Ethereum 2.0: Test Phase Starts in July 2020

Ethereum has been working for years on the conversion of the protocol from proof-of-work to proof-of-stake. The project, christened Ethereum 2.0, aims to make the ecosystem faster and more efficient. The public test is now planned for July, which could have an impact on the ETH course.

Investors pay attention: At Ethereum (ETH), technologically decisive changes are imminent that have the potential to influence the price of ETH. At the heart of the modernization towards Ethereum 2.0 is the goal to switch the protocol from the energy- and time-consuming Proof-of-Work (PoW) to Proof-of-Stake (PoS). For the developers around Vitalik Buterin, the Ethereum 2.0 project had turned out to be much more complex than originally assumed, and the launch of Ethereum 2.0, which was planned for January 2020, had to be postponed. Now, however, reports from various sources indicate that Ethereum 2.0 will be tested in practice for the first time starting in July. We explain what is to be expected.

Background on Ethereum 2.0

When a second block chain called Beacon is launched in July in the Ethereum ecosystem, this will be the first step towards Ethereum 2.0. Beacon will already be based on PoS, but will not support financial transactions and smart contracts for the time being. In this respect, Beacon can also be considered a testnet. However, ETH will be used to implement PoS for Beacon. It will be possible to send ETH from the previous Ethereum block chain to Beacon and convert it to ETH2 in a 1:1 ratio. However, it will then no longer be possible to transfer them back. It could still be attractive to convert ETH into ETH2, as Beacon offers staking rewards.

If Beacon runs stable and there are no security problems, Ethereum 2.0 should allow so-called sharding. The idea behind this is to establish a large number of sidechains. Beacon then summarizes their results as a kind of mother chain. For a long time, 1024 shards were planned, but now only 64 are planned. A date for the sharding at Ethereum has not yet been communicated.

Ethereum 2.0 will only be completed with Phase 3, working title “State execution”. By then at the latest, a new version of the Ethereum Virtual Machine (EVM) will enable smart contracts and ETH2 will be able to trade freely again. How long it will take Ethereum 2.0 to reach this final goal is difficult to estimate. Optimists hope for 2021, realists rather assume 2022. According to the information available, the switch to Ethereum 2.0 will then be voluntary, and Ethereum 1.x will no longer be shut down or forced to be connected.

Influence of Ethereum 2.0 on the price of ETH

The staking at Beacon could fuel inflation at ETH, since new ETH2 are created in addition to ETHs through PoW in the existing block chain. On the other hand, experts expect investors to deposit ETHs with Beacon in order to benefit from staking. This would tend to reduce the number of tradable ETHs, which could strengthen the ETH share price. It is uncertain whether crypto exchanges will agree to include ETH2 in their portfolios at this stage, as ETH2 is locked into Beacon for the time being and cannot be withdrawn from there.

The picture at Ethereum is thus complex: The ecosystem wants to renew itself technologically from the ground up and, with Ethereum 2.0, catch up with competitors such as EOS and TRON (TRX), and if possible even take over the technological leadership again. However, the history of Ethereum shows that even with supposedly minor upgrades like Constantinople, the devil is in the details. Here, an upgrade was stopped at the last minute because a security hole was discovered.

Conclusion: The road to Ethereum 2.0 will be longer than expected

Ethereum 2.0 therefore remains an ambitious project, which could well hit stumbling blocks. The experience of IOTA and Coordicide, for example, teaches us that at least the timetables presented by developers in the crypto industry often cannot be met. Ethereum is no exception; the pressure of expectation in technological development even brought about the bizarre proposal to link up with Bitcoin Cash. Ethereum 2.0 will undoubtedly strengthen the medium-term prospects for ETH, and the practical test with Beacon will give clues as to whether the developers have their task under control.

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