In today’s Deep Dive, we focus on the current situation of Ethereum (ETH). In the recent period, intriguing events have taken place within this popular network.
Despite problems completing blocks, the price remains amazingly stable. What does this situation actually mean for Ethereum? And is the impact of this reflected in the on-chain data? During this extensive exploration, we will provide answers to these crucial questions.
Recent Ethereum Developments
In recent weeks, we have observed a period of remarkable calm within the price movements of Ethereum and the entire crypto market. At the beginning of this year, there was an impressive increase in prices, while volatility has decreased significantly in recent weeks. Despite this stable price trend, there have been some worrisome news items related to the popular blockchain network. In the next section, we highlight some of these important news items.
Cancellation of Ethereum ETF
Renowned American asset management firm Grayscale Investments has ceased execution of an Ethereum Futures ETF. After a warning from the US Securities and Exchange Commission (SEC), they had to shelve their ETF plans.
A similar decision was made by Bitwise Investments, a crypto fund, which also canceled its plans for an Ethereum ETF. The growing concern among users and investors concerns the possible position of the SEC to classify Ethereum as a security, which could have significant implications for the entire crypto sector.
Problems finalizing Ethereum blocks
Last week, the network experienced block completion problems for the first time. Ethereum uses a Proof of Stake (PoS) protocol, where validators make proposals to add a block – containing a cluster of transactions – to the entire blockchain. Before a block can be included, it must be approved by other validators, a process that typically takes about 15 minutes and is referred to as “finalizing” a block.
However, when validators struggle to finalize a block, an inactivity leak can occur. In this case, validators are penalized for delaying block finalization, a mechanism designed to incentivize the network to address the problem.
A delay in block validation puts the integrity of the network at risk. At that point, the network becomes more vulnerable to attacks by malicious parties. In addition, it has consequences for the ease of use of the network, as transactions are delayed, so that smart contracts cannot be executed. This can lead to a loss of trust among users of the network.
A dive into the data
The complications of validating the Ethereum network are far from ideal and can have potential implications for the network infrastructure, as well as user and investor confidence. In this segment, we will delve into the on-chain data to investigate whether these issues have had an impact on network usage. Furthermore, we will analyze price developments to detect any changes in confidence within the industry.
On-chain data analysis Ethereum
On-chain data provides a valuable insight into the actual usage and adoption of a network. In this part of the analysis, we will examine the impact of the validation issues on the Ethereum network, and whether these issues have affected user behavior in any way.
Missed slots on the Ethereum network
The validation issues are clearly reflected in the on-chain data. Figure 1 illustrates the percentage of missed validation slots within the network. A missed validation slot means a delay in transaction processing, which can cause the overall infrastructure of the network to stagnate and several dApps to crash.
The figure shows that there was a strong increase in the number of missed slots on 11 and 12 May. Typically, between 0.5 – 1% of all slots experience a delay. However, during the troubles on May 12, this slowdown escalated to over 3.5%, a notable increase from the average.
Fortunately, the network showed resilience and the delay significantly reduced to almost 1% of all (daily) slots the next day.