Valid Points: Ethereum’s Proof-of-Stake May Happen Sooner Than You Think

Valid Points: Ethereum’s Proof-of-Stake May Happen Sooner Than You Think

Eth 2.0 may be coming to a computer screen near you quicker than most anticipated, including the Ethereum developers.

Last week, Vitalik Buterin released a “quick merge via fork choice change” document – a lighter version of the Executable Beacon Chain for quick deployment. While only a loose technical document, the plan ostensibly serves as a notice against any further agitation from Ethereum miners as the merge would allow Ethereum to abandon mining in a rapid fashion.

The Executable Beacon Chain is a proposal to attach Eth 1.x – which we will now refer to as Ethpow (proof-of-work Ethereum) – onto the currently running proof-of-stake Ethereum: the Beacon Chain.

Related: Bitcoin Is Not a Stock

The proposal works by having slightly altered Ethereum software, like Geth or OpenEthereum, point its transaction flow at the Beacon Chain. Instead of miners packaging transactions into blocks, the Beacon Chain’s validators will verify and finalize transactions.

“The only change required on the ethpow side is that the client must have a communication channel with a trusted beacon node and must change its fork choice rule,” Buterin writes.

Why the rush?

A quickened transition schedule is being considered for a few reasons. One recent consideration has been rising tensions between mining parties and Ethereum developers as EIP 1559 and PoS come into focus. The former proposal is highly contested by mining parties, but has achieved enough support among developers to be included in July’s London hard fork. PoS, of course, would see mining done away with completely.

Developers, however, have the high ground in this fight. A quick merge to PoS would only require “at least one honest miner” in order to start the merge. Multiple honest mining parties pointing blocks to the Beacon Chain would entail a smooth transition, Buterin says.

Related: Bitcoin Volatility Index ‘BitVol’ Makes First Trade

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A quick transition to PoS does preclude the inclusion of multiple highly touted Ethereum tech stacks, at least for the moment.

Yet, at the end of the day a transition to PoS remains the goal of Ethereum developers, as it has been since before Ethpow launched. Any transition to PoS where Ethereum doesn’t lose its top dog position as the go-to platform for decentralized apps would likely be considered a victory.

Pulse check: Validator efficiencies

If you’re new to Valid Points and the topic of Ethereum 2.0 in general, be sure to check out our 101 explainer on Eth 2.0 metrics to get up to speed about terminology used throughout this newsletter.

CoinDesk’s Eth 2.0 validator node, Zelda, is humming along perfectly, earning roughly 0.0073 ETH or $13.12 per day.

While the amount of reward earned by our Eth 2.0 validator has not changed significantly over the past few weeks, I did notice a spike in Zelda’s computer processing power and a subsequent drop in her memory usage.

According to CoinDesk’s data dashboard, Zelda’s central processing unit (CPU) usage almost doubled from around 100% to 200% on Friday, March 12, and has stayed at these heightened levels ever since.

This suggests that Zelda is consuming more electrical energy in order to perform the same tasks it did before. For context, Zelda has four CPUs it can max out before validator operations are negatively impacted. Operating at a level of 200% suggests we’re using the max computing power of two out of four CPUs.

At the same time, Zelda’s usage of random access memory (RAM), which is the component of a computer that is reserved for temporary data storage, has gone down from around 4 GB to rough 2.5 GB.

This suggests the memory capacity needed for running this Eth 2.0 validator has dropped. Zelda has up to 16GB of RAM, enough for an average desktop computer to run various applications and demanding games. For Eth 2.0 validating, we use roughly 15% of total RAM, enough for tablet devices to use.

Ethereum validator rewards vs. mining rewards

It’s important to note that under a proof-of-work (PoW) consensus protocol, whereby transactions and blocks are finalized through the process of mining, the aim would be to consistently max out a computer’s processing power and optimize all unused components of hardware for increasing the probability of earning network rewards.

Under Ethereum’s proof-of-stake (PoS) consensus protocol, there’s no need to do either of these things. Despite operating below its computational capacity, Zelda still maintains an effectiveness of 100%, according to beaconcha.in. This is because, unlike mining, staking isn’t about competing for rewards against other validators through greater hashpower.

