In addition to enhanced scalability and security for the Ethereum network, the upcoming upgrade from Ethereum 2.0 to a proof-of-stake or proof-of-stake model promises additional benefits for users. One of the main attractions that promote the purchase of ether (ETH) is An application model that enables residual income to be used to validate transactions. And here, users can choose between two different options: the first involves depositing 32 ETHs and running validation node software, and the second allows staking without having to add or run nodes when they join third-party groups.
The numbers speak for themselves, as 66% of the Ethereum community support the stakeout, while the rest are still unsure which choice to make. However, With promising advantages, the new update can also bring some risks. How will the new deployment model affect those who choose to bet, maintain or act, and what can be the negative scenarios for those who choose to continue mining with the previous network?
Most experts believe that the upgrade to Ethereum 2.0 will have a positive impact on the ETH price and the trading volume. Indeed, the investment can open up broad investment prospects for those who prefer the buy-and-hold strategy to trading in ETH futures. Changpeng Zhao, CEO of Binance, said staking will help stabilize cryptocurrency prices by encouraging users to shop in the market and set limited sales orders.
Another expected benefit is that The release of the update will reduce costs and accelerate network transactions at the expense of a decrease in gas costs. Praneeth Srikanti, Chief Investment Officer at ConsenSys Ventures, told Cointelegraph about the positive changes Ethereum 2.0 can bring to the market:
“The proof-of-stake brings a number of improvements, including energy efficiency, lower barriers to entry, stronger crypto-economic incentives, and improved ways of generating rewards for a wider group of users. We also believe that the demand for ETH would increase, as users would gradually be given opportunities to find new returns based on stakes, contribute to chain security and would have interesting dynamics in current usage by blocking assets become ETH in DeFi protocols “.
Despite a number of advantages, updating Ethereum 2.0 carries the risk of significant negative consequences for users and stakeholders in the network.
Make a strong effort or lose ETH
Significant risk is associated with high demands on stakeholders and the need to freeze funds to be eligible for transaction validation. Unplugging rewards the participants and increases the security of the network. However, there is a hidden risk element as the average user may not fully understand the stakeout. A lack of understanding and complexity of the model can lead to problems such as theft or loss of withdrawal keys and inappropriate procedures for transferring funds.
Another risk is related to the actual transition from Ethereum 1.0 to Ethereum 2.0, which will allow users to complete ETH staking and receive rewards for the new Ethereum 2.0 network upon completion. While it is a simple and secure mechanism to move ETH to the new blockchain, this one-way transmission can pose a risk of blocking. While participating in the new PoS chain, the price of ETH can suddenly drop, so that users can no longer sell their assets and losses can no longer be reduced.. Speaking to Cointelegraph, Eliézer Ndinga, Associate Researcher at 21Shares, said:
“The transition from the current Ethereum blockchain to Ethereum 2.0 requires users to transfer their ETH between blockchains, which can pose risks for users who try to do it themselves, although exchanges and other custodians are likely to support this process.” “
Using an external provider could be a solution. However, when participating in a task force, users must understand that someone else can access their funds. Will McCormick, communications director at OKCoin, told Cointelegraph that while users cannot trade these funds, the blocking phenomenon also has a silver lining: “This offers seekers more options to balance your risk between the expected return on investment and the expected return on trading. Both of you Offer options, attract a wider group of investors / users. “
Potential expenses can exceed the result
Even seemingly insignificant market fluctuations can affect the value of the asset in terms of the quality of use and negate the expected rewards. The Ethereum roadmap states that the stake can only be 1.56%, which, given the volatility, could result in significant losses rather than returns.
There is also a case where price volatility may also benefit the user. However, it is important to note that users must block their deposit in order to receive residual income for storing the ETH. Unlocking takes up to 18 hours. This period can be extended if many users request tokens to be returned as specified in the project roadmap. If ETH begins to devalue, it is therefore impossible to sell immediately. There is therefore a risk that part of the capital and all income from the use will be lost.
Miners change their focus
The transition to the PoS algorithm will change approaches to mining, which is why most miners are likely to leave the market. Since ETH is the most popular currency for domestic mining, the effects will be felt.
