Virtual conferences are in full swing.
Earlier this month, ETHGlobal put on a month-long hackathon focused on Ethereum scalability, known as Scaling Ethereum. Most notably, out of this event, a temporary test network for the Ethereum and Ethereum 2.0 merge was built.
Last week, CoinDesk hosted its annual Consensus crypto conference, and just this past weekend EthGlobal hosted another hackathon centered on innovations for a Web 3 world. This week we look at what the phrase “Web 3” means and why development for it is so important to Ethereum.
But first, let’s take a look at some data and figures around the staking industry of crypto.
Pulse check: Exchanges are staking their claim as Eth 2 validators
As of Tuesday, June 1, the rough breakdown of network stakeholders on the Ethereum 2.0 Beacon Chain looks a little something like this:
Drilling down into the specifics, the largest exchange staking on Eth 2.0 is Kraken, with control of roughly 14% of ETH deposits. The second-largest exchange in control of 10% of total deposits is Binance.
Staking is becoming an increasingly lucrative service for cryptocurrency exchanges to run. Even Coinbase, the largest publicly traded North America based crypto exchange, is investing heavily into its staking services as evidenced by its recent acquisition of staking startup Bison Trails.
“Staking’s popularity is the natural outcome of an asset class growing in maturity,” Jeremy Welch, Kraken’s vice president of product, said in an interview with CoinDesk. “Whereas three years ago holders were mainly interested in securing short-term gains, many are now confident locking up tokens to earn passive income. Why? Conviction is growing in the longevity of crypto assets as a respectable new asset class.”
Staking-as-a-service platform Staked reported in April that over Q1 2021 the total market capitalization of proof-of-stake (PoS) blockchains grew 151%. As of the end of March, PoS blockchains made up one-fifth of the entire market capitalization of the crypto industry.
Projected earnings across these PoS networks including Eth 2.0 are expected to be close to $19 billion by the end of this year. Speaking to growth of the staking industry, Staked Q2 2021 report said,
“In every case, staking provided better returns than simply holding the asset: Stakers earned an additional yield of between roughly 4% and 34% in one quarter.”
These rates compete directly with the interest crypto holders are also able to earn on centralized and decentralized lending markets. In a world of rock-bottom interest rates in the traditional finance industry, could cryptocurrencies be the alternative that investors turn to for higher yields?
Potentially. Although as we’ll discuss in New Frontiers, the world of crypto assets is nascent and still very much in the process of development.
New frontiers: Hacking the future of Web 3
Unlike the Scaling Ethereum hackathon, which centered on the tools and technologies for building the next iteration of Ethereum, the Web 3 hackathon, which took place virtually this past weekend, focused on products and services for the next generation of the internet.
The vision for Web 3 hasn’t always centered on blockchain technology and smart contracts. Back when the phrase was first coined in 2001, Web 3 was synonymous with “The Semantic Web.” This was an early idea by computer scientist and inventor of the World Wide Web Tim Berners-Lee, who believed the internet would be used increasingly less by people and more by machines who could process all the information on the World Wide Web more efficiently.
Fast forward to 2021 and the vision for Web 3, at least in the Ethereum community, is about decentralized, open and permissionless systems run by machines, rather than people. Alternative systems for services such as cryptocurrency exchanges, traditional financial lending markets, and social media applications can all be built on Ethereum, an open and permissionless blockchain, and engineered to run exclusively through smart contract code instead of human intervention.
Building the protocol layer of Ethereum to support mainstream decentralized application (dapp) development is one part of the new Web 3 vision. However, another major component of this vision requires developing the dapps themselves to take advantage of Ethereum’s unique capabilities as a world computer.
What is being built for Web 3
From Thursday, May 27, to Sunday, May 30, dozens of developers and blockchain enthusiasts gathered online for the Web 3 Weekend Hackathon and were organized into teams to innovate new products and services atop the existing Ethereum network. From decentralized finance protocols to file-sharing services, metaverses, messaging applications and more, several ideas were presented by the end of the hackathon.
However, projects based on the creation and development of non-fungible tokens (NFTs) were by far one of the most popular areas of focus at this year’s Web 3 Weekend Hackathon.
