Welcome to this in depth blog post where I try to answer as many questions about Ethereum 2.0 as possible. The answers are based on information released by the Ethereum foundation and developers. It is important to understand that this information is changing fast, and I will try my best to update this information so that you can stay up to date. I also post many ethereum 2.0 and Ethereum 2.0 staking videos on my youtube channel. Feel free to check out out here.
If you want to learn more about Ethereum I highly recommend the following to popular blog posts:
- Should I Buy Ethereum? Why Ethereum is a Good Investment
- Should I buy Ethereum? How to make money staking with ethereum 2.0
- 7 Reasons Why Ethereum is a good investment
What is Ethereum 2.0
Ethereum 2.0 is the name to describe a series of updates to Ethereum to make Ethereum a lot better. Ethereum is a blockchain on which many different applications can run. These applications are called dapps. A quick reminder dapps are decentralised applications.
One of the main benefits of the Ethereum Blockchain are the smart contracts that allow a multitude of different applications to run on Ethereum in a decentralised and trustless manner.
Ethereum 2.0 is the end game to increase scalability of the Ethereum Blockchain. The updates will roll out in three phases.
Phase 0: Beacon Chain (The heart of the Ethereum 2.0 Blockchain)
Phase 1: Shard Chains (Limbs)
Phase 2: State Execution (Brain of the Ethereum 2.0 Blockchain)
There are 5 important design goals that the Ethereum developers are following:
- Decentralisation: Anybody with consumer level hardware can become a validator. This allows the Ethereum 2.0 blockchain to scale horizontally
- Resilience: The Ethereum 2.0 blockchain can function properly even if a large part of the nodes go offline.
- Security: Many cryptocurrency incentives allow validators to enter and exit the network without disrupting it.
- Simplicity: Reducing the complexity but making it more secure
- Longevity: Use technologies that are future proof. For example making sure that the technologies are quantum secure.
Why Ethereum 2.0
You might be wondering why we need Ethereum 2.0. The simple answer to that is scalability. The two main goals of Ethereum 2.0 is to introduce a PoS (Proof of Stake) consensus mechanism and sharding. Sharding will bring a massive increase in transaction per seconds. Instead of just having one blockchain Ethereum 2.0 will have many shards (similar to blockchains) that run parallel also processing transactions.
By updating Ethereum from PoW (Proof of Work) to PoS (Proof of Stake) it will also be possible to move away from the high cost of PoW mechanism due to the cost of hardware and electricity. Proof of Stake mechanism means Ethereum can scale horizontally because the requirements for running a staking node is reduced dramatically. That means it can also run on consumer hardware.
Important Ethereum Resources
- Whitepaper https://github.com/ethereum/wiki/wiki/White-Paper
- FAQ pagehttps://www.ethereum.org/ether
Can Ethereum scale?
Yes Ethereum can scale with the Ethereum 2.0 update that introduces sharding and Proof of Stake consensus mechanism.
Here is an interesting quote from Vitalik Buterin that talks about the different scaling possibilities when a few technologies are combined.
Current Ethereum chain can do 36 transactions a second. If you do a roll-up – optimistic roll-up or a ZK roll up, it goes up to 2,500. If you do just Sharding, it goes up to maybe 2000 and 10,000 and a roll-up on top of sharding, it goes up to a hundred thousand to a million per second.
How many Ethereum will ever be created?
The short answer to this question is that there is no upper limit for how many Ethereum can be created. That is why Bitcoin is considered as a store of value and often compared with Gold and Ethereum has earned the nickname of programmable money.
The total supply at the moment is (16.04.2020) is 110.54 MM
At the moment the inflation rate of Ethereum is about 5-6% each year. That means every year the total supply of Ethereum increases by around 5-6 percent or 5.5 million Ether.
This inflation should decrease to around 0.8% in the future.
Does Ethereum have an unlimited supply?
Yes Ethereum has an unlimited supply with an inflation rate of about 5-6% per year.
However, there has been a proposal by Vitalik Buterin to implement a maximum supply of Ether to ensure economic sustainability of the platform.
