Ethereum 2.0 is on its way: what will be the impact on the value of ETH?

Ethereum’s long-awaited upgrade promises to solve network problems and enable new developments. But what about ETH?

According to the developers of Ethereum 2.0, the Spadina testing network is probably the last chance for potential Ether stakers (ETH) to test the depot and release tools before generating Phase 0.

The testing has been very successful, as no major problems were found in the depot process and the client was able to successfully handle the blocks.

Phase 0 should not affect the Ethereum ecosystem immediately. Ethereum 2.0 is being developed to improve the „simplification, resilience, longevity, security and decentralisation“ of the Ethereum protocol. Its implementation is planned in several stages and phases. But what will be the impact of this upgrade on the ecosystem and the value of ETH?

What is Ethereum 2.0?

As the name suggests, Ethereum 2.0 is the second iteration presented to the Ethereum network and protocol – and given how it is linked to the world’s second largest cryptomoeda by market capitalization, it is crucial that the launch occurs smoothly.

One major difference we will see in the launch of Ethereum 2.0 is a departure from Proof of-Work (POW), a consensus mechanism that it also uses as Bitcoin. In Ethereum 2.0, mining will be a thing of the past as the focus shifts to Proof-of-Stake (POS), or proof of participation. We analysed the economic impact of this change in a previous article.

The validation of transactions will no longer depend on computing power – and advocates believe that the upgrade will ultimately make Ethereum 2.0 much safer. Another major improvement could be an improvement in energy efficiency, especially since there are growing concerns about how much electricity is consumed to maintain a blockchain network, especially that of the Ethereum and Bitcoin, which are the dominant ones.

However, Ethereum 1.0 is here to stay – forever and will not be discarded as imagined. The reason is that Ethereum 2.0 simply serves as a natural transition from Ethereum 1.0.

Ethereum 1.0 is a staking platform that enables the launch of Ethereum 2.0, which uses a participation proof mechanism. As such, the two platforms will be closely connected: „Ethereum 2.0 will return to Ethereum 1.0 and finalise the blocks there, allowing for greater safety and production of block problems in Ethereum 1.0,“ says Joseph Lubin, Ethereum developer at Consensys.

Lubin also mentioned that Ethereum 2.0 will be Ethereum 1.0’s „largest and most sophisticated DeFi application“, a recent interview here at Cointelegraph.
In addition, Ethereum 2.0 will provide features such as greater scalability, throughput and security for Ethereum’s core public network, all absent from Ethereum 1.0. The long-awaited beacon chain will serve as the backbone of Ethereum 2.0.

Therefore, the two networks will coexist at the same time and one does not exclude the other, as some had imagined.

The impact on the ecosystem

With the launch of ETH 2.0 (among other improvements), we will see the ETH drastically increase its rate/adoption binomial and, therefore, its commercial and consumption viability. High gas rates, high transaction costs, long wait on dApps: all this must be corrected, even in a busy market. Therefore, the adoption of the DeFi protocols will be favored by the adoption of ETH 2.0.

As Ethereum’s network, processes, and scalability increase, according to the Metcalfe Law, there will be a gain in value for Ether as its network spreads and becomes more robust and richer in terms of companies and value generation.

According to the concept of the Metcalfe Act, which is currently applied to telecommunications networks, the value of a network is measured by its ability to create nodes, and can also be applied to blockchain networks such as the Ethereum.

Simply put, the greater the actual demand to use the system, the more the price goes up, because there is an underlying real value being created for the user.
Using Metcalfe’s Law as a parameter, taking into account the value of a network is the sum of the square of its number of users, the Ethereum network which is conceptually a large distributed computer will gain scale with the upgrade and its impact on price can also be felt directly on its value. As already studied by several research houses.

If we analyze this whole context for the bias of financial speculation, Ether may be at its best purchase price, with a potential tendency to appreciate at least twice its current value.

However, it is important to note that this is not a recommendation to buy, but rather an indication of a trend.