As a result, ETH miners have the opportunity to sell their equipment to begin staking or switching to other networks and mining coins that are not scheduled to make any significant changes to their protocols. However, the reality is that most miners are likely to go offline and the remaining market participants will start with their assets.
Some users have expressed concerns about possible bugs during and after the 2.0 update, such as: B. A network breakdown or a security breach due to a possible code vulnerability. However, the developers claim that departmental concerns, decentralized app bugs, or participants who refuse to transition are unfounded.
The compatibility of the Ethereum ecosystem and its versatility allow you to burn tokens from the original network and replace them with new ones from the updated chain. The core of the technical details is that the DApps remain operational and do not experience any changes until they are manually switched to 2.0. However, there is a risk that the update will fail. For example Konstantin Kladko, a SKALE network developer argument::
“Unfortunately, there are fatal flaws in the way the ETH2 stakeout ended [siendo] implemented. When the deployment starts, it will be a great shame because there may not be enough money to start the network. “
He added that Ethereum 2.0 will be smaller than Ethereum 1.0 as there is no way to transfer back, which means that validators can lose 50% of their money once the transition is complete. In response to Kladko’s claim, Vitalik Buterin also replied accepted that stakers may be aware that they are betting on a successful transition and that early stakers will receive a return to ensure these higher risks.
However, there are some experts who believe that the risk of a delay in updating is more realistic than the risk of failure. For example, Lanre Ige, a 21Shares Research Associate, said to Cointelegraph:
“The Ethereum core development team or ecosystem is unlikely to be able to fully update the network because the key technology issues for initial deployment (” Phase 0 “) appear to be resolved. In contrast, the final risk is the inability to do so Provide network update in time. “
Beware of scammers and hackers
As numerous blockchain attacks show Any security hole in the code can attract hackers. Staking platform validation nodes on third-party servers can also be subject to a hacker attack or crash. Given that hackers steal millions of dollars from cryptocurrency exchanges each year due to security vulnerability detection, participating in third-party stakeout programs can pose some risk to users.
Paolo Ardoino, the chief technology officer for Bitfinex cryptocurrency exchange, agreed that the Ethereum 2.0 blockchain is likely to be investigated by attackers. He added: “It is important that users are careful and only move their money from Ethereum 1.0 to Ethereum 2.0 if they are familiar with the security level of the Ethereum 2.0 blockchain.”
The risks are pretty specific as some platforms already seem to offer returns in excess of 100%, at best unrealistic. Others can claim that they are applying for less than 32 ETH, which violates the Ethereum 2.0 protocol and results in the loss of transferred coins. JayEx’s CEO, Jay Hao, commented on potential security risks and told Cointelegraph that Ethereum 2.0 will continue to be progressive after its release.
“The ETH 2.0 was developed with the greatest security. Therefore, it can take a few years for the ETH 1.0 to be fully integrated, as a bidirectional bridge between the two chains can create weak points and facilitate chain hacking. ETH 2.0 will initially have at least 64 times the capacity of ETH 1.0, and this will continue to increase over time. “
Last year, The crypto community discussed the risk that the U.S. regulators would recognize ether as collateral. This can have a negative impact on the future of the project, as the example of the TON blockchain platform clearly shows. Regardless of whether the SEC makes a decision or not, any judgment will result in lengthy testing procedures that will inevitably affect the price of the coin.
An important step
The Ethereum network update is coming slowly but surely. There are advantages to the implementation, and the Ethereum network will never be the same afterwards.. But there are also risks that are inevitable if you take into account all the factors of novelty and market situation. It is up to the users to decide whether to jeopardize their loyalty to the new network or to seek their luck elsewhere.
Speaking to Cointelegraph, OKEx’s Hao argued that Ethereum 2.0 is an integral part of its evolution, regardless of potential risks, which is critical to the entire industry:
Given the current economic crisis and the highly exposed shortcomings of the traditional financial system, cryptocurrencies and DeFi have never been more relevant than they are today. However, if the storage space remains unfriendly to the user and the blockchains can become clogged by more transactions, it is impossible to involve the masses. What Ethereum belongs to ETH 2.0 is necessary. With or without risk, this is a crucial step. “