Photo by Hans Eiskonen on Unsplash
Introduction
After years of development, phase 0 of Ethereum 2.0 is live. In phase 0, a separate chain: beacon chain is added to the network to allow staking, and anyone can now become a validator.
This is just the beginning of the transition from ETH 1.0 to ETH 2.0. In the coming months, we will see the launch of different phases for at least the next 2 years (it can take more time) and after that, the transition will complete.
Why ETH 2.0 matters?
Well, Ethereum 1.0 got lucky. It is worse than current solutions and is still the second-largest cryptocurrency. Ethereum was designed to take us to a decentralized web — Web 3.0. But it is worse than the current web. It is slower, more expensive, low bandwidth, high latency, and unscalable. But ETH 2.0 can change that.
Here is more on why Ethereum failed by Noah Ruderman - Why Ethereum 1.0 failed and Bitcoin succeeded Introductionmedium.com
It is crazy to think that such an inferior solution can have a market cap of $40.6 Billion. It shocked me.
Ethereum 2.0 promises a faster network speed, low latency, improved security, more accessibility, and a cheaper gas fee. It will have the proof-of-stake consensus algorithm, shard chains, and a lot of network changes.
If ETH 1.0 can have such potential, imagine what ETH 2.0 will bring to the table. It will be a roller coaster ride and we can expect to see a lot of price fluctuations because of network changes.
FYI- Ethereum 1.0 and 2.0 are not separate coins, after the docking stage there will only be Ethereum with new upgrades.
In reality, no one knows how much an Ether will be worth, but if everything goes as planned, it can follow its logarithmic progression.
Don’t think of this article as some financial advice. Please do your own analysis before you make any move. Share your thoughts and suggestions in the responses.
Hold
As no one knows when we will have Ethereum 2.0 (predicted ~2021/22) it is safe to Dollar cost average your investments over different time frames.
Investopedia says %20is%20an%20investment%20strategy%20in,volatility%20on%20the%20overall%20purchase.&text=Dollar%2Dcost%20averaging%20is%20also%20known%20as%20the%20constant%20dollar%20plan.)— Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase
This is because the Ethereum can fluctuate due to various external factors such as returns on Bitcoin and altcoin, laws in different nations, stock market, and supply and demand. The supply of Ethereum is based on the number of Ether staked and at least 32 Eth must be staked to become a validator, which will reduce the market supply; Bugs and centralization can also clog the network.
Keeping these factors in mind, I would place buy orders for different prices. As most of the cryptocurrencies follow the trend of Bitcoin, I would keep a close eye on it and it is expected to see a correction before it goes to $25000. That would be the ideal time to buy. You can check out Benjamin Cowen’s YouTube channel to know more about macro-level market changes.
Again, NOT some financial advice.
When the docking stage is complete, Ethereum will support more applications, Defi will become cheaper (gas fee) and more accessible. This would increase the demand for Ethereum and the supply might decline due to the influx of validators, and I expect this to create higher support bands for Ethereum in the future.
Staking
Staking is a public good for the Ethereum ecosystem. You can help secure the network and earn rewards in the process.
You can make some passive income by staking your Ethereum and make your money work for you. Unlike Bitcoin’s proof-of-work, staking does not require high computational resources to be competitive in the network, making it widely accessible.
There are 3 ways you can stake Ethereum and become a validator in the beacon chain.
Full Validator
To become a full validator (an independent node on the network) you need to stake at least 32 ETH — not so accessible.
Being a full validator will give you all the returns you receive for the service, and you will be in complete control of the machine making the blocks.
With great returns come great risks!
Being a full validator means you need to make sure you are connected to the network at most times; You don’t harm the network, clog the network, fail to validate, or cannot store data. If you fail to do so, you will be penalized and lose some of your stake. You can even lose all of your stake!
Staking Pools
Staking pools allow you to stake less than 32 ETH in the network. Each pool has its own rules, fees, and minimum contribution amount.
Staking pools are one of the easiest ways to contribute to the network, and get some returns with less risk.
Before you choose a staking service, triple check it and make sure it's not a scam and also check the service fee and requirements to not lose any money. This space is full of scams/Ponzi schemes and you should not trust any individual (including me) based on merits, recognition, or anything. Always check from multiple sources until you are convinced. Crypto Scam Worth $15 Billion, Shook the Whole Industry How a Ph.D. fooled the entire worldlevelup.gitconnected.com
Superfluid Collateral
Superfluid Collateral allows you to use the same asset for multiple purposes simultaneously. In the case of Ethereum, you can have your Ethereum staked in, simultaneously you can exercise the derivative of the Ethereum (DETH