There’s a lot riding on the success of Ethereum 2.0, including the crypto-industry’s largest U.S.-based exchange going public.

Last week, Coinbase released its S-1 filed with the U.S. Securities and Exchange Commission (SEC). In it, the exchange listed potential adverse factors against its business, such as the doxxing of pseudonymous Bitcoin creator Satoshi Nakamoto, negative perceptions of cryptocurrencies and the growth of cryto-native finance platforms generally referred to as decentralized finance (DeFi).

A failure or slowdown in “the development and launch timeline of Ethereum 2.0, including the potential migration of Ethereum to a proof-of-stake model” was also listed as a possible negative factor for the exchange going forward. 

Data may make the point even better: Ether made up 15% of volume on Coinbase in 2020, compared to bitcoin’s 44%. Additionally, 13% of all assets stored on Coinbase are ether. By trading and storing ether, you necessarily take on exposure to the Eth 2.0 project in its entirety.

New stakeholders in governance of Eth 2.0

Governance structures for the two largest cryptos by market cap is also a concern to weigh, Coinbase said.

“Informal governance led by Bitcoin and Ethereum’s core [blockchain] developers that lead to revisions to the underlying source code or inactions that prevent network scaling, and which evolve over time largely based on self-determined participation … may result in new changes or updates that affect their speed, security, usability or value,” the S-1 states.

It’s well known that Ethereum has a more flexible governance structure than Bitcoin. Being more flexible has some benefits, too, including the ability to respond to threats to the network such as high gas fees. 

With Coinbase’s direct listing, it’s necessary to ask where that social pressure will push the Eth 2.0 project. Eth 2.0’s roadmap has adjusted to investor and developer demands in the past, including the early launch of the Beacon Chain in December. Will Coinbase stock holders be more interested in governance of the underlying asset in which Coinbase has a large stake? How will that change the network’s progression?

The Ethereum community has a lot on the line, too. As of Saturday, there are now over 100,000 validators staking 32 ETH on the network. That’s more than $5 billion worth of assets at time of writing locked up for a project that is still very much in the Research and Development phase. 

Yet, given a $100 billion valuation, a time may soon come when activist investors, developers and users butt heads on Eth 2.0 on a larger scale. We’ve seen it before among token projects themselves: Hedge fund manager Arca demanded developer house Gnosis change its business model or pay back users. With the public listing, the teams working on Eth 2.0 could face similar scrutiny. In other words, a Coinbase public listing brings a new group of entrants into Ethereum’s governance ecosystem.

Pulse check: Improving validator performance

If you’re new to Valid Points and the topic of Ethereum 2.0 in general, be sure to check out our 101 explainer on Eth 2.0 metrics to get up to speed about jargon and terminology used throughout this article. 

It’s been two weeks since the CoinDesk validator node, dubbed “Zelda,” was activated on Ethereum 2.0. Since Wednesday, Feb. 17, Zelda has earned 0.10 ETH, worth roughly $150.58 at time of writing. Of the 102,000 active validators on Eth 2.0, Zelda ranks #73,164 by income earned, according to block explorer beaconcha.in. 

It’s a little disheartening to see Zelda underperform against the large majority of Eth 2.0 validators. After speaking with others who also run their own Eth 2.0 node operations, I’ve learned there are tweaks and adjustments we can try to help improve node performance. 

One of them is increasing the number of other peers to which Zelda is connected. Right now, Zelda communicates with about 50 other Eth 2.0 validators. Bumping that number up to 100 or even 150 peers will increase the chances of her receiving and propagating data about the Eth 2.0 network in a timely manner. 

Speaking of data, there’s a wealth of information Zelda receives every minute about the consensus of the Ethereum 2.0 network. The one featured below, called the “Finalized Root,” tracks the value of the hash shown as an arbitrary number computed for each block created on the Eth 2.0 network. 

This metric should always look crazy and random. It represents the cryptography that is securing Ethereum’s proof-of-stake blockchain. Should these values ever appear to have a discernable pattern or trend, there is reason to believe that someone has cracked the mathematical algorithm, also called a “cryptographic hash function,” securing the network. 

The finalized root is one of several new metrics CoinDesk is able to track in real time through running our own Ethereum 2.0 validator. Over the next few weeks, I’ll highlight more abstruse metrics from the CoinDesk Data Dashboard that illustrate the health and activity of the Eth 2.0 network.  

After all, the main purpose of the Valid Points project and spinning up the Eth 2.0 node in the first place was never really about maximizing our returns on investment. (Although the more we can earn for charity, the better!) The motivation for Zelda has always been to chronicle the development of Eth 2.0’s evolution by running our own hardware and gaining an unvarnished perspective of the network’s live development. 

For the full back story of the Valid Points project, be sure to read our CoinDesk article on how this journey got started. 

Validated takes

• DeFi token SUSHI hits record price high and eyes further gains (Article, CoinDesk)
• Funding culture and empowering artists with NFTs (Podcast, CoinDesk)
• How Hashmasks are setting the standard for digital art (Article, CoinDesk)
• New Ethereum-based derivatives trading platform wins EU’s MIFID license (Article, CoinDesk)
• NFTs Aren’t Art? OK, Boomer (Article, CoinDesk)Second Ethereum ETF Filed in Canada (Article, CoinDesk)
• Establishing bounds for miner revenue in EIP 1559 (Blog post, Deribit Insights)
• F2Pool, Ethereum’s fourth-largest mining pool by hashpower announces support for EIP 1559 upgrade (Blog post, F2Pool)
• A primer on the Polkadot network (Blog post, Messari)

Eth 2.0 factoid of the week

Open comms

Feel free to reply any time and email research@coindesk.com with your thoughts, comments or queries about today’s newsletter. Between reads, chat with us on Twitter.

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: 

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb. 

Search for it on any Eth 2.0 block explorer site!

Will Foxley and I will be continuing the conversation on Ethereum 2.0 with Consensys’ Ben Edgington in a CoinDesk podcast series called “Mapping Out Eth 2.0.”  New episodes air every Thursday. Listen and subscribe through the CoinDesk podcast feed on Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica, IHeartRadio or RSS.