What to expect from Ethereum: USD/ETH (ETH=) 2.0
Cryptocurrency investors still remember the exciting year of 2017, when the craze surrounding initial coin offerings (ICOs) peaked. Back then, the price of ether, the cryptocurrency of the Ethereum blockchain, skyrocketed to more than US$1,300 each from about US$8 in the span of eight months. The meteoric rise of ether was due to growing demand from investors and speculators, who were buying it to invest in various ICO projects.
As at February, the price of ether had fallen to about US$200 each and the market capitalisation of the Ethereum blockchain has dwindled significantly. Reasons for these include the dying down of the ICO hype and the fact that many of the projects did not pan out. However, industry players say the price of ether could have a meaningful increase going forward.
The key driver of this potential increase is Ethereum 2.0, a significant system-wide upgrade from the existing one. It is expected to be rolled out in stages, starting in June and be completed by 2022.
“The price of ether could rise. I do not know if it will hit an all-time high, but I would not be surprised if it happens as it is a major event. The cryptocurrency market is relatively small [compared with traditional financial markets] and is easier to manipulate when there is major market news. We have seen huge swings in prices time and time again,” says Andrew Vong, chief future officer at EquitiesTracker Holdings Bhd and instructor of the company’s cryptocurrency masterclass.
TM Lee, co-founder of CoinGecko, a website that provides consumers with fundamental analysis on the cryptocurrency market, says it is possible that the price could rally on the back of the rolling out of Ethereum 2.0. While it is hard to tell whether it will surpass the levels seen in 2017 when Ethereum 2.0 is implemented, the expected price increase should be more sustainable than in 2017, he adds.
“The ICO craze was an outlier and it caught a lot of people by surprise. The market back then was mostly irrational and many people did not understand the blockchain industry enough,” says Lee.
“By comparison, the launch of Ethereum 2.0 could cause ether’s price to rise. The price will increase partly because of the better infrastructure being built. Developers who are working on various decentralised applications can build highly scalable projects at a lower cost on the Ethereum blockchain, which would lead to ether being more widely adopted and utilised.”
Edgar Gasper, chief operating officer of licensed digital asset exchange operator Sinegy Technologies Sdn Bhd, does not rule out the possibility of a rally in ether prices. “Whether prices will rise to the level where the market capitalisation of Ethereum eclipses that of bitcoin, like before — that is a tough call. But it could happen,” he says.
Enabling higher number of transactions per second
What is it about Ethereum 2.0 that excites investors? A key focus of the software upgrade is the implementation of sharding, which will exponentially increase the number of transactions per second.
In Ethereum 1.0, which is the current software, the blockchain can perform an average of 15 transactions per second — a fraction of what traditional payment systems can do. For instance, VisaNet, the centralised electronic payment system of Visa Inc, can perform 24,000 transactions per second, according to its official website.
Cryptocurrency players say this scalability problem has plagued the decentralised network industry for years. A limited number of transactions per second means that cryptocurrency users have to wait longer to pay and receive digital money. They can opt to pay a higher transaction fee to speed up the process, but this will add to their cost.
With sharding, Ethereum 2.0 could, theoretically, process thousands of transactions per second. “It is a significant increase. It also shows that the decentralised network is catching up quickly with the centralised, traditional ones,” says EquitiesTracker’s Vong.
Currently, miners of a blockchain, such as the existing Ethereum blockchain, consume computational power and electricity to solve a mathematical problem. Miners who solve the problem first will be able to mine a new block of transactions and be rewarded with ether.
The new block and recently completed transactions will then be validated by all the nodes, which are computers and servers around the world that keep a copy of the Ethereum blockchain’s public ledger, before being added to the blockchain.
When sharding is implemented, the validation process on Ethereum 2.0 will be different, says Vong. “All the nodes of a particular blockchain will no longer validate transactions that are stored in a single blockchain. Instead, they will be assigned to validate transactions in different shards, which can be perceived as sub-chains, in parallel with each other. And there could be hundreds or a thousand shards. This means that instead of a single-lane highway, sharding will turn Ethereum 2.0 into a multi-lane highway.”