All validators who keep their operations up and running are rewarded on a consistent and regular basis in the form of interest on their stake. The only way to substantially increase the amount of rewards earned on the network is to stake more wealth in 32 ETH increments. (More on the reward dynamics of Eth 2.0 validators versus Ethereum miners here.)

The Eth 2.0 network does not reward aggressive increases in computing power nor sneaky optimizations to hardware. If anything, developers of the protocol are working hard to find ways in which the computational burden of being a validator can be reduced even further and updated so that even a mobile device could one day be sufficient for securing the network.

Going back to the mysterious changes in CPU usage and RAM, it turns out a code update was released by CoinDesk Director of Engineering Spencer Beggs last Friday in preparation for Ethereum’s upcoming system-wide upgrade dubbed “Berlin.”

As an Eth 2.0 validator, Zelda’s responsibilities can only be performed by connecting to both Ethereum’s PoW and PoS networks. The upcoming upgrade to Ethereum’s PoW network required Beggs to update part of our software, which likely triggered these changes in our energy consumption and memory usage.

This code update is mandatory for all Eth 2.0 validators and must be implemented by April 14, 2021, at the latest. If you’re a validator and haven’t yet made the upgrade, you can download and install the latest software releases for Berlin here.

Validated takes

Editorial on getting Ethereum to proof-of-stake as soon as humanly possible (Blog post, Ben Edgington)

Associated Press NFT artwork sells for $180,000 in ETH (Article, CoinDesk)

Bitcoin, baseball and new drama in the Ethereum 2.0 timeline (Video, CoinDesk)

DeFi lending protocolAlchemix raises $4.9 million in round led by CMS and Alameda (Article, CoinDesk)

How to create, buy and sell NFTs (Article, CoinDesk)

Factoid of the week

Open comms

Feel free to reply any time and email research@coindesk.com with your thoughts, comments or queries about today’s newsletter. Between reads, chat with us on Twitter.

Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is:

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb.

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Should You Chase Ethereum Here Or Wait For A Pullback?

In my previous article on Ethereum (ETH) from three weeks ago, I was “… looking for a somewhat tricky, whipsawing, move higher, ideally to around $1880+/-40, but it could even challenge the recent all-time high. From there, I expect several weeks of downside back to $1200+/100. After that, I anticipated the next rally to ~$3000+. However, a weekly close below $1200 targets $900…”

Fast forward, and ETH topped this week, so far, at $1891. Thus, using the Elliott Wave Principle (EWP) and Technical Analysis (TA) was once again a powerful way to forecast the price levels to be reached three weeks in advance. Therefore, it is time to become more cautious by, for example, raising stops, maybe take (partial profits), etc.

In this week’s update, I would like to look at the weekly and monthly charts to better understand ETH’s big picture potential (months to years out). See Figure 1 below.

Figure 1. ETH weekly and monthly charts with EWP count and technical indicators.

A retest of 1200+/-100 and then rally to new all-time highs.

As you can see, the weekly and monthly charts feature two different EWP wave-labels, but both point to higher prices (anticipated paths). The weekly chart’s EWP points to two more rallies (black major-5 and blue Primary-V) after an initial pullback (major-4) before this Bull run is over. Whereas the monthly chart suggests, we could see three more rallies (add purple Cycle 5). I always have an alternate (more Bullish) EWP count for Bull runs like ETH is in to ensure my Premium Crypto Trading Members do not miss out or get caught on the wrong side. The market will eventually tell me which one is correct: “anticipate, monitor, and adjust if necessary.”

What we do know, with all certainty, is that the weekly technical indicators (RSI5, MACD histogram, FSTO, and MFI14) are all negatively diverging (red squares). Although divergence is only divergence till it is not, it means ETH is now moving higher on less strength, less momentum, and less liquidity. The latter is essential because liquidity drives markets. If the buying dries up, only selling is left. However, ETH is well-above all its important Simple Moving Averages (SMAs), which are all rising and Bullishly stacked: 10w>20w>50w>200w). Thus this is still a 100% strong, Bull market.

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The monthly chart is different as there are no negative divergences on the technical indicators. Instead, the RSI5 is getting very overbought, suggesting there’s less room for upside left over the next 1-2 months. See the 2017 rally for example. However, the monthly Money Flow is still strong, and so is the MACD. Only the FSTO is not in favor of more upside.

