Sirwin
Sirwin

The Future is Bright... and Murky: Prospects and Perils on Ethereum's Path Forward


Greetings readers! Things are wild in the crypto market. Let's take some time to touch some grass and get up to date on some of the recent Ethereum trends.

Ethereum is a blockchain platform that runs on a global, decentralized computer called the Ethereum Virtual Machine(EVM). It allows anyone to build applications and move value without middlemen. Transactions are confirmed through "validators," computers that secure the network. In return, they earn Ether (ETH), Ethereum's native token.

All of this price action means there is a lot of transaction activity which means the network is busy. But it also means transaction fees are high. Fees help prioritize transactions. A mechanism called EIP-1559 burns some fees to slowly reduce the token supply. This balances demand with how many ETH exist over time. Check out ultrasound.money to get a visual understanding of what this means.

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The network is filling up!

Increasing Transaction Fees

Ethereum's popularity has grown a lot lately. Many people want to use it every day. Me, for one. This high usage is good because it shows Ethereum is useful.

But usage also means the network gets crowded. There's not enough space for every transaction right away. So transaction fees help decide which ones go through first.

These fees have risen a lot in the past year. The average fee is now $14 per transaction. In total, users pay around $17 million in fees every day.

This rising cost has pros and cons. On one hand, it shows demand is strong. People want to build and use apps on Ethereum. They're willing to pay more to get their jobs done.

However, high fees could cause problems too. They make apps that run on Ethereum, called dApps, less affordable for some. DApps let you do things like send payments, trade assets, and participate in games - all without middlemen taking cuts. But if fees are too pricey, fewer people may use these dApps.

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Even Layer 2 fees are starting to sting.

Some solutions aim to help. Platforms built on Ethereum, called Layer 2s, offer lower costs right now. While upgrades like EIP-4844 will make dApps and all transactions cheaper to use. Still, rising fees are something to watch due to their effect on dApp access.

Ethereum Token Burning

EIP-1559 changed how Ethereum handles fees. It aims to make fees more predictable and stable over time.

With EIP-1559, some fees get "burned" and are removed from supply forever. This means the total number of ETH slowly shrinks as the network is used. So far this year, around 186,000 ETH worth $490 million has been burned this way.

Burning fees provides some benefits. For one, it reduces the overall ETH supply to match demand. This can potentially increase ETH's value. It also gives "validators" an incentive to help secure the network. Validators run computers that confirm transactions - they get to keep the burned fees as a reward for their work.

e10ca204ff1e6191730d2d9566dcb42e.png ultrasound dot money

However, long-term impacts are hard to know. It's unclear how a slowly shrinking supply may affect prices long into the future. Only time will tell how supply and demand balance out. There's also uncertainty around how validators respond as less ETH becomes available over decades.

EIP-1559 and token burning aim to make Ethereum more stable. But the long-run effects of steadily reducing the ETH supply remain to be seen as this experiment in decentralized economics unfolds.

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This is fine.

Validator Growth Management

Validators are important for Ethereum. They run computers that confirm transactions and ensure the network runs smoothly. In return, they earn rewards in ETH.

Validators must "stake" some of their own ETH as collateral. This deters dishonest behaviour that could harm the network. In total, around 970,000 validators have staked over 31 million ETH worth about $26 billion.

But with growth comes challenges. Too many validators could slow down transaction processing if not managed. That's where EIP-7514 comes in. It aims to limit how many validators can leave their jobs, called "exits," each time period.

By capping exits to 8 per "epoch," which happens every 12 seconds, EIP-7514 helps keep performance steady. Less exiting means the network size won't inflate out of control. This prevents a slowdown as usage grows.

However, restraints also bring risks. If exits are too restricted, a few big players could take more control over time. Diversity among validators is important for decentralization and fairness.

Overall EIP-7514 seeks to balance network health with open participation.

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This is what I imaging Validator nodes look like.

The Celsius Wallet Transfer

On January 25th, a big ETH move caught many eyes. A wallet called "Celsius 7" sent over 443,961 ETH to an unknown address. This was a huge $984 million transfer at the time.

Celsius is a crypto lending platform that ran into trouble. It froze withdrawals and filed for bankruptcy. Moving assets in an organized way helps pay back customers, called creditors.

Sending large sums as Celsius works through court ensures an orderly process. Creditors get a fair chance at some money back over time. Without coordination, a chaotic free-for-all could hurt many users.

However, this transfer also shows crypto lending risks. Though promising high returns, Celsius was essentially a private company in control of users' funds. When it struggled, regular people had no real recourse.

Centralized platforms ask users to trust one group's promises. But recent events prove such trust can break down. In the future, some argue decentralized finance DApps may better protect users through open-source code and no single point of failure or control.

Overall, this ETH move helped with bankruptcy proceedings. But it also highlighted lessons about depending on centralized services in an industry meant to avoid precisely that.

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Its core business was crypto but it was very much a legacy financial institute. This is all of their futures.

Conclusion

Overall, Ethereum continues innovating as it grows. The next few years may shape how well its experiments in decentralized economics, technology and governance succeed. I encourage you readers to stay engaged in discussions that can advance this new financial world. Please subscribe and share your thoughts.

This concludes my essay, but more research lies ahead. Topics like scalability solutions, application usage, and regulatory guidance deserve deeper looks. Your comments help focus future coverage. I hope I've informed you well during these times of rapid change. Please reach out - I aim to fairly and accessibly explore this revolution as it unfolds.

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Gryphonboy
Gryphonboy

Small-time nerd. Publishing my book online for free! Check back every Sunday for the latest chapter. If you have any suggestions, corrections, criticisms, or just want to say hi please feel free to make them in the comments.


Gryphonboy's Crypto Journey
Gryphonboy's Crypto Journey

Dedicated cryptocurrency advocate! I hold the majority of the assets I discuss. This is not investment advice. Views and analysis expressed are my own and pertain to projects that I am invested in and passionate about. Support my work by tipping what you can here or you can support me directly by donating to gryphonboy.eth

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