financemagnates.com
With the launch of Beacon Chain in December 2020, Ethereum 2.0 officially started its shift from energy-consuming proof-of-work to a more efficient and improved proof-of-stake. According to Vitalik Buterin, co-founder of Ethereum, the network upgrade will solve several current challenges including high transaction fees. Buterin said that Ethereum 2.0 will be more environment-friendly.
The crypto community showed immense support for ETH’s network upgrade. Since the launch of Beacon Chain, more than 12.7 million ETH coins have been staked under the deposit contract of Ethereum 2.0, nearly 10% of the circulating supply of ETH. However, with the number of Ethereum addresses in losses at an all-time high of 34.96 million, several questions have emerged regarding the Ethereum 2.0 optimism.
“While we don't yet know the full consequences of the transition the Ethereum network is on (and has been on for now quite a while), we need to understand that it's not a binary process. Until sharding is fully implemented, we will not see too significant of a decrease in network transaction fees, which will keep the network relatively siloed,” Brian Pasfield, Chief Technology Officer at Fringe Finance told Finance Magnates.
The Merge
In a recent virtual summit, Vitalik Buterin said that the ‘Ethereum Merge’ will likely happen by August this year. In a Tweet earlier this week, Tim Beiko, one of the core developers of Ethereum, mentioned that Ropsten, Ethereum’s longest-lived PoW test net, is moving to Proof of Stake.
“Unfortunately, the transition hasn’t been smooth so far, since the merge has been delayed. That means that proof of stake won’t go live until the fall and staking withdrawals won’t start until spring or summer 2023 hopefully,” commented Styliana Charalambous, Head of Investments & Market Research at Pure.
Staking Contract
While Charalambous highlighted the rising popularity of the Ethereum 2.0 deposit contract due to attractive returns, she mentioned that the contract is not the best opportunity for people who have a limited supply.
Tackling Energy Issues
One of the biggest changes that Ethereum’s network upgrade will bring to the ETH ecosystem is a significant reduction in energy usage, an issue that received severe criticism in the past. Moreover, Ethereum 2.0 will have the ability to handle way more transactions than the current Proof-of-work driven network.
“The switch to PoS will get rid of the high computational requirements of the PoW model, making Ethereum a more environmentally sustainable network. But less energy consumption is not the only change Ethereum 2.0 will bring about. The final transition to Ethereum 2.0 coming this year is supposed to use 99 percent less energy, allow the network to scale, and potentially help it reach 100,000 transactions per second,” Charalambous said.
“It is safe to say that a full transition to PoS will remove most of the "climate change" stigma from the network. It's not unlikely that this angle could be leveraged by crypto projects to start branding themselves as "green" or "fully clean", attracting new audiences and on-chain projects,” Pasfield explained.
Impact on Ethereum’s Price
While the full potential of ETH’s network upgrade will be realized after the implementation of all due technical developments, the ETH 2.0 optimism has already started impacting its price and weekly institutional flows. Joaquim Matinero Tor, a Blockchain Associate at Roca Junyent, believes that a successful transition will drive the price of Ethereum to above $3,000.