Data suggests that despite declining price movements, Ethereum investors are in for the long run • Benzinga
Recent data collected by Glassnode shows an increase in the daily Ethereum Validator nodes joining Ethereum’s Proof of Stake testnet. But why is this important and how does it affect the future value of Ethereum?
If you’re not familiar with Ethereum 2.0, there are a few things you should know about this radical upgrade to the Ethereum network. The most important change in the ETH2 upgrade is the consensus model, essentially how transactions are verified on the blockchain. Ethereum currently uses the Proof of Work consensus like Bitcoin, which is not ideal.
Proof of Work vs. Proof of Stake
Proof of Work consumes computing power, which is not only bad for the environment, but also severely limits the number of transactions per second (TPS) on the blockchain. Ethereum can currently only process around 15 TPS, but Proof of Stake will enable over 1,000 TPS on Ethereum’s blockchain.
Proof of Stake uses a financial incentive model to verify transactions on the blockchain. Investors looking to run a node will need to deploy 32 ETH (around $ 64,000 at the time of writing) on the Ethereum network. For this, the nodes are compensated with around 7% annual interest, which is paid in ether. Here’s the thing: investors won’t be able to withdraw their Ethereum until ETH2 goes live, which is likely to be the case in 2022.
More investors are relying on ETH than ever before
Despite the recent downturn in cryptocurrency markets, more investors are turning to Ethereum than ever before. The following graphic shows the number of new nodes every day since the ETH2 testnet went live last November in blue, which corresponds to the left Y-axis. The line chart represents the price of ether and corresponds to the right Y-axis.
As can be seen from the data collected by Glassnode, in the first 6 months that the Ethereum testnet was live, there were only 3 days when the number of new Ethereum validators was over 1,000. It costs 32,000 ETH to deploy 1,000 nodes on the Ethereum network, which reduces the supply of Ether in the market by about $ 32 million per day. 1,000 new nodes join the network.
However, recent data shows an increase in the number of validators joining the Ethereum network. In the last 3 months there were 9 days when over 1,000 new nodes joined the ETH2 test network.
What does this mean for Ethereum?
Currently, 5% of Ethereum’s supply to ETH2 is staked, which means 5% of Ethereum’s supply is illiquid for the next year. This is a large number, especially considering that cryptocurrency exchanges only hold 10% of Ethereum’s liquidity supply.
Ethereum’s staking also limits supply in the long run. Since validator nodes receive interest in Ether, it is correct to assume that these investors reinvest a percentage of their profits in ETH staking, which further restricts the active supply of Ethereum.
Ethereum’s staking is just one example of how Ethereum’s supply is more limited than it appears at first glance. There are several other programs that use Ethereum for various purposes and it is estimated that over 10% of what Ethereum has to offer is contained in these decentralized applications.
What’s more Ethereum improvement suggestion 1559 (EIP1559) is set to hit the market on August 4th and will implement a deflationary burning mechanism every time a user interacts with Ethereum’s blockchain. Once this happens, it is likely that the supply of Ethereum will steadily decrease over time.
Related content: ETHEREUM, TO THE SMARTEST BLOCKCHAIN
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