What is Ethereum 2.0? How Does It Affect the Markets?
Ethereum founder Vitalik Buterin announced that the launch of Ethereum 2.0 will take place on December 1, 2020, as we have just reported. The announcement of this update on the long-awaited network has sparked excitement in the cryptocurrency community.
So what is Ethereum 2.0? What impact will it have on the cryptocurrency market ? Let’s take a quick look together.
What is Ethereum 2.0?
ETH 2.0 is a long-planned upgrade to the Ethereum network, providing it with the scalability and security it needs to serve all humanity. ETH 2 will reduce energy consumption, allow the network to process more transactions, and increase security. Technically speaking, Ethereum will be a Proof of Stake (PoS) blockchain and will promote shard chains. This is a huge change in the way Ethereum works and can provide equally great benefits.
However, this is just a change in Ethereum’s infrastructure. If you are already an ETH owner, dapp user or dapp developer, you don’t need to do anything because ETH 2.0 will be compatible with the main Ethereum network you use today. You will also be able to use the ETH you have today on Eth2. There will be no need to take any action in this regard.
Why ETH 2.0?
Since its launch in 2015, Ethereum has become the world’s most used programmable blockchain. Open, unauthorized systems created billions of dollars in value and enabled entirely new types of software applications. However, Ethereum still needs to be scaled to realize its potential.
Originally known as Serenity, the ETH upgrade has always been a long-term vision. Bringing a scalable Proof of Stake consensus to Ethereum has always been the roadmap.
In the current version of blockchain , all data added to the chain must be verified by all participating nodes. This means that the transaction speed of the entire system is limited by the speed of its slowest participant. It creates a bottleneck that increases transaction costs and reduces efficiency. Ethereum 2.0 can greatly increase the efficiency of resource utilization by adding sharing to the mix. The new system will do this by dividing data validation tasks among clusters of nodes, each only responsible for validating the data it receives. This allows the entire blockchain to utilize parallel processing, which can increase the total capacity several times. The new Ethereum blockchain should be much faster and more efficient than before with this added technique.
What will affect the ETH price and the markets?
According to some analysts, the Ethereum 2.0 protocol update could positively affect the price of ETH in the coming months and years. The update could increase the demand for Ethereum transactions due to increased speeds, falling costs and more benefits. ETH is required to process transactions, so as transactions increase, the demand for cryptocurrency must also increase.
The more demand there is to use the ETH network, the higher the price can go because there is a true underlying value created for the user. EIP 1559 can also support price increase as it will reduce the volatility of transaction fees. Ethereum founder Vitalik Buterin said that if EIP-1559 and ETH2 are implemented at current transaction levels, the ETH supply will actually stop growing. The decline in the market supply of ETH, along with a recession and / or an increased demand, could increase the price.