Five out of the top 12 most highly ranked projects at the hackathon were centered on non-fungible tokens (NFT). One called YouTube NFT Drop creates a service to reward early subscribers to a YouTube channel with exclusive NFTs as a way to incentivize early followings among new YouTube creators. Another called the NFT Factory enables artists to upload various images to a website that automatically mashes up these images and generates a unique NFT of the resulting image that can be claimed and traded on Ethereum.
Among these NFT-focused projects, a third that also made its way to the finals called ArtVaults sets up a secure storage platform for NFT content. The project addresses an ongoing concern for NFT creators and traders: the unreliability of content access.
“We offer a number of improvements relative to the standard user experience for NFTs,” said Cole Jorissen, co-creator of ArtVaults. “At the moment, exclusive NFT content like high resolution files are usually stored using centralized services like Google Drive, and this usually requires the original NFT creator to maintain that file. If they stop paying for their subscription, accidentally delete or modify the file, or the centralized service goes down, the file is no longer accessible and can be lost forever.”
ArtVaults gets around this issue by requiring NFT creators to pay for long-term storage of their token in advance on the decentralized file-sharing network known as Filecoin. NFT creators can also share files in their vault for viewing purposes to potential buyers by whitelisting specific Ethereum addresses.
More hacking needed
While ArtVaults addresses the issue of reliable storage for NFT content, it does not address the issue of NFT authenticity and reliability which is yet another challenge plaguing participants of what has recently become a more than $2 billion industry.
Back in April, two pseudonymous hackers created their own NFTs disguised as original creations of the famous artist Beeple. One of the hackers, “EthGnome,” engineered his token to appear to land in famous individuals' Ethereum wallets such as founder of Ethereum Vitalik Buterin’s wallet, Lindsay Lohan’s wallet and more recently the wallet of billionaire investor Mark Cuban.
Speaking to the ways in which the NFT industry could evolve for the better, EthGnome told me in an April interview, “I think having NFT marketplaces serve as gatekeepers for verifying NFT smart contracts is a pretty solid solution.”
EthGnome explained the vast majority of fake NFTs activity can be mitigated by prominently labelling which NFTs were minted from either a verified smart contract that has been reviewed by a team of professionals as being safe, or a published smart contract that has not been reviewed but at the very least open-sourced, or finally, a non-published contract whose code has not been publicly disclosed.
When innovation outpaces development
These types of ideation from EthGnome and the creators of ArtVault are evidence that the NFT industry is maturing and infrastructure to support the industry’s continued growth is being developed.
In the weeks to come, organizers of the Scaling Ethereum and Web 3 Weekend Hackathon are putting together a third virtual hackathon event from June 18 to July 9 focused on solutions and innovations specifically for the DeFi ecosystem atop Ethereum. During the upcoming Hack Money event, there are sure to be projects addressing pain points and challenges to DeFi adoption similar to the NFT-focused projects that made it into the finals of the Web 3 hackathon.
It is these projects from various hackathons that are a reminder of what Ethereum 2.0 and the forthcoming upgrades after Ethereum’s transition to proof-of-stake (PoS) are ultimately meant to support. Efforts and interest in the next iteration of Ethereum are closely tied to goals related to building up the next iteration of the internet, as well as the next iteration of finance.
To this end, Eth 2.0 can’t come soon enough as both areas of innovation, Web 3 and DeFi, already seem to be quickly outpacing and outgrowing the current version of Ethereum.
- Seven main takeaways on crypto markets from former CoinDesk Director of Research Noelle Acheson (Article, CoinDesk)
- Consensus 2021 conference highlights (Video, CoinDesk)
- DeFI’s Set Labs raises $14 million to expand crypto’s tokenized ETFs space (Article, CoinDesk)
- Exchange aggregator OpenOcean enables trading on the Solana Network (Artice, CoinDesk)
- $6.2 million stolen from Belt Finance application on the Binance Smart Chain (Tweet thread, Igor Igamberdiev)
- Annotated version of code specifications for the Altair beacon chain hard fork (GitHub, Vitalik Buterin)
- Upstart peer-to-peer crypto exchanges take aim at Coinbase (Article, Wall Street Journal)
Factoid of the week
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Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. 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:
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.