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| Breaking down Ethereum’s evolution and its impact on crypto markets By Teddy Oosterbaan March 9, 2022 +3.8% $2,563.64 $302.24B $15.81B (As of 3/08/22 @ 20:37 UTC. ETH price % change over 24 hours.) Was this newsletter forwarded to you? Sign up here.
Last week, crypto users in Venezuela and certain other jurisdictions were blocked from accessing MetaMask and, ultimately, the Ethereum blockchain.
The core issue ended up being with Infura, a crypto software and API provider that plays one of the largest roles in providing infrastructure for on-chain wallets and decentralized applications. While Infura said the ban was in accordance with legal standards and global sanctions and not a blanket ban, many noted that even the ability to block access poses a threat to the decentralization of the ecosystem.
So what are the potential solutions? Industry-level change – use decentralized API providers, create hundreds of options that are geographically diversified Protocol-level change – allow anyone to run a node on a simple computer and access the blockchain locallyThe former is essential in addressing some of the concerns laid out by Moxie Marlinspike a few months ago and ultimately in pushing the industry forward to reaching actual decentralization. Marlinspike noted that unless users or applications are running their own node, they are completely relying on third parties like Infura and Alchemy to interact with the blockchain for them.
The latter is something that Vitalik Buterin has been discussing since 2017. The concept of “Stateless Ethereum” would help remove the reliance on centralized service providers and would allow blockchain users to access the chain locally in dire situations, especially if they are being blacklisted. To understand Stateless Ethereum, it is vital to understand the problem, as broken down by Ethereum researcher Sandra Johnson of ConsenSys:
The Ethereum Foundation sums up some of the reasons to run an Ethereum node as follows: As seen above, running a full node allows users to bypass third parties while interacting with Ethereum, but how could ordinary users spin up their own full node, especially as it will continue to become more memory and software intensive as Ethereum’s state grows? According to Ethereum developer Ben Edgington, you can fix this at the protocol level by making state storage somebody else’s problem. By introducing state providers, tasked with the core job of maintaining the history of Ethereum, you can also introduce stateless clients that make running an Ethereum node easier than ever, leading to true decentralization and resilience of the network.
This is all a very high-level overview of a concept that continues to evolve in real time. Ethereum’s Core Developers have been discussing implementation details, which will take place under the proof-of-stake network, hopefully in the coming few months. Stateless Ethereum is just one of the exciting upgrades that will become possible after the Merge, and 2022 is lining up to be one of the most exciting years in the network’s 6-year history.
And a programming note: Finally, I have to announce that this will be my last week at CoinDesk and my final edition of the Valid Points newsletter. I want to thank all of the readers who have followed along over the past few months and everyone at CoinDesk who helped make my job easy. I truly appreciate everyone who has reached out with feedback and helped me on my journey to understand the Ethereum ecosystem and community.
However, all you readers are in luck because Andrew Thurman and Sage Young will be taking over the newsletter starting next week! Andrew is top of the class in his knowledge and reporting around the entire decentralized finance (DeFi) industry and will do an amazing job following the progression of Ethereum. Sage started at CoinDesk as an intern just weeks ago and has already been a tremendous help with the newsletter, taking over the Validated Takes section and covering all data surrounding the validator. Valid Points is in good hands!
Signing off, Teddy
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Pulse check
The following is an overview of network activity on the Ethereum 2.0 Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on Eth 2.0 metrics. Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.
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Validated takes Frances Coppola, an ex-banker and financial author, posed the idea that stablecoin interest rates are so high because of the lack of central bank liquidity. BACKGROUND: While stablecoin interest rates in DeFi have fluctuated by a factor of 10 over the past two years, they have been consistent in beating returns on the dollar. Coppola assumed that a lack of liquidity injections and a lower level of rehypothecation have sustained this yield, but she failed to recognize the risk inherent in smart contracts and the incentives paid by DeFi protocols in the form of token equity.
A bug in Convex Finance’s staking contract unlocked staked tokens weeks ahead of schedule. BACKGROUND: By staking Convex’s CVX token for 16 weeks, users are able to participate in revenue sharing with the protocol. The mechanism has become very popular, with up to 72% of tokens staked as of just last week. The vulnerability forced Convex to mass unstake the locked tokens and the price immediately crashed 20% as the vesting schedule was thrown off course and a majority of supply became free to trade.
An Ethereum Improvement Proposal (EIP) was introduced to create a new transaction type for Ethereum staking withdrawals. BACKGROUND: EIP-4863 is just one of many proposals to get Ethereum ready for a liquid staking contract, but the proposal highlights the progress in making withdrawals a reality. The specific EIP will allow users to send the transaction out of the Beacon Chain without needing to pay a transaction fee on the receiving wallet.
Evmos to merge the Ethereum Virtual Machine (EVM) with the Cosmos-based Inter-Blockchain Communication (IBC) protocol. BACKGROUND: Considered the port of entry from Ethereum to Cosmos, Evmos gives “Ethereum developers a frictionless way to build cross-chain applications,” said Federico Kunze Küller, co-founder of Evmos. Developers can port over implementations of protocols that are already running on Ethereum and make interchain transactions across the Ethereum and Cosmos ecosystem. Evmos’ announcement signals the importance of interoperability between blockchains in the future of Web 3.
Factoid of the Week
Open comms Valid Points incorporates information and data about CoinDesk’s own Eth 2.0 validator. 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.
Search for it on any Eth 2.0 block explorer site!
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