believe is suggestive of a lack of noteworthy price changes in the short term. While investors have long held hope that the bearish trends will soon subside and make room for a bullish tendency, it seems like there’ll still be a while until this goal is achieved.
Currently, the price has been stuck under $1.9k for over fifteen days, which has concerned many investors. It is especially notable considering that the last attempt at a breakout occurred at the beginning of May and lasted less than a full day. The total Ethereum deposits are relatively stable, but high gas fees have directly contributed to reduced demand for smart contracts.
While the market continues to evolve, investors must develop the best strategies that can allow their portfolios to grow. During times of fluctuations, it’s more important than ever to be well-prepared.
