The Ethereum network just hit a big milestone. Over 500,000 individual nodes now participate in securing the network’s validity and security. To become a network validator, each node must stake 32 ETH, which is worth a little over $50,000 at the time of writing.

The growth rate in number of participating validators has been stunning in recent months. The Ethereum network only surpassed the 400,000 mark in July 2022. The network’s growth comes ahead of the highly anticipated “Shanghai” hard fork upgrade in March.

Shanghai Upgrade to Free Up ETH Withdrawals

The Shanghai upgrade will allow validators to withdraw their staked ETH for the first time. But staked ETH owners should be aware that withdrawals won’t be immediate. Staked ETH withdrawals will need to queue and wait for a withdrawal period.

Investors were first able to stake their ETH holdings back in December 2020 on Ethereum’s proof-of-stake beacon chain. The beacon chain merged with Ethereum’s mainnet last September as part of the “Merge”. The Merge saw Ethereum’s main blockchain transition from a proof-of-work to proof-of-stake validation mechanism.

Up until now, Ethereum has not permitted withdrawals of staked ETH tokens for security reasons. While liquid ETH staking protocols such as Lido and Rocket Pool exist, the lack of flexibility in staked ETH withdrawals has been touted as deterring investors from getting involved in ETH staking.

The approaching Shanghai upgrade, which will free up staked ETH for withdrawals, is thus being touted as a key driver of recent growth in the number of network validators. The upcoming upgrade is also being touted as a key driver of recent upside in the token prices of key liquid ETH staking providers like Lido and Rocket Pool.

LDO, Lido’s native token, is up roughly 120% this month, while RPL is up around 82% over the same timer period.

Big Room for Staked ETH Growth

Still, with only just over 16 billion ETH currently staked according to Glassnode data, that means that only around 13% of circulating ETH tokens are currently locked in staking contracts.

That is low compared to other proof-of-stake networks such as Cardano, which has a staked ADA/total ADA supply ratio of over 70%. Staked ADA withdrawals have always been flexible.

For the ETH bulls, this could perhaps be viewed as a good thing. It means that there is massive room for growth in terms of the number of new potential network validators, meaning big potential growth in the strength and security of the network.

Concerns Over Staking Centralization

The requirement to own 32 ETH in order to become an Ethereum network validator presents a big barrier to entry for smaller cryptocurrency investors. Fortunately, there are solutions that allowtor smaller investors to still get involved in staking.

Liquid staking providers Lido and Rocket Pool allow ETH stakers to swap their tokens for staked Ether tokens (Lido’s is called stETH and Rocket Pool’s rETH). These tokens accrue staking rewards over time.

Both protocols are managed by decentralized autonomous organizations (DAOs). But other centralized crypto companies/exchanges also offer staking solutions for smaller investors, like Coinbase, Binance, Kraken and others.

Crypto decentralization purists have expressed concerns that if centralized cryptocurrency entities gain too much control over the Ethereum network, they could collude to compromise the network’s integrity.

Lido is at present the largest liquid staking service provider, with a trade value locked (TVL) of around $7.76 billion. Coinbase’s staked ETH token is the next largest, with $1.64 billion in TVL, while Rocket Pool comes in third with just over $850 million in TVL.

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