Ethereum 2.0 upgrade next in line
Senior Quantitative Analyst, Saxo Bank
Summary: The initial phase of the Ethereum 2.0 release is expected to take place soon and is planned to boost both scalability and security and make it more sustainable. The current framework for validating transactions through mining will be gradually replaced by a staking framework over the coming years.
A major upgrade of the Ethereum network is close to launching its initial phase. According to ethereum.org, the vision is to make Ethereum:
- More scalable - Must be able to support 1000s of transactions per second, instead of the current level of around 15 transactions per second.
- More secure - An increased adoption of Ethereum requires an even better security protocol
- More sustainable - The current technology relies on crypto mining which requires too much energy.
Up until now, transactions on the Ethereum network have been processed by a proof-of-work concept, where transactions are verified by mining – well-known from bitcoin – which demands huge amounts of computational power. In Ethereum 2.0 this will be replaced by a proof-of-stake framework driven by validators. Each validator will be staking 32 ETH to activate the validation software. By running the software they will receive rewards for validating transactions and creating new blocks. But they will lose their staked ETH if they try to cheat and manipulate the system, if they go offline or fail to validate in some other way. It will not be possible to withdraw the stakes before the entire network has fully progressed to proof-of-stake – see timeline below. This new validation scheme may be run on a simple laptop and thus minimizes the power consumption to run the network, compared to the current requirements.
Timeline – with stake-dependent launch date
The launch of the initial phase depends on 16384 stakes of 32 ETF which must be collected at least seven days before the launch date which currently is set for December 1, 2020. If these stakes have not been received by November 24, the launch will be postponed to seven days after the threshold have been reached. As of today, only around 60 % of the required stakes have been collected, so an overrun of the planned schedule seems likely.
The timeline for the three phases is:
- Phase 0 (expected December) – The Beacon Chain: Launch of the Beacon Chain where early stages of Ethereum 2.0 with the proof-by-stake will be introduced, side-by-side with current, main proof-of-work network which will remain unaffected in this phase.
- Phase 1 (expected 2021) – Shard chains: By introducing shard chains, validators will only need to run data on a part of the entire network – on their “shard” – and will speed up the process and minize the hardware requirements.
- Phase 2 (expected 2022) – The docking: The final implementation of Ethereum 2.0 where it is merged with the main Ethereum network. This will make the end of the proof-of-work for Ethereum.
Impacts of Ethereum 2.0
The Ethereum community is hoping that the lowered requirements for participating by staking instead of by mining will increase the number of validators on the network, which eventually will make it more difficult to attack the blockchain. The major improvements of the network may attract more traders to ETH, but on the other hand the current lack of support for staking into the launch can turn out as a defeat for the Ethereum community.
Note: Current holders of ETH do not need to take any actions to account for the upcoming upgrade
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)