Ethereum 2.0 road map
Ethereum 2.0 will be rolled out in three phases — Phase 0, 1 and 2. Phase 0 is expected to be kick-started with the launch of the Beacon Chain in July. The Beacon Chain can be thought of as the foundational level of the entire Ethereum 2.0 software. Its primary function is to cross-link information scattered between shards (sub-chains) and maintain the integrity of the whole blockchain, says CoinGecko co-founder TM Lee.
“When the Beacon Chain is launched, cryptocurrency holders can stake a minimum of 32 ether to it to mark a trial of commitment towards Ethereum 2.0.”
Phase 1 of the software upgrade is slated to take place in 2021, when multiple shards are deployed. Phase 2 is expected to take place in 2022, when Ethereum 2.0 will start to fully function.
“The implementation of the road map could be delayed. It has happened several times before,” says Lee.
In providing more technical details, he explains that Ethereum 2.0 is a separate blockchain from the existing one (Ethereum 1.0). However, Ethereum 1.0 is expected to eventually migrate to Ethereum 2.0. When that happens, there will be only one Ethereum blockchain.
Before the migration, those who stake 32 ether to become validators of Ethereum 2.0 will earn rewards in the form of a cryptocurrency known as “beacon ether” (BETH), says Lee. BETH can only be transacted on the Ethereum 2.0 blockchain when Phase 1 has been successfully deployed and cannot be withdrawn to the Ethereum 1.0 blockchain, he adds. “When the three phases of Ethereum 2.0 have been completely rolled out, BETH is expected to become ether.”
Thus, a key question on investors’ minds is: When will the migration happen? “There has not been any mention of it yet [as at Feb 11],” says Lee.
Edgar Gasper, chief operating officer of Sinegy Technologies Sdn Bhd (a licensed digital asset exchange operator), says the date has not been set yet. “The consensus is that it will happen eventually.”
Possible migration failure
While Ethereum 1.0 is expected to migrate to Ethereum 2.0, there is a risk of the two systems failing to merge, says Edgar Gasper, chief operating officer of Sinegy Technologies Sdn Bhd, a licensed digital asset exchange operator.
“If that happens, there will be two Ethereum blockchains and cryptocurrencies. This will not be good news for ether holders,” he adds.
However, the level of confidence in a successful migration remains quite high in the cryptocurrency and blockchain community at the moment, says Gasper.
CoinGecko co-founder TM Lee agrees. “Yes, a failure in migration will result in two blockchains and two cryptocurrencies, which will be ether and Beacon ether (BETH),” he says.
An industry player, who wishes to remain anonymous, says cryptocurrency exchanges could launch various instruments such as IOU or futures contracts for speculators to bet on the price of BETH before the migration happens. IOU, which means “I owe you”, is an informal document that acknowledges the debt one owes to another.
“Exchanges could issue IOU before BETH, which can be transacted freely. The IOU would allow people to trade and speculate on the price of BETH and its prospects. [When the shards are implemented,] these exchanges will then need to grant their promise to deliver the amount of BETH they owe to the IOU holders. These exchanges could also introduce [cash-settled] futures contracts, where no cryptocurrencies will be delivered,” he says.
The prices of ether and BETH will fluctuate based on their prospects, he adds. However, the price of both cryptocurrencies should be the same if the migration of Ethereum 1.0 to Ethereum 2.0 is deemed to a success by market players.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
The projected upper bound is: 259.59.
The projected lower bound is: 195.87.
The projected closing price is: 227.73.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 67.9328. This is not an overbought or oversold reading. The last signal was a buy 5 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 47.62. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 14 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -56. This is not a topping or bottoming area. The last signal was a buy 2 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 13 period(s) ago.
Rex Takasugi – TD Profile
FOREX ETH= closed up 1.630 at 226.480. Volume was 27% below average (neutral) and Bollinger Bands were 56% wider than normal.
Open High Low Close Volume___
223.700 229.410 222.250 226.480 118,427
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 231.08 213.69 178.82
Volatility: 91 86 76
Volume: 343,550 236,746 108,199
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX ETH= is currently 26.7% above its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of ETH= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on ETH= and have had this outlook for the last 4 periods.