Ethereum Developers Rush to Implement New Update After Successful Overhaul
Crypto’s most crucial commercial highway is at risk of becoming a casualty of its own success, marking one year since a highly-discussed software upgrade that was comparable to the Y2K transition over twenty years ago.
The overhaul of the Ethereum network, known as the Merge, proved to be a seamless transition to a more energy-efficient system for ordering transactions on the blockchain. One of the incentives offered to participants is the opportunity to earn income by helping the operation of the network with the tokens used. The growing demand for the so-called staking feature has now increased the possibility that the network will jam itself.
As part of the staking process, the ether tokens that underpin the network are “locked” into digital wallets, making it easier to subscribe to transactions and earn revenue. According to Data Tracker Staking Rewards, about 20% of all Ether in circulation, worth about $41.5 billion, has already been staked.
If the current pace continues, that number will rise to 50 percent by May and 100 percent by December 2024, according to the paper, co-authored by Tim Beiko, who coordinates Ethereum developers.
The demand is driven by the fact that betting has become one of the few reliable ways to earn income in crypto. Most token prices are still less than half of the record highs reached in late 2021. Ether owners can currently earn around 4% return by staking.
“We all just like the top, but not when Ethereum’s security is at stake,” said the paper’s co-author, who uses Dapplion, on X, formally known as Twitter.
In the worst case scenario, ether is not available to complete online transactions. At the very least, it increases the load on the part of the network that is used to order the transaction.
That’s why Ethereum developers are trying to slow down staking. On September 14th, the developers agreed to limit the number of new validators using staked wallets allowed to join the network every six minutes. The change will be marked in the next major Ethereum software update later this year. According to the paper, with the change in so-called volatility, Ethereum will not reach the theoretical point where 100% of all circulating ether has been staked for several years.
“We want to slow it down a little bit to buy us time,” Matt Nelson, chief product officer at Ethereum infrastructure builder Consensys, said in an interview.
The break gives developers a chance to find longer-term solutions. When staking achieves “unprecedented success beyond initial staking percentage goals,” developers may consider adjusting reviewer rewards “to avoid staking beyond a certain point.”
Most people don’t stake their ether – instead act as validators – directly. Instead, they give their tokens to a number of services run by the likes of Kraken, Lido and Coinbase Global Inc., which pool the tokens and distribute the rewards. Lido, which gives ether holders a second token to trade on exchanges while staking their coins, has about a 33 percent market share, according to data service Dune.
“The effect of the account is that it includes the current stake providers,” said Jim McDonald, CTO of Attestant, one of the largest Ethereum stake providers.
