Indeed, Ethereum 2.0 has the ability to drastically change DeFi as well as the larger ecosystem, but we can’t only enter the door partially. Important advancements still need to be made for it to realize its full potential.
Concerns regarding over-centralization have been raised by the switch to proof-of-stake. According to James Wo, founder and chief executive officer of DFG, the blockchain may achieve its objectives by restating its dedication to decentralization.
The SEC’s June decision to withdraw its charges against Ethereum marked a turning point in the platform’s development and increased acceptability among investors.
The SEC suspected that ether (ETH) was being traded as an unregistered asset, raising concerns that certain regulations and procedures weren’t being followed by the seller for individuals who didn’t follow the case. Ethereum’s supporters countered that the network does not fit the definition of a security or investment contract because it is decentralized.
Even while the SEC chose not to pursue legal action directly, it did allow for more conversations about centralization. The technological features of Ethereum’s architecture have sparked a crucial discussion about the diminishing power of prominent entities. Even though these discussions are primarily internal, resolving these issues can help the network achieve its upgrade objectives and promote true decentralization.
This is particularly true as the network strives to realize the goals of “Ethereum 2.0,” which is its upgraded token and infrastructure that is more robust, approachable, and useful. While some claim it has already arrived, others point out details that need to be added before it can be declared to be here for sure.
Centralization of validators
After switching to a PoS (proof-of-stake) algorithm in September 2022, Ethereum now permits ETH staking by validators, with higher stakes increasing the likelihood and benefits of validation. This update, which has sparked the creation of numerous creative financial applications on the network for lending and trading, amid other use cases, amply illustrates Ethereum’s pivotal position in DeFi.
Token ownership, as opposed to validator count, may concentrate authority among smaller organizations, which would be contrary to the decentralized nature of cryptocurrency. Furthermore, as staking necessitates a 32 ETH investment, validators who have a sizable ETH stake may have a disproportionate amount of influence on network governance and decision-making procedures. As a result, a feedback loop that benefits some participants is created, which may cause wealth and power to concentrate in the hands of a small number of people.
The centralization issue is relevant; in fact, Vitalik Buterin voiced his concerns in March over “lazy stakers,” or individuals who only participate in staking pools as opposed to solo staking.
Fundamentally, Ethereum is a change in the architecture, usability, and accessibility of financial services. But depending on a small number of entities raises concerns about how truly decentralized Ethereum 2.0 is as well as additional vulnerabilities.
Changing over to DeFi
Ethereum’s centralization trajectory paves the way for later, more serious issues, such as regulatory compliance and weakened network resiliency. Ethereum’s position in DeFi and the blockchain environment at large ultimately depends on striking a balance between technological developments and minimizing centralization wherever feasible. There exist methods to make it attainable.
Ideas like rainbow staking have the potential to fight centralization and further improve Ethereum’s flexibility if properly executed. Rainbow staking, as the name suggests, is essentially the ability for users to stake Ethereum concurrently across a variety of pools and techniques, so generating a “rainbow of rewards” that stakers can profit from while reducing anti-competitive concerns and strengthening the ecosystem. “Heavy” staking concentrates on validation services for finalization, whereas “light” staking focuses on transaction censorship resistance. These two staking methods are used in the ETH validation process.
Liquid staking protocols such as Lido or Rocket have the potential to provide high service staking, whilst current stakers may choose to operate light service operators. Over time, rainbow staking will increase the diversity of liquid staking providers and make the network more competitive and efficient. It won’t be simple to implement, though, and it might make the entire staking system more unclear.
Ethereum might make use of network-wide innovations like sharding, which were first offered in its early 2.0 releases, in addition to rainbow staking. Although sharding’s security flaws have drawn attention, supporting the move to Layer 2 and zero-knowledge innovations, this does not imply that the technique should be completely abandoned.
Thanks to innovations like “danksharding,” which are reserved for Layer 2s, we have witnessed evolutions in this area. In Danksharding, proposer-builder separation (PBS) is used instead of the current Ethereum validators’ method of presenting and broadcasting blocks totally independently. Rather, PBS distributes the love by assigning these jobs to several validators.
In the end, danksharding facilitates the implementation of data availability by enabling validators to swiftly and effectively validate blob data while also detecting missing data.
The goal is to scale Ether to authenticate more than 100,000 transactions each second and minimize the cost of transactions for users on Layer 2. As a result, dApps like Uniswap would be able to conduct transactions far more quickly and at a much lower cost.
Nevertheless, the highly technical implementation and architecture of danksharding omit minor roll ups and might even promote centralization. Therefore, even though the technology has lost popularity as it stands, its advantages in lowering hardware requirements and facilitating scalability indicate that it could be enhanced further to benefit Ethereum’s next generation. An Ethereum 3.0, maybe?
It is important to recognize Ethereum 2.0’s noteworthy advancements in the fields of decentralization and regulation. Positive moves include lessening the network’s reliance on select people for network activities and judicial victories. Nonetheless, in order for Ethereum to truly establish itself as a revolutionary force in both DeFi and mainstream blockchain usage, the network will need to adjust to changing regulatory constraints in its next phase.
Ethereum 2.0’s existing accomplishments have put the community on the correct track despite these obstacles. Ethereum has the momentum to continue being a leader in the blockchain space by looking to the future and reiterating its commitment to decentralization.
Cementing its legacy requires more than simply putting its affairs in order.
