The release of ETH 2.0 is one of the most anticipated events on the crypto scene.
While the first phase of the update (the beacon chain and staking) is already out, there are still a lot of misconceptions around what the new ecosystem means for ETH holders and end-users.
In this post, we will examine and debunk 5 popular myths about Ethereum 2.0.
Ethereum 2.0 Isn’t Secure
Since the entry barrier to ETH 2.0 is lower (there’s no need to use a lot of electricity or invest in mining hardware) compared to the PoW network, the crypto community is concerned about the security of proof of stake.
These concerns are reasonable but, at the end of the day, unfounded. The key difference between PoS and other consensus algorithms is that validators are heavily invested in the system.
At the time of writing, to attack the network, one would have to stake over 3.3M ETH tokens. If a malicious validator decides to take Ethereum down, he would be burning his own stake as well – over $6B at the time of writing. Since there’s little incentive to attack Ethereum, one could say the ETH2 network is actually more secure than the PoW blockchain.
Ethereum 2.0 Offers High Rewards
On the other hand, Ethereum moonboys have unrealistic expectations for the network and go on to spread the hype on social media.
The truth is, ETH 2.0 isn’t a get-rich-quick. For one, staking rewards decrease as more people join the network. When the Beacon Chain went live, the APR was quite high – 22%. At the time of writing, it is 4.9% (you can track it via Ethereum Launchpad) and will likely decrease over time.
At this point you might start wondering why people stake Ethereum even though it promises no skyrocketing returns. There are several reasons: for one, while low, the return is fairly stable – investing in altcoins can get you 100x APRs as was the case for ADA, but the project might backfire, leaving investors empty-handed.
Also, a lot of ETH validators believe in Ethereum’s impact (DeFi, NFT, and other applications) and want to support the network and make it more secure by staking tokens (the higher the number of validators is, the more centralized the ecosystem becomes).
Ethereum 2.0 Isn’t Liquid
Yes, at the moment ETH2 is illiquid, meaning you can’t withdraw it or use tokens for trading. No, it will not always be this way. The development team is planning to enable withdrawals as a part of Phase 1.5, which, according to estimates, will be released in 2 years.
Upgrade to Ethereum 2.0 is Frustrating for a Typical User
If you are a decentralized application user or want to trade ETH, you might be wondering how the network update impacts transactions and the execution of smart contracts. The mechanics of interacting with the network will remain the same – in fact, improvements are in development as well.
By deploying sharding and rollups, the development team increases TPS from 9-15 transactions to potentially 100,000 TPS. A higher transaction capacity will reduce network congestion and gas fees. As a result, DeFi platforms and decentralized applications will have more room for scalability.
You Should Avoid Ethereum 2.0 Staking
Finally, some people believe that depositing tokens only to have no way to withdraw them is a reckless decision. Also, if you commit to staking, it means running the validator client 24/7 – otherwise, quadratic leaks will over time nullify your deposits.
While ETH staking is a commitment and you should approach it responsively, the pain is by all means worth the gain. You can check more details about staking and current APY on Redot.
Here are the key benefits of staking ETH2.0:
- Earning staking rewards
- Maximizing returns since ETH2 has a rapidly growing value.
- Supporting innovative technologies and directly contributing to the security of the network.
It’s up to investors to decide whether the benefits outweigh the drawbacks – however, as far as stability and security are concerned, Ethereum is a promising project worth backing.