Ethereum started the year strong, with prices experiencing an upward rally and climbing for the first time in several months. And while the positive change remained relevant for some time, the price also experienced some difficulties. Regulatory measures are one of the most significant issues, as many of the market changes are primarily responsible for creating uncertainty among investors and contributing to volatility.
Regardless, traders remain committed to learning where to buy Ethereum, analyzing the differences between the different exchanges and platforms to discuss the best one. Adjusting the strategies to fit market movements is also highly important, as you need to take advantage of the fluctuations in the environment in order to have a successful outcome and earn revenue.
The return of staking
In mid-April, the Ethereum blockchain launched the Shanghai upgrade. Long-awaited by investors and previously delayed in order to perform more tests, the update added new functionality to the network. The upgrade aimed to reduce gas fees, a goal that remains to be realized, considering that the advent of the Pepe meme coin elevated the prices several times over. It was also meant to make the entire blockchain more scalable and efficient. Yet, by far, the most noteworthy development comes from the possibility of withdrawing staked ETH coins.
Before the upgrade was launched, many believed it could create chaos within the blockchain and stoke the flames of volatility. However, these predictions didn’t come to pass, despite investors rushing to withdraw their coins in massive numbers over the first couple of days. Now it seems like the trend has moved in the opposite direction, and staking is becoming attractive once again.
In fact, the staking rate has reached record-high levels. On May 15th, the annualized return rate stood at close to 9%, the highest since the introduction of withdrawals, according to the latest data.
Finality troubles
In the span of twenty-four hours, between the 11th and the 12th of May, the Ethereum blockchain experienced technical issues during which the overall performance was impacted. The process that was hit the hardest was finality, which lasted around a quarter of an hour. Finality guarantees that a block cannot be altered from the rest of the system without burning over 33% of the coins.
On Thursday, blocks couldn’t be validated for around twenty-five minutes, while on Friday, the situation worsened and extended to over an hour. The reason for the outages remained unknown until it was established that around 60% of validators ceased performing. While some were very concerned about the events, claiming that it signifies a problem with the protocol, core developers have taken a different view, saying that the outages resulted from a bug that was eventually fixed.
What exactly caused validators to not confirm the blocks remains a mystery, and developers are still looking for the cause. Shortly after the finality issues, some claimed there was no reason to become alarmed as it was unlikely there’ll be any problem with the transactions and that no transfers were lost. Investors currently believe that this was downplaying the situation. While glitches had occurred in the past, quite notably in 2021, when many validators were essentially expelled due to a security bug, the blockchain is also incredibly complex and must be regarded as such.
Further developments
These events have led many to believe that the Ethereum blockchain still has a long way to go before achieving its full potential. The progress it has attained must, however, be fully recognized. It is the second biggest cryptocurrency in the world in terms of market capitalization and the largest altcoin, challenged only by BTC. It has also been the center of innovation within the crypto environment.
While Bitcoin has primarily been focused on the money aspect and is first and foremost known as a cryptocurrency, Ethereum is so well-known for blockchain innovations that its name has become virtually indistinguishable from that of Ether, its native coin. Without ETH, non-fungible tokens, decentralized finance and apps wouldn’t have been possible.
It’s important to remember that all software and applications experience glitches occasionally and that lags are nothing new. Yet it’s also good to remember that the blockchain is still a work in progress and that more changes and upgrades are necessary before the system reaches its full potential.
Inactivity leak
Ethereum initiates an inactivity leak when over two-thirds of validators aren’t online. Also known as the quadratic leak, this emergency response shifts penalties and rewards. Inactivity scores are raised, and the liabilities grow with time. In the case of sync and proposer committees, the situation remains unchanged. The system was adopted particularly as a way to deal with the inability to offer finality. As a result, the validators that go offline lose portions of their staked ETH.
The procedure remains unchanged until the validators return online, commence their activities, and enable finalization to resume. The events of the 11th and 12th of May were the first time the leak was used on the mainnet. The estimations place the leak at around 28 ETH coins. The mechanism is meant to help the chain survive long-term and deal with potentially catastrophic events. In the event of an issue that cannot be fixed over a couple of weeks, the beacon will be split into two separate chains.
The inactivity leak is meant to incentivize validators to return online as soon as possible. There’s also no attestation for validators in order to discourage the possibility of an attack. Since it is possible that a hacker could drive the beacon chain into an artificial inactivity leak, non-participants would suffer the fallout.
The Ethereum blockchain is bound to change as new modifications, both internal and external, change how it operates. Regulatory procedures are still ongoing, and it remains to be seen what their final result will be. The hiccups the ledger experienced in May have also affected some investors’ trust, but it’s important to remember that all systems experience problems from time to time. While Ethereum is still a work in progress, it has already achieved so much and will continue to do so in the future.
