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Ethereum upgrade is coming in 2022 Q2. What's new?

Explained in simple terms

Photo by Kanchanara on Unsplash

Ethereum probably is the closest one to mass adoption among all existing crypto protocols, yet still miles away from it. At this moment (2022 Q1), there are around 1 million addresses a day, and even with those, the network suffers from scaling and safety issues.

An eventual update of Ethereum was on the plate for quite a while. There have been multiple reasons for this evolutional process:

  • High gas fees
  • Slow transactions in comparison to other protocols and even traditional fiat money systems
  • Validation by miners
  • Lack of scalability and safety

The overall solution for most of those was switching from a solid but old Proof-of-Work (PoW) consensus algorithm to a new but suspicious Proof-of-Stake (PoS). In PoS reality, transactions get confirmation from major players with a sufficient amount of tokens staked. In Eth2 reality, that number is up to 32ETH for a single validation which amounts to nearly 80000USD at the moment. In order to shift to the new way of confirming things, the Ethereum community had to implement updates and gradually introduce them to the network, which has been happening since 2020. So far, the major non-technical hurdle was to accumulate enough validators, and it seems like we're almost there.

More than 10M ETH staked into Eth2.0 networks. Initially, developers estimated 10M exactly to be enough for a successful launch. Graph taken from cryptoquant.com.

Recent Updates

Yet, there's some technical progress to be made. According to the father of protocol Vitalik Buterin, the network is 50% ready for the launch and, after the current testing stage, would make it up to 80%. Still, it is fair to expect an official rollout somewhere in Q2 2022.

On March 10th, the Ethereum community started klin testnet to test updates. You can take part in testing and review relevant metrics here: https://kiln.themerge.dev/. The process goes really well, as can be observed in ethstats dashboards. For example, klin networks participants enjoy an almost stable 1gwei gas price and slightly lower average block time.

Regular Network
Klin network

Staking Analysis

For confirmation of transaction certain amount of Ethereum, coins have to be locked into validators blocks. For that owners would be paid a certain amount of rewards, making it an effective way to make passive income. Let us review whether this solution is still interesting.

Calculations made by stakingrewards.com

As you can see in the picture above, staking Ethereum through staking pools has <5% APR. It's probably fair to say that the actual APR would be slightly lower due to the tendency of the network to grow and the risks of participating at staking pools. You can access potential decrease by moving the slider labelled as "How many ETH are being staked". Bear in mind that this model also does not consider potential appreciation in case the network gets successful adoption.

Other Opportunities

Speaking of successful adoption, let us review how we can benefit from an upgrade without putting financial assets into a few-years lockdown.

One option that jumps on you immediately is to try and speculate on a potential price increase closer to the actual upgrade date. While I cannot give you substantial financial insights, I believe that it is a bit too late for that. It seems like recent positive Ethereum community news is not impacting the price action, raising the hypothesis that the closeness of the upgrade is already incorporated in values of eth's. Historically, it seemed truthful for other major networks like Cardano or Polkadot, where the price wasn't changing much after official rollouts.

A better option to benefit from the technology shift would be actually to use that technology. There are many ways how you can leverage Serenity to build better, faster apps. Judging by the current list of applications, it is reasonable to suggest that Eth2.0-based software would be concentrated around Decentralized Finance and NFTs. These two categories contain major popular applications, and the upgrade itself would not trigger immediate deviation from the trend.

If you'd like to avoid competition and aim for some novelty, I'd suggest you look into any sphere related to big data: IoT, social networks, data trading, etc. Crypto already has decent use cases in those branches but in networks with fewer users. Update of Ethereum is supposed to bring to another level when it comes to many high-frequency transactions and might be something to look at.

In case you're convinced to join the party, here are two good courses to begin with:

Summary

It seems like we're about to witness a major update for an entire crypto community, and even though it's probably not going to integrate e-coins into your life immediately, it'll make it closer. Let me know what you think about this in the comment section.

P.S. While I'm capable of posting new tech articles on Medium, I'd still like you to pay attention to what currently happens in my country. Help if you can help, raise awareness if help is not an option and if neither of those works — send us some positive energy. We're still fighting and will be until the victory.

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Mykhailo Kushnir

Mykhailo Kushnir

Raising my first startup for micro tutorials called codeinvid.io | You might as well follow me via email as I share more content there: https://bit.ly/3aIvDwn