Why Ethereum 2.0 Presents a Big Opportunity for Investors: Expert
- The Ethereum blockchain network is set to undergo substantial updates in early 2022.
- This presents investors with an opportunity in ether’s price, Aya Kantorovich said.
- She listed several reasons why Ethereum 2.0 will be a “massive shift.”
The Ethereum blockchain network is set to undergo substantial updates at a still unfixed date in early 2022. The new version of the network, to be called Ethereum 2.0, is being promoted as faster, more secure, and more environmentally friendly.
As such, the shift presents a big opportunity for investors in ether, according to Aya Kantorovich, a decentralized finance (DeFi) expert and the head of institutional coverage at crypto exchange FalconX.
“It’s massive,” Kantorovich told Insider on Monday. “I can’t emphasize that enough. It is a massive shift.”
With the move to Ethereum 2.0, the network will become proof-of-stake instead of its current form of proof-of-work. Proof-of-stake uses less energy than proof-of-work, and makes mining more accessible. Less mining is also needed than in proof-of-work depending on how much of a cryptocurrency is “staked,” or locked for a period of time.
This upside in terms of environmental friendliness will make Ethereum more attractive to investors, Kantorovich said.
Another reason Kantorovich is bullish on Ethereum 2.0 is the fact that transactions will become quicker thanks to a process called “sharding.” Sharding splits a transaction into several different pieces, allowing each one to be verified simultaneously, therefore saving time.
Third, the update will allow for reduced transaction fees, called “gas fees.” Currently, fees for transacting ether can run anywhere from around $50-$1,000, creating a barrier to entry. The fees also do not guarantee that a transaction will be completed, and are non-refundable. Fees are expected to fall due to market pressures from applications being built on the Ethereum 2.0 blockchain. Lower costs will increase adoption and growth, she said.
Kantorovich also cited precedent for why she expects Ethereum adoption to pick up after it is updated. She pointed to the fact that this is what happened with cryptocurrency Uniswap when it was updated to its third version.
“If you look at Uniswap V2 to V3 and look at how much volume V3 has had, in terms of trading volume since launching relative to how much V2 had, the shift was monumental,” Kantorovich said. “I think the first or second week that Uniswap V3 was live, it had already transacted like 90% of what V2 had.”
Finally, from a market fundamentals and investor sentiment perspective, Kantorovich highlighted that a substantial chunk — about 5% — of ether has been “staked” on the Ethereum 2.0 network already, a sign of investor trust.
Julian Sawyer, CEO of the crypto exchange Bitstamp, told Insider in July that he was “blown away” by the amount of people staking their ether. Kantorovich said FalconX is also seeing increased interest from institutions in staking ether. So far, about 200,000 people have staked their ether, totalling more than 6 million ether coins.
“The implications that it has — that, ‘okay, I’m going to lock up my
for an unknown date’ — is pretty high, because you don’t really know what the outcome is. There’s a lot of trust in you locking up your assets,” she said. Staking generates yield in the form of network fees for the coin’s holder.
But she also said that this will affect demand for the asset. Since there are few ether coins that are liquid until the update is completed, demand will likely be higher for asset, she said.
To solve investors’ wishes to stake their ether while retaining liquidity, various parties are working on creating derivative products to allow investors to trade on top of ether that is staked, Kantorovich said.
Why bitcoin will shift to proof-of-stake
Like ether in its current form, bitcoin is also based on a proof-of-work system, where miners use high-energy-consuming computers to race to solve equations to earn coins.
But Kantorovich said she sees bitcoin moving to a proof-of-stake format eventually. There is already a movement to do so, called Taproot.
Kantorovich pointed to the rate of evolution in the crypto space for why she thinks bitcoin will make this shift.
“When you think about just how quickly crypto adopts to the environment it is pretty fast,” Kantorovich said. “So folks mentioned how energy inefficient crypto can be, and so you get a massive school pushing proof of stake. So it happens really quickly, which I don’t think that you see in other industries.”
Bitcoin has come under pressure in recent months for being environmentally unfriendly, prompted in part by Elon Musk saying that Tesla would no longer accept bitcoin as a form of payment for the time being for this reason.