From Berlin to London, to Ethereum's 2.0 bullish year

First stop, Berlin

Yesterday, the Ethereum’s Berlin Hard Fork went live at block 12,244,000.

What does that mean? Let’s start with what Berlin Hard Fork is. The Berlin Hard Fork is a network upgrade that has four build in Ethereum Improvement Proposals (EIPs). These EIPs improve the gas fees incorporated in the crypto and allow new transaction types.

The four Ethereum Improvement Proposals

  1. EIP-2565, reduces the gas cost for specific transactions that uses modular exponentiation (the mathematical operation of raising a quantity to a power). For example, base b, exponent e, and modulus m, the modular exponentiation c. This is the action required for password and database encryption.
  2. EIP-2718, makes all transaction types “backward compatible” using so-called “envelope transactions”, which allows the addition of new transaction logic into Ethereum.
  3. EIP-2929, increases gas costs for ”op code” transactions, a pain point for denial of service attacks on Ethereum in the past. Op codes are important functionalities of the smart contracts since Ethereum is a widely used platform for executing smart contracts.
  4. EIP-2930, a new transaction type (made possible by EIP-2718’s envelope transactions) which allows its users to create templates for future, complex transactions in a bid to lower gas costs.

 

The Berlin hard fork was planned to happen in July 2020 but was delayed due to centralization concerns around the Go Ethereum (Geth) client which most ETH nodes operate.

This hard fork means that old ETH clients will not be compatible with upgraded ones, which is one of many things on the way to Eth 2.0.

The upgrade is a stepping stone to the much bigger London hard fork, which will activate EIP-1559, a momentous and controversial charge to Ethereum’s fee structure.

Next stop, London

The London upgrade is expected to happen in July. Proposal EIP-1559 will reduce the supply of Ethereum and will allow gas free transactions. Instead of a user paying gas fee to a miner for a transaction to be added to the blockchain, the network would set the fee itself and then burn it. In this way, the user will not suffer any additional fees. The limiting supply does have the potential to make Ethereum more valuable however there are concerns that this will diminish miners’ profits.

About Ethereum

Ethereum is the world’s leading blockchain platform for decentralized applications (dapps). It is gearing up for a system-wide upgrade called Eth 2.0 that will radically change the platform. This upgrade has been anticipated by its core developers since its release in 2015.

Ethereum is the second-largest cryptocurrency by market capitalization and was designed by Vitalik Buterin to be a “world computer”. Rather than a digital currency or commodity, Ethereum retains its original motivation to be a global computing platform for users to deploy unstoppable code, also called smart contracts. Decentralized applications, or dapps, are smart contracts programmed for a specific and recurring use. There are nearly 2,000 dapps deployed on Ethereum as of June 2020. This is more than the total number of dapps deployed on any other general-purpose blockchain platform in the world combined.

Ethereum featured image

Due to the complexities of re-launching a new version of the Ethereum network, Ethereum 2.0 will be released in phases in a similar way to how Ethereum first launched in 2015. Technically, Ethereum 2.0 is the last phase of Ethereum’s original development roadmap which as outlined by Gupta was to end with Serenity. Serenity or Ethereum 2.0 has four different development stages.

They include

➤Phase 0: the roll-out of Ethereum 2.0’s PoS algorithm (Casper), Beacon Chain Launch

➤Phase 1: Creation of shard chains for network scalability

➤Phase 2: Activation of smart contract execution

➤Phase 3: Implementation of miscellaneous tech to further optimize Ethereum 2.0. (Final touches)

How will the launch of Ethereum 2.0 impact the price of ETH?

—Danny Ryan, Ethereum 2.0 Coordinator and Developer at Ethereum Foundation

I very much believe that [Ethereum 2.0] adds a ton over time to the intrinsic value of the system. I will not comment on how markets are in relation to that intrinsic value. I think that crypto markets are pretty wild and new and people have trouble figuring out how to value these things but in terms of intrinsic value [Ethereum 2.0] is an incredible upgrade that is going to enable ethereum to be the backbone of a decentralized internet.

—Collin Myers, head of global product strategy at Consensys Codefi

 “Locked ETH throughout Phase 0 and Phase 1 should be looked at from a discounted value because of its properties. What I’m working on is essentially taking some projections of what that internet bond looks like and valuing it like a zero-coupon bond which means that they trade at a discount to their maturity. I’ve been applying some bond methodologies to what a validator should trade at a discount until it can be unlocked in Phase 2. There will be value discrepancy for sure. I don’t believe that there will be two tokens that people price reference. 

I think what people should do is track what is the cost to become a validator and should we discount that bond’s value because it has lost some properties such as liquidity or properties such as transferability. If the properties change, its value recognition will change. I’m so fascinated with what people will come up with. People will always have their own thoughts and ideas about [ETH] is priced and how it’s valued and if it’s different or it’s not. I have some thoughts about the right way to go about it but the best part is that everyone’s going to have their own thoughts and opinions.”

—Eric Conner, product lead at Gnosis

 “The crypto markets in general are still very far from properly pricing fundamentals. That being said, I think the most interesting thing when it comes to [Ethereum 2.0] and the price for ETH is now you’re going to have people locking up and staking their ETH which takes away from liquid supply. Today, no one is locking up their ETH to stake. That’s obviously a nice value proposition because those people are gaining interest. That supply lock up that will happen is obviously a bullish thing. … Anytime you take supply out, liquid supply shrinks.”

Ethereum Price Overview

ETH managed to reach a new all-time high yesterday after the Berlin hard fork going live. It reached the price of $2,538 and is currently traded at $2,367.

Ether is the cryptocurrency built on top of the open-source Ethereum blockchain, which runs smart contracts. The cryptocurrency acts as a fuel that allows smart contracts to run unlike bitcoin, which is meant to be a unit of currency on a peer-to-peer payment network. Ether’s supply is not capped like that of bitcoin and its supply schedule, often described as the minimum necessary to secure the network, is determined by members of Ethereum’s community. A majority of decentralized applications are based on Ethereum and the cryptocurrency accounts for the highest percentage of the total funds staked in the DeFi projects.

Bottom Line

For the beacon chain to launch successfully, it will need to crowdsource a minimum of 524,288 ETH (worth roughly $122,000,000 at current prices). The launch of this multi-million-dollar PoS platform will surely be a bullish signal to investors and traders which will cause ETH prices to climb. Outside of the launch space, questions about how exactly the current Ethereum blockchain will be merged into the Ethereum 2.0 and when remain. No blockchain of Ethereum’s scale has ever switched from a PoW to a PoS system.

Disclaimer – I/we have no position in any stock mentioned. I wrote this article myself, and it expresses my personal opinions. I am not receiving any compensation for it, other than FDGT Academy. I do not have or had in the past any business relationship with any company that is mentioned in the above article.

Natalia C. - Junior Analyst at FDGT Academy

Natalia C. - Junior Analyst at FDGT Academy

I am a stock analyst/investor with prior experience and knowledge to BSc Accounting and Finance. After completing my degree and exposure to the accounting firms I decided that the direction I should choose is towards the Investment world. I completed my masters in Investment Management where it gave me solid fundamentals to build my career on. I have examined a lot of different aspects of investment, from REITS, derivatives, currencies, bonds, equity and hedge funds. I never stopped learning about the market which is why I can analyze and write articles for FDGT community always personally opinionated. My passion are green energy and electric vehicles stocks as a whole. I also had my share of analyzing the work form home stocks that are coming to take over in the upcoming years.

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