Ethereum 2.0 – How will the update affect ETH price?
There are great expectations regarding the release of Ethereum 2.0. In 2020, there will be a big update on the second biggest cryptocurrency in terms of market capitalization. Although it is still early to know how it will affect ETH prices, most of the crypto analysts are really bullish in the mid-term.
Crypto analysts are not alone. As we can see in the following chart, there are more than 40 million addresses holding ETH right now – which represents an increase of 350% since the All-Time High (ATH) of the coin in 2018. This simply means that more people are not selling Ethereum, expecting a rise in the prices of the coin.
But why would the update affect ETH prices? In order to understand it, we have to explain the main principles of the update. That’s what the Cripto InterCambio blog will do in the following lines.
“Ethereum is a global, open-source platform for decentralized applications.”
Ethereum’s core concept will remain the same after the update – that is to say, a programmable blockchain that allows users to create decentralized applications and smart contracts. After all, it was this innovative concept that made Ethereum such a success.
We can see the great success of ETH technology in the growth of value of ERC20 tokens, as well as in the rise of the dApps industry – which has Ethereum as the dominant blockchain network. Nowadays, two sectors of the dApps industry stand out:
Crypto-games: titles such as Blockchain Cuties, Crypto Kitties and Decentraland are increasingly popular on the internet. By making the data immutable and allowing the transaction of digital assets, blockchain is the perfect technology to virtual worlds.
Decentralized Finances: DeFi is the crown jewel of the Ethereum network. Automatic loans, trading robots and the promise of decentralized banks are changing the way people deal with money. According to DeFi Pulse, there are more than 2.7 million Ethers on DeFi (approximately $550 million dollars).
This sucess is reflected in ETH prices. While this text is written, 1 ETH costs $205 USD. This is far below the ATH’s $1000 of 2018 altseason, but far above the $10 it used to cost until 2017. In this sense, Ethereum price never looked back, which is a good indicator of its adoption.
Ethereum 2.0 – What’s new?
If the concept behind Ethereum will remain the same in ETH 2.0, what will change is the coin architecture. The new features won’t be implemented all at once, but during the course of 2020 and 2021. Let’s check the most important differences between the present and the future of the coin.
From Proof of Work (PoW) to Proof of Stake (PoS)
This is surely the biggest difference between ETH and ETH 2.0.
Proof of Work (PoW) is the consensus mechanism used by Ethereum and other big names in the crypto market such as Bitcoin, Litecoin and Monero to validate network transactions.
Ethereum’s transactions are validated in blocks by computers of its network. In order to do so, the computer should solve a puzzle – which requires electrical energy and computational power. The computer that successfully solves a puzzle is rewarded with a certain amount on Ethers. This process is called mining.
The PoW mechanism is not very efficient. It’s expensive, it requires a lot of computing power and it’s harmful to the environment. Ethereum 2.0 will migrate to a Proof of Stake (PoS) mechanism, called Casper.
In the PoS, there is no mining. Users pay a small fee for every transaction they make. This fee is rewarded to the computers responsible for validating the transactions. The more Ethereum a validator stores, the higher the prize received for the validation. This process is known as staking.
This major update – from PoW to PoS – is called Serenity. Serenity is Ethereum’s 2.0 big promise.
As Vitalik Buterin, the Ethereum founder, said:
“Ethereum 1.0 is a couple of people’s scrappy attempt to build the world computer; Ethereum 2.0 [with PoS] will actually be the world computer”
With the migration to the PoS mechanism, the Ethereum team intends to have more scalability and speed on transactions.
They are also developing a system called Sharding, that splits the blocks of transactions in smaller parts. This will make transactions even faster.
Ethereum 2.0 will also add two scaling solutions, known as Plasma – a layer that can handle a lot of transactions – and Raiden, an off-chain scaling solution. Together, they will allow the Ethereum network to handle much more data than its possible today.
ETH 2.0 – An Ambitious Project
As we could see, most of the updates on Ethereum 2.0 are related to the capacity of the network of make more transactions in a faster way.
The bigger scalability will allow Ethereum to serve as a reliable payment method in every kind of transaction. This feature is very important so Ethereum can compete with other cryptocurrencies, but also with fiat money. It’s very important also to permit more people invest on decentralized finances services.
Moreover, the transaction to the PoS mechanism and the staking process will be an essential characteristic of Ethereum 2.0.
This could be really bullish. Instead of letting your money on a bank account, you could just store Ethereum, and have something between 4 and 10% of yearly returns. In a context of negative interest rates on the global economy, this has a huge potential of attracting new investors to the crypto market.
All this with a powerful blockchain technology behind, which permits transactions in a completely decentralized way.
Ethereum 2.0 doubtless has great potential. Now, it is necessary to wait for its implementation on the next months.
And if you would like to get some Ethereum, you can check the Cripto InterCambio website. We offer ETH and more than one hundred kinds of crypto coins, with anonymity, velocity and no fees. See you!
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