Nonetheless, also on the monthly chart, the SMA setup is 100% Bullish: ETH is well-above its rising SMAs, which are also Bullishly stacked: 10m>20m>50m. Thus, this is still a 100% robust, long-term Bull market. Hence, the one-degree higher EWP count compared to what is labeled on the weekly chart has merit.

Bottom line

ETH’s weekly and monthly charts are 100% Bullish and suggest plenty of upside left over the coming months to years. However, negative divergences are creeping in on the weekly chart suggesting a pullback is most likely imminent. A daily close below $1657 will be a severe warning that the $1200+/-100 level will be revisited to complete a more significant correction before ETH can move to new ATHs again.

Buy Ethereum with Binance

This article was originally posted on FX Empire

More From FXEMPIRE:

Ethereum: What Is It, History and How to Buy

Image shows a hand holding a mobile device and checking the status of their cryptocurrency. In this article, SmartAsset takes a closer look at what Ethereum is and how to buy it.

Ethereum is an open-source blockchain that is on a decentralized platform featuring a native cryptocurrency called Ether (or ETH), similar to Bitcoin. Founded by Vitalik Buterin in late 2013 and publicly revealed at the North American Bitcoin Conference in Miami in January 2014, Ethereum was named after its founder browsed a list of elements from science fiction on Wikipedia. It signals the word “ether,” an underlying and imperceptible medium. Most recently, in March 2021, Ethereum attracted great fanfare, given that a buyer purchased a nonfungible token (NFT) at auction at Christie’s for more than $69 million using Ether.

In general the price of cryptocurrency is relatively volatile, meaning that it can fluctuate wildly. To understand whether something like this belongs in your portfolio consider consulting a professional financial advisor today.

What Is Ethereum?

Ethereum is an open-source computing platform and operating system. It is a technology that lets you send cryptocurrency (a digital or virtual currency that is secured by cryptography, making it almost impossible to counterfeit) to anyone for a small fee. It also powers applications that everyone can use, which means that ideally it can be used for more than just payments.

The idea for Ethereum is to create a decentralized global computer that is resistant to censorship and that can sustain itself. This is an extension of the blockchain concept of data, with the added layer of also running computer code across many computers across the globe. This means that Ethereum distributes both data storage as well as computations (computer code).

With regard to the cryptocurrency itself, Ethereum is similar to the popular Bitcoin in many ways: it has a blockchain, it is public and does not require permission to use, it has a built in cryptocurrency (called Ether, or ETH). By contrast, it is also different from Bitcoin in several ways: among other factors, both its block time (the time needed to create the next block in a block chain) and block size are much shorter.

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How to Buy Ethereum

Ethereum’s cryptocurrency is Ether, or ETH, which is equivalent to Bitcoin. Investors can use ETH on Ethereum apps or for sending value to others. Dapps are products, tools and services that run on Ethereum – there are some for finance, work, social media, gaming and more.

You can buy ETH from exchanges and brokerage platforms such as Robinhood, Coinbase, Kraken, Bitstamp and Gemini among others.

Or you can buy ETH directly from what are called wallets. Wallets often let you buy cryptocurrency with a debit or credit card, bank transfer or even something like Apple Pay, with certain restrictions that might apply. Ethereum wallets are applications that let you interact with your Ethereum account (and accounts are entities with their own Ethereum addresses that can send transactions and have a balance). Ethereum’s website encourages you to think of it like an internet banking app – but without the bank.

Your wallet lets you read your balance, send transactions and connect to applications. You need a wallet to send funds and manage your ETH, meaning that your wallet is only a tool for managing your Ethereum account. As a result, you can swap wallet providers at any time. Many wallets also let you manage several Ethereum accounts from one application, because only you – not the wallet – have custody of your funds.

Most wallet products will let you generate an Ethereum account, so you don’t need an account before you download a wallet. There are also various types of wallets: physical hardware wallets that let you keep your crypto offline (these are very secure), mobile applications (allow you to access your funds from anywhere), web wallets (allow you to interact with your account via a web browser) and desktop apps. Again, it’s important to remember that your Ethereum account is not tied to your wallet provider.

If you buy Ethereum from an exchange, the first type of exchange is called a centralized exchange, which is a business that lets you buy cryptocurrency using traditional currencies. These exchanges have custody over any ETH you buy until you send it to a wallet that you control. The second type of exchange is a decentralized exchange (DEX) that allows you to trade without giving control of your funds to a centralized company.

Image shows the word “DeFi Decentralized Finance” on a holographic design. In this article, SmartAsset takes a closer look at what Ethereum is and how to buy it.

Can You Buy Fractional Shares of Ethereum?

You can buy as little as 0.000000000000000001 – you don’t need to buy a whole ETH.

Some starting points for what platform to use when trading Ethereum include Coinbase, Kraken, Bitstamp, Gemini, Binance and Bitfinex. You would have to create an account and verify it. Once this happens, you would deposit currency into the account by adding money to it through your bank account or debit card. From there, you can begin trading, and once you have purchased ETH you can withdraw the currency from that purchase into your bank account or a wallet that you control.

Although it can be a decentralized and relatively accessible system, it’s important to note that lots of people have found it difficult to access their money as a result of forgetting their passwords and being unable to reset them because there is no central entity controlling everything.

Alternatively, you can open a brokerage account with a broker that offers access to cryptocurrency trading, fund your account that way, complete a transaction and transfer the currency into a wallet. Because a broker is a middleman, you as an investor may not always be getting the best price, but it may be a more convenient and secure option.

Ethereum Price History

As of March 2021, one ETH is worth more than $1,775. It is up more than 14,000% over the last five years. In March 2016, ETH was trading at just north of $10. On Jan. 26, 2018, it hit $1,231.94, as investors in an act called a “flippening” gravitated away from Bitcoin to this alternative coin. Initial Coin Offerings (or ICOs) also used underlying Ethereum technology that boosted interest in Ether. The Enterprise Ethereum Alliance, a consortium consisting of Microsoft and JP Morgan, helped validate faith in the currency. By that fall, though, the price of Ether had dropped 70%, as cryptocurrencies faced heightened regulatory strictures. With the run-up of cryptocurrencies in late 2020 and early 2021, Ethereum has hit its new highs, peaking at $1,957.16 on Feb 19, 2021.

Ethereum History and Background

Programmer Vitalik Buterin first described Ethereum in a 2013 white paper. Gavin Wood, Charles Hoskinson, Anthony Di Iorio, Mihai Alisie, Amir Chetrit, Joseph Lubin and Jeffrey Wilcke are co-founders In 2014, Swiss company Ethereum Switzerland GmbH (EthSuisse) began formal development of the software. Blockchain technology is the basis of Ethereum. It is a type of database that collects information together in groups, or blocks. Each new piece of information that follows a newly added block is put together into a newly formed block that is then added to the chain. Block chain structures data into blocks that are chained together.

Launched in 2015, Ethereum has its own associated cryptocurrency, called ether. It is the second largest cryptocurrency in terms of market capitalization, compared to Bitcoin. But in 2020, it was said to gain more than Bitcoin – more than 500% over the year. In March 2021 it was announced that Ethereum blockchain developers approved one of the biggest changes to the network since its launch, a move that would reduce its supply later in the year – thereby potentially creating bigger gains in price.

ETH is what drives the larger Ethereum Network, which itself has many opportunities for development. Ethereum is also backed by many Fortune 500 companies and is being used by financial institutions as well, making it attractive in that way.

In March 2021, a buyer named Metakovan used ether to buy a digital artwork NFT by the artist Beeple for a whopping $69.3 million.

Image shows a hologram symbolizing data flowing across a grid. In this article, SmartAsset takes a closer look at what Ethereum is and how to buy it.

Bottom Line

Ethereum’s decentralized finance (DeFi) system that employs Ether (ETH) as a cryptocurrency. With just an internet connection, you can complete various transactions.

Tips for Investing

Cryptocurrency investments are very attractive to new and experienced investors alike, but they’re…well, cryptic. That’s why speaking to a financial advisor can help you gain further insight. Luckily, finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area in just five minutes. Get started now.

Always do a little bit of number crunching on your own first. SmartAsset’s free investment calculator can help you determine what kinds of returns you need to reach your goals.

Tax code is another part of finance that can become mysterious and cryptic. Use SmartAsset’s capital gains tax calculator to figure out how to minimize your taxes.

Photo credit: ©iStock.com/D-Keine, Vladimir Kazakov, koto_feja

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