Vitalik Buterin proposes the following:
I recommend setting MAX_SUPPLY = 120,204,432, or exactly 2x the amount of ETH sold in the original ether sale.
Will Ethereum succeed?
I believe Ethereum has an extremely good chance of being the number one decentralised application platform in the cryptocurrency space. Especially with the upcoming Ethereum 2.0 Serenity upgrade, the future of Ethereum looks very promising. This upgrade will bring a massive boost in terms of scalability since many people will be able to run a staking node on their consumer hardware.
You can view the current Dapp activity on the stateofthedapps website.
Furthermore the transactions per second when Ethereum combines zero knowledge roll up on top of sharding. I know it sounds complicated. I won’t go into detail about all the math involved. All I want you to know that the code and roadmap have been audited by least authority and that you can read the report here.
Ethereum 2.0 roadmap
Vitalik has released an Ethereum 2.0 roadmap which refletcs and approximate view of what is in store for Eth2 in the next 5 to 10 years.
Of course it isn’t a final version, there may be many alterations along the way. But it is good that the technology is constantly evolving.
The roadmap may look super complicated but, bare with me as I’ll try and highlight the most important parts of the roadmap.
Ethereum 2.0 is the most important upgrade on the horizon. It will change many aspects of Ethereum 1.0 (the current PoW version) such as gas pricing, client synchronisation and fee policy.
You can find a larger zoomable version of this graphic here.
I’m also looking forward to the Eth1 to Eth2 Merge where the complete Ethereum 1.0 blockchain will be integrated into one of the many shards of the Ethereum 2.0 Blockchain.
Ethereum 2.0 release date
‘When is ethereum 2.0 coming out’ is a question I hear a lot, and I’m sure the Ethereum foundation has also had their fair bit of bombardment. On one hand I can understand the impatience of the community to do the severe issues that scalability can cause on the Ethereum blockchain. (Flashbacks to the Cryptokitties madness)
Now there is no concrete date set in stone for the first part of the Ethereum 2.0 upgrade, the Phase 0 – Beacon chain. But to ease your mind I do have some information I can share with you. Bobthesponge1 (Ethereum developer Justin Drake) gave the following answer when asked about ETA of Phase 0 (The first step of the Ethereum 2.0 Serenity upgrade)
Eth 2 can launch when the following two tracks are complete: Track 1- deposits & Track 2 Clients. I’m hoping we can launch by July 30 2020, the 5th anniversary of Ethereum 1.0
Furthermore he states that he has a 95% confidence that Phase 0 will launch in 2020.
There you have it. The release date (without guarantee of course! You never know what can happen with software development, is the 30th July 2020. If it doesn’t then it is considered a failure.
How to buy ethereum 2.0?
This is actually an easy question to answer. In order to buy Ethereum 2.0 as an investment you will only need to buy the current Ethereum also known as Ethereum 1.0. You do not need to do anything during the transition from Eth 1.0 and Eth 2.0
Where to buy ethereum 2.0?
Since you can’t actually buy Ethereum 2.0 at the moment the wisest and easiest thing to do is to just buy Ethereum and keep it on your ledger for a long term investment.
You can buy Ethereum on nearly all popular exchanges such as Coinbase, Kraken, Bitstamp, Poloniex and Bitpanda.
Make sure you do not confuse Ethereum with Ethereum Classic. If you want to buy the Ethereum that will upgrade to Ethereum 2.0 then you need to buy Ethereum and not Ethereum classic.
Is Ethereum 2.0 a new coin?
Yes Ethereum 2.0 is a new coin also known as ETH2 or BETH (Beacon ETH)
Is Ethereum 2.0 a fork?
Ethereum 2.0 Serenity will not be a fork of the existing Ethereum but a completely new structure. That means do not buy Ethereum if you believe that you will get free coins from the upgrade. This is not the same thing as with the Bitcoin to Bitcoin Cash fork.
With the new Ethereum 2.0 network people will not have double the coins. The Ethereum on the old chain will be transferred to the new chain. The migration from Eth 1 to Eth 2 should happen automatically if I’m not mistaken.
Ethereum 2.0 comparable to stock?
Many people believe that by buying ETH (ETH2) they are investing into the Ethereum foundation and thus, it is the same as buying a stock. Cryptocurrency is not the same think as buying the stock for a company. You are buying into an ecosystem of decentralized applications. People buy Ethereum because they believe in a new set of tools and a new way that finance can work, hence the decentralized finance movement.
What is the Ethereum 2.0 price
No one knows what the price of Ethereum 2.0 will be. If you want some predictions of what the price of Ethereum 2.0 might be then go to the next two sections.
For finding the price of Ethereum 2.0 right now, you need to understand that Ethereum 2.0 is Ethereum that we have right now. Therefore, you can go to coinmarketcap or coincheckup and check the price.
How will Ethereum 2.0 affect price
An increase in scalability will allow more users to use decentralised applications running on the blockchain. The in return will be one of the main reasons that decentralised finance is going to grow exponentially in the next few years, especially after the Serenity upgrade has been completed.
This will naturally increase the demand for Ethereum as more and more people will want to use different financial tools to increase their wealth. Dapps such as compound finance and tokensets provide smart ways for retail investors to diversify their portfolio instead of keeping all their investments in stocks or fiat.
In my opinion the price will increase by at least 10x in the next few years. If you want more juicy price predictions, then continue reading as the next section will cover some of the most interesting price predictions brought to you by successful analysts and economists.
Ethereum 2.0 price prediction based on money flow
This Ethereum 2.0 price prediction is based on the worldwide money flow. It isn’t a guarantee that Ethereum will rise to these prices, but it is still a very valuable perspective to keep in mind.
Since, we are comparing the amount of money available worldwide and the market capitalisation of Ethereum, it is possible to derive a sensible price prediction for Ethereum as long as all the Serenity updates go through without a problem.
A quick reminder, here are the three important money flows:
M0: The total of all physical currency (coins and bank notes), plus accounts at the central bank
M1: M0 + the amount in demand accounts, including “checking” and “current” accounts
M2: M1 + savings accounts, market accounts and certificate of deposit accounts under 100k USD
To put things into perspective. Here is the valuation of all three of the money flows.
Below are three graphs that outline the price prediction of Ethereum based on the amount of market share the Ethereum market cap can capture.
As you can see with the current price of Ethereum (150$), we are at around 2.8% of the M0 Money. Ethereum has not yet captured a percentage of M1 or M2 money.
Should Ethereum grow and become a world wide blockchain that people will use for decentralised finance then 32% of the M0 (5% of M1 or 2.2% of M2) Money doesn’t seem unreasonable in the next 4 years. This would price Ethereum at 1713$ per ETH.
A 16% portion of the M2 money would place ETH at 12’170$. In my opinion this is a very reasonable price prediction for the next 10 years.
Ethereum 2.0 what to do
You might be wondering what needs to be done if you are holding ETH 1.0 and are worried about the Ethereum 2.0 upgrade. Rest be assured you don’t need to actually do anything with your current Ethereum. Make sure you keep it safe on a ledger and keep it as a long term investment.
How to mine Ethereum 2.0
Ethereum 2.0 will be using the Proof of Stake consensus mechanism. This means that you won’t be able to mine Ethereum 2.0 in the same way as Ethereum 1.0. The security of Ethereum 2.0 will be assured by staking. Check out the next section to learn more about staking.
How to stake Ethereum 2.0
There are two ways that you can stake Ethereum. You can either run your own validator on your computer or a virtual machine or you can join a staking pool like Rocket pool. I have written an extensive post about staking Ethereum 2.0 here. If you prefer watching a video, I have made a few:
When can you stake Ethereum
You can stake Ethereum as soon as Phase 0 update has gone through and the beacon chain is running. To get more information about the release date, I suggest you check out the section Ethereum 2.0 release date. To keep you from scrolling up and if you just want the short answer: The predicted release date is the 30th of july 2020.