Ethereum poised to take off?
The long-anticipated Ethereum 2.0 is almost here. The network upgrade will transition Ethereum from a Proof-of-Work consensus algorithm to a Proof-of-Stake algorithm. In such a network, there is no need for miners; instead, Ether holders can stake their ETH to verify data and are rewarded for doing so.
Serenity, as Ethereum 2.0 is officially called, has been delayed several times. The initial launch was set to happen in January 2020, then got rescheduled for Q2 and now Q3. While a launch date has not been announced yet, Ethereum co-founder Vitalik Buterin stated that development of the upgrade is on track to be completed somewhere in July. Some expect the upgrade to happen on the 30th of July, as this day is the 5th anniversary of the network.
Three key metrics are indicating that the market is anticipating the launch of Ethereum 2.0 will result in a surge in price. Before discussing those metrics, let's dive deeper into what Ethereum 2.0 is precise.
Homestead in March of 2016
Metropolis, Byzantium in October of 2017
Metropolis, Constantinople in February of 2019
Istanbul, in December of 2019
Each of the previous upgrades aimed to improve either the usability, security, scalability or decentralization.
Serenity, however, stands out thanks to the fact that it will bring the implementation of Proof of Stake (PoS) and thus move the network away from the current Proof of Work (PoW) algorithm.
Blockchains utilizing PoW have since the inception of Bitcoin suffered from scalability issues. The ambition for the Ethereum developers is to overcome these issues with the PoS mechanism. Instead of miners and electricity, validators and their stake will now be the critical components of Ethereum.
Validators replace miners and can stake their ETH, the minimum stake is 32 ETH, and the stake is locked for a certain amount of time. In return, the validator is rewarded for staking and helping secure the network. If a validator fails to remain online, his block reward will decrease, this to motivate a validator to stay online as much as possible. If a malicious validator is identified, he will lose all or some of this staked ETH. The estimation of the reward for staking is between 4,6% and 10,3%.
In addition to staking, Ethereum 2.0 will also bring sharding. Sharding is one of the most promising but also the most complex scalability solution. According to Vitalik Buterin, the implementation of sharding will result in Ethereum being able to process thousands of transactions per second. Important to note, however, is that sharding will not be launched simultaneously with staking; instead, it will follow later in the process.
The number of addresses currently holding Ether is more than 40 million. A significant increase since January 2018 when the price of ETH reached its all-time high, at that time, less than 10 million addresses were holding Ether.
Also, the market developments make it seem that both retail and institutional investors are preparing to stake a significant amount of their ETH holdings. For example, Grayscale, one of the largest cryptocurrency asset managers, increased their Ethereum Trust fund from a value of $11,7 million in May 2019 to $276 million worth of ETH in May 2020. An increase of around 2300%, despite the price of ETH decreasing during the period.
Lastly, the amount of daily transactions on the Ethereum network has been increasing since January this year. It is indicating a rise in the popularity of the network. The expectation is that this amount will only keep growing as we move towards the upgrade.
Serenity, as Ethereum 2.0 is officially called, has been delayed several times. The initial launch was set to happen in January 2020, then got rescheduled for Q2 and now Q3. While a launch date has not been announced yet, Ethereum co-founder Vitalik Buterin stated that development of the upgrade is on track to be completed somewhere in July. Some expect the upgrade to happen on the 30th of July, as this day is the 5th anniversary of the network.
Three key metrics are indicating that the market is anticipating the launch of Ethereum 2.0 will result in a surge in price. Before discussing those metrics, let's dive deeper into what Ethereum 2.0 is precise.
Ethereum 2.0
Ethereum 2.0 or Serenity is a major, and arguably the most significant network upgrade. It is not the first and will not be the last. Other significant upgrades to the Ethereum mainnet were:Homestead in March of 2016
Metropolis, Byzantium in October of 2017
Metropolis, Constantinople in February of 2019
Istanbul, in December of 2019
Each of the previous upgrades aimed to improve either the usability, security, scalability or decentralization.
Serenity, however, stands out thanks to the fact that it will bring the implementation of Proof of Stake (PoS) and thus move the network away from the current Proof of Work (PoW) algorithm.
Blockchains utilizing PoW have since the inception of Bitcoin suffered from scalability issues. The ambition for the Ethereum developers is to overcome these issues with the PoS mechanism. Instead of miners and electricity, validators and their stake will now be the critical components of Ethereum.
Validators replace miners and can stake their ETH, the minimum stake is 32 ETH, and the stake is locked for a certain amount of time. In return, the validator is rewarded for staking and helping secure the network. If a validator fails to remain online, his block reward will decrease, this to motivate a validator to stay online as much as possible. If a malicious validator is identified, he will lose all or some of this staked ETH. The estimation of the reward for staking is between 4,6% and 10,3%.
In addition to staking, Ethereum 2.0 will also bring sharding. Sharding is one of the most promising but also the most complex scalability solution. According to Vitalik Buterin, the implementation of sharding will result in Ethereum being able to process thousands of transactions per second. Important to note, however, is that sharding will not be launched simultaneously with staking; instead, it will follow later in the process.
Indicators
Now onto the indicators that might suggest the market is preparing for Ethereum 2.0. These indicators are the number of Ethereum addresses holding value, market developments and user activity. All of these have been rather positive for Ethereum in the last months.The number of addresses currently holding Ether is more than 40 million. A significant increase since January 2018 when the price of ETH reached its all-time high, at that time, less than 10 million addresses were holding Ether.
Also, the market developments make it seem that both retail and institutional investors are preparing to stake a significant amount of their ETH holdings. For example, Grayscale, one of the largest cryptocurrency asset managers, increased their Ethereum Trust fund from a value of $11,7 million in May 2019 to $276 million worth of ETH in May 2020. An increase of around 2300%, despite the price of ETH decreasing during the period.
Lastly, the amount of daily transactions on the Ethereum network has been increasing since January this year. It is indicating a rise in the popularity of the network. The expectation is that this amount will only keep growing as we move towards the upgrade.