How upcoming Eth 2.0 will affect the future of the cryptocurrency market

By Gaia Lamperti

Coinbase, the global cryptocurrency exchange platform, has published its latest market intelligence report, which looks at the future of Ethereum and the growth of its digital currency Ether (ETH).

Since its launch, the Ethereum blockchain has grown to become one of the most extensive networks in the blockchain industry, and with a market cap of about $468 billion, it is only second to Bitcoin.

The Coinbase report, published by Head of Institutional Research, David Duong, provides insights into the role of Eth 2.0, an upcoming significant upgrade of the platform that will ensure better performance, more sustainability and greater access to the Ethreum blockchain.

Coinbase is building the cryptoeconomy, a more fair, accessible, efficient, and transparent financial system enabled by crypto. The company started in 2012 with the radical idea that anyone, anywhere, should be able to easily and securely send and receive Bitcoin and now it is listed on Nasdaq under the ticker symbol COIN. Today, it offers a trusted and easy-to-use platform for accessing the broader cryptoeconomy.

The benefits of Eth 2.0

Its study includes insights into the impact of Eth 2.0 on the cryptocurrency market and how it may influence future activity trying to answer the question of  whether “Eth 2.0 is able to supplant the current model with a faster and cheaper option.” The upgrade will culminate into the transfer from proof-of-work (PoW) consensus mechanism to proof-of-stake (PoS), making the network more scalable, secure, and sustainable.

“In a proof of work model, miners tend to be forced sellers due to high overhead costs associated with maintaining expensive rigs that verify transactions. However,  in a transition to a proof-of-stake model with validators, ETH issuance comes down first because there are fewer validators than miners and there’s less ETH forced selling as competition to validate transactions is avoided and thus lower operating expenditures,” explained David Duong, Head of Institutional Research at Coinbase, commenting on what this could do to the value of ETH.

“There have been a lot of similar estimates in terms of issuance reduction, but the 30-50% reduced selling is what could create upward pressure on ETH price from a supply-demand perspective,” he added.

It is expected that the upgrade to Eth 2.0 will also provide a much-awaited solution for the network’s excessive energy expenditure, making it about 2000x more energy efficient. Data presented by tradingplatforms.com show that the energy consumption by one Ethereum transaction is currently about 238.22 kilowatts per hour. This energy consumption is significantly higher than that of 100,000 VISA transactions, which would use about 149 kWh.

“The high energy consumption by the Ethereum network currently is largely due to the PoW validation method. The foundation has already announced plans to transition to PoS, which will reduce consumption significantly. I think that will be quite crucial, especially as the tech world readies itself for the Web 3.0 era,” commented Edith Reads from Tradingplatforms.

With Eth 2.0, switching to a PoS consensus network will eliminate the miners needed to validate network transactions under the current PoW model. In doing so, there will be no more need for high computational power to validate blocks.

Key findings from the Coinbase report

• ETH 2.0 is set to disrupt L1s (eg Solana and Avalanche) by resolving its scalability issues and reducing the high gas fees associated with ETH
• Most apps on L1 networks are being developed in the Ethereum blockchain – meaning that their value is at risk once ETH 2.0 becomes a faster and cheaper option
• The upcoming merge of Ethereum’s Mainnet with the Beacon Chain will transition Ethereum from a proof-of-work to a proof-of-stake consensus mechanism. This is important because it could mean more ETH being staked and less being created. Coinbase believes this could reduce ETH issuance by up to 90% and the amount being sold on exchanges by at least 30%-50%.
• Coinbase believes there is room for multiple chains to coexist – not least as the official implementation for ETH 2.0 has moved forward to 2023 and also as the industry is constantly evolving, meaning that algorithm improvements could lead to better sharing across L1 networks in the future.
• However, the window of opportunity for L1 alternatives is expected to narrow considerably in H2 2022 – as Coinbase foresees Zk proof technology to improve and rollups to gain more widespread use – improving transaction execution speeds and reducing fees.