Ethereum: a setback on a path to leadership

    18 Jul 2021

    The most famous altcoin – Ethereum – has long contested for the title of the most in-demand cryptocurrency, essentially aiming for the bitcoin’s crown. But for ETH to break through it requires a network upgrade to ETH 2.0 – and that seems to be a problem.

    On July 2, a unique transaction was recorded on the Ethereum network – the transfer of 600,000 ETH (worth approximately $ 1.28 billion) to an unknown wallet. The transaction fee was only $ 0.62: In June this figure on the network decreased by 90% compared to May.

    On the one hand, this indicates strong demand for the most popular altcoin, and on the other, shows that its positions are not as strong as many would like them to be. And it’s not just that the ETH price has fallen over the past week, from $ 2,400 to $ 1920. In addition, traders now are withdrawing altcoin from trading platforms: the day before saw the withdrawal of more than 50,000 ETH worth $ 110 million.

    Notably, at the beginning of the month, a serious surge in user activity was recorded on the Ethereum network: the number of daily transactions exceeded 1.4 million (bypassing even the BTC numbers). According to Santiment, there are now about 455 thousand active addresses on the Ethereum network – but just a couple of weeks ago there were more than 700 thousand. Clearly, there is a drop in network activity of the ETH owners. Traditionally in stock trading this is considered a harbinger of a “bull” trend, but not all analysts currently agree with this.

    There is an IntoTheBlock report pointing out that Ethereum hodlers have accumulated 48.76 million ETH, amounting to 41.8% of the total cryptocurrency supply. Moreover, institutional investors continue to put money into Ethereum products, which also keeps price of the altcoin at an acceptable level.

    However, what the Ethereum community truly can’t wait for is a momentous occasion – the network upgrade to ETH 2.0. The developers promise that the modernized version of the blockchain will be more productive and have lower operating costs, which will in turn reduce fees. All this should strengthen the positions of “ether” in the DeFi segment, where it is being pressured by more modern and efficient blockchains (such as Solana or Tezos).

    At this point, lots of Ethereum community members, who believe in its prospects, are freezing their ETH funds in deposit contracts in order to earn even more cryptocurrency on confirmation of transactions after the ETH 2.0 launch. Those are basically the initial contributions of some ETH holders convinced that after the blockchain is updated, the attractiveness of the network will increase dramatically. Remember, the rate in the Ethereum deposit contract is at least 32 ETH.

    Finally, in the big picture, one must account for the fact that Ethereum hashrate has now hit its lowest point since April. Over the past month it dropped another 20%, to 450,800 terahesh per second (TH/s). It’s not hard to see why: the pressure from the Chinese authorities on the miners in the country led to the physical shutdown of a large number of mining capacities.

    Still, the main problem facing the Ethereum community at the moment is the fatal delay in the transition to version 2.0. The transition was expected to take place in the fall of 2021, but then it was pushed back to early 2022. However, when analysts looked at the code posted on GitHub, they concluded that no more than one third of the required work on the project was completed.

    In other words, if the development continues to progress at this rate, then it’s good if we see ETH 2.0 by the end of 2022. An unacceptable delay by the standards of the fast-paced world of cryptocurrencies, let alone DeFi projects.

    So what exactly does the analysis of the Ethereum 2.0 sources posted on the GitHub page tell us? It turns out that many elements of the project are not even halfway through. It is now in phase zero, with only the beacon chain running.

    “In the consensus code, only two out of five points are ready, the execution code also has two out of five, – concludes the analyst Anton Tarshyn. – The consensus API is only one-fifth ready, and almost no work has been done on it. In general, this accounts for about 30% of the project development, and there is also testing. At this rate, a realistic time for release would be the end of 2022, provided there are no delays or interruptions in the process. Testing may reveal problems that will take additional time to fix. “.

    That means that even if everything goes well for the Ethereum team, it will only be able to complete the project by the end of this year, starting closed testing in the first half of 2022. Then, the summer of next year will see the launch of the public testnet, and this phase in best case will last until autumn. Keep in mind, if problems arise at any of those stages, we won’t get ETH 2.0 earlier than 2023.

    The problem of “lagging” development is not a technical one, really, but rather organizational. Due to the large scale of the project, several interest groups have formed within the Ethereum community, causing constant internal conflicts. This affects the development timeline, and even Vitalik Buterin, with all his authority, cannot help the matter.

    The worst-case scenario is if two networks (Ethereum 1.0 and Ethereum 2.0) begin to exist simultaneously, creating two separate cryptocurrencies. ETH miners will continue their work, and even after the launch of the network on Proof-of-Stake (ETH 2.0), mining will still bring money from those users and projects that remain on the “parallel” old network with the Proof-of-Work (ETH) algorithm.

    Due to the fact that the Ethereum 2.0 network will be faster and more secure, it will be the focus of decentralized applications developers. As a result, the “old” Ethereum could then develop unpredictably. This split will affect the entire crypto market, but only i it actually happens. For now, we can only assess different possibilities.

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