What Is Ethereum 2.0 and When Will It Happen?
If you are looking for a major catalyst that may drive the price of Ether (CRYPTO:ETH), the native cryptocurrency on the Ethereum network, then look no further than Ethereum 2.0. Ethereum 2.0 is a set of upgrades currently in progress on the Ethereum blockchain that would make the network more scalable, secure, and sustainable. These upgrades have actually been in development since 2014 and represent a major transition for the world’s second-most popular cryptocurrency. Let’s take a look at what Ethereum 2.0 is and when the updates may go live.
The problem with the current network
For those completely new to the world of cryptocurrencies and blockchain, Ethereum is a decentralized network powered by the digital ledger blockchain technology that can be used to conduct digital payments. It differs from Bitcoin (CRYPTO:BTC) in that code can be built and programmed onto Ethereum’s blockchain network to create smart contracts and decentralized apps that run constantly, and that can’t be manipulated or controlled by a third party.
Ethereum 2.0 upgrades will attempt to greatly improve this network. As Ether and Ethereum have grown in popularity, the network has gotten more clogged by transactions. Currently, it can handle 15 to 45 transactions per second, which sounds impressive, but is proving not nearly enough to handle all of Ethereum’s users from across the globe. The high demand is also driving up transaction fees.
A big initiative of Ethereum 2.0 is to make the network more scalable so it can handle all of the activity on the network. Currently, Ethereum, like many other blockchain networks, is powered by nodes, which are any device connected to the blockchain – including servers, computers, and cellphones. Nodes are interconnected and are constantly exchanging data so the network stays up to date. But the nodes on the Ethereum network are currently experiencing too much volume and the programmers working on the upgrade have determined that making the nodes bigger wouldn’t be practical.
Introducing Ethereum 2.0
To ease some of the pressure, developers are turning to a concept called sharding that will create 64 new chains on the Ethereum network to further spread the volume. This will essentially take the massive amount of data currently being stored on Ethereum nodes and break it into smaller groups that will be stored on more databases, which will ease pressure on the current system and allow for more transactions per second. The sharding part of the process is very important and will also make the network more secure and sustainable. Sharding will eventually enable ordinary users to operate Ethereum on a personal device, increasing network participants and making the Ethereum blockchain more decentralized because there will be more users. The more users and the more nodes, the more complex it will become for hackers to take hold of a large part of the network.
With more network participants, Ethereum 2.0 is also planning to move away from the energy-intensive mining of tokens to a process called staking. A big part of cryptocurrencies has always been a concept called mining, in which people trying to obtain new tokens use high-powered computers to solve complex math equations very quickly. As the demand for crypto has increased, miners have had to use an incredible amount of computing power and therefore energy to mint new tokens. Sharding will help do away with mining. Instead, Ethereum will turn to staking, a process in which Ether owners store a certain number of tokens away in a crypto wallet on their own personal device, and then use those tokens to validate and forge new Ether tokens. The transition to Ethereum 2.0 could make the network nearly 100% more energy efficient.
Lastly, once all of these upgrades are in place, Ethereum will be able to do a wide rollout of smart contract execution. Smart contracts are programmed and automated contracts that can’t be retroactively changed and that run without needing to be carried out by some sort of third party. For instance, a smart contract could be set up to execute a lease between a landlord and a tenant, where a contract is signed and then money from the tenant is automatically released to the landlord every month, without the usual friction in these relationships.
Where is the process at?
While it has been in research and development since 2014, Ethereum 2.0 has actually been making some headway. In December of 2020, the Beacon Chain went live, which introduced the staking concept. However, the Beacon Chain can’t really be used until the other parts of the transition go live – hence it is called “phase 0” of the plan.
The next phase will be merging the Beacon Chain into the current Ethereum blockchain network, known as the mainnet. When this happens, mining Ethereum tokens will officially end and staking will become the primary way to create new tokens. This is supposed to happen in 2021, but may not happen until 2022. When it does happen, the Beacon Chain will have full functionality.
The last part of the transition, which is expected to be rolled out in multiple phases, is the adding of the shard chains to give the Ethereum network more capacity to handle all of the demand and increase transactions per second. That is expected to happen sometime in 2022, although it is not currently known when. The launch of the Beacon Chain did represent a major milestone and the Ethereum developers do seem to be motivated and on their way to completing the full transition, but it has been a long road and there is still a good deal of uncertainty around the timing.
Will it be worth the wait?
If executed properly, Ethereum 2.0 could be a total game changer. It will create a network that could potentially process 100,000 transactions per second. It will also create a much more sustainable network without the energy-intensive mining and introduce smart contracts to the broader world, increasing Ethereum’s real-world utility. Furthermore, Ethereum co-founder Vitalik Buterin has said that new-token issuance should be greatly reduced under Ethereum 2.0, which could increase demand. Given all these factors, Ethereum 2.0 should be well worth the wait.
Ethereum (ETH/USD) Strength Outshining Bitcoin (BTC/USD) Recovery
Ethereum, Bitcoin, ETH/USD, BTC/USD Talking Points:
Cryptocurrencies have started to show recovery but that appears to be uneven with Ethereum showing greater strength than Bitcoin
The analysis contained in article utilizes price action and chart formations . To learn more about price action or chart patterns, check out our DailyFX Education section.
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Cryptocurrencies are continuing to show hints of recovery after a really rough two-week-stretch. That recovery does appear to be a little brighter in Ethereum at the moment, which highlights a bigger theme that’s become more prevalent in 2021 as Ether is appearing to steal some of the crypto spotlight from the titan of Bitcoin.
At this point, there could be a bullish justification for Ethereum given the hold at higher-low support around the 50% Fibonacci retracement of the recent major move, spanning from the Jan 11 low up to the May high.
To learn more about Fibonacci, check out DailyFX Education
Ethereum Daily Price Chart
Chart prepared by James Stanley; Ethereum on Tradingview
Bitcoin, on the other hand, doesn’t look as healthy as there’s been a continued build of resistance around the $40k handle that’s capped this week’s recovery, at least so far. On the below chart, I’ve added a Fibonacci retracement around a similar major move, spanning from the January 4th low up to the April high.
Bitcoin Daily Price Chart
Chart prepared by James Stanley; Bitcoin on Tradingview
Bitcoin v/s Ethereum
A big driver behind the crypto rally was wider acceptance of cryptocurrency, led in part by the announcement from Tesla that they were a) going to put Bitcoin on their balance sheet and then b) accept the cryptocurrency as payment.
Soon after they announced that they’d stop accepting Bitcoin as payment due to the energy inefficiency by Bitcoin mining and this spurred a heated debate on the topic. But Musk stood his ground (on Twitter) and made a series of arguments behind his thesis. He also shared that he’s talked with North American Bitcoin Developers to discuss a more efficient energy strategy and that’s seemed to help with the recent recovery, to some degree.
But, a bigger debate exists around the long-term future of cryptocurrencies. Ethereum may hold some attractiveness from a usability standpoint when compared to Bitcoin. While Bitcoin is a proof-of-work currency that will require electricity to conduct transactions, Ethereum has already started to shift focus to Ethereum 2.0 as a more efficient medium. Ethereum also brings some additional value, such as with NFTs which highlights the fact that Ether is more than just a coin, its practically a full operating system. So, if we are looking at a future in which crypto will be a big part, Ethereum may be a bit more attractive than Bitcoin, and this can be seen in the 2021 trend so far. The chart below looks at Ethereum v/s Bitcoin, with higher prices showing bullish preference towards Ether v/s Bitcoin.
Ethereum (ETH/USD) v/s Bitcoin (BTC/USD)
Chart prepared by James Stanley; Tradingview
Why Might This Matter – and What is the Primary Risk?
The reason why this may turn out to be more than just a fad or a mania is because of central bank policy. At this point, the Fed still shows the appearance of relative calm in the face of rising inflation. The bank has continually said that they feel the inflationary indications that we’ve seen so far are transitory in nature, and will eventually take care of themselves.
That’s allowed the Fed to keep monetary policy really loose, but a combination of rising inflation with low rates means that real rates are going negative – which means a loss of purchasing power. And this was something noted by Elon Musk earlier this year when he was making his bull case behind crypto.
The biggest risk here is something we’ve seen pop up recently out of China, as governmental regulation could create a wave of change in the space, and this is likely the biggest item to contend with for crypto bulls.
The chart below shows the Federal Reserve’s balance sheet through last year, and notice the parabolic-move that’s happened in this data as the bank threw the kitchen sink at supporting the economy through the covid pandemic.
Fed Balance Sheet
Chart prepared by Brendan Fagan
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
How high will Ethereum go? ETH will be ‘a lot higher down the road’ - market forecaster
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Ethereum is a decentralised, open-source blockchain with smart contract functionality, with ETH being the native currency on the platform. After bitcoin , it’s the second biggest cryptocurrency in terms of market capitalisation, while it’s in the top spot for the most actively used blockchain. Unlike bitcoin which is supposed to be a unit of currency on a peer-to-peer payment network, Ether acts as a fuel that allows smart contracts to run. ETH has a market cap of $319.43billion, with its current price value standing at $2,752.81 at the time of writing on May 27. The currency has seen a net change of $54.91 in the last 24 hours alongside a low of $2,642.12 and a high of $2,891.73.
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Crypto to get ‘much higher down the road’ but collapse risks remain
How high will Ethereum go?
Market forecaster Jim Bianco says if you invest and are someone who can cope with sharp drops in the crypto space, Ether will pay off in spades further down the line.
Mr Bianco, the president of Bianco Nation, said: “Some of these coins like Ethereum are going to be a lot higher way down the road.
“But you’re going to have to stomach through much more of what we saw in the last week coming in the next several months or years or so.”
Mr Bianco warns that the coins are extremely vulnerable to 50 to 70 percent declines at any moment due to the fact it’s a very new technology.
He said once the adoption phase is over and cryptocurrency cements a fundamental role within the economy, prices will be vastly higher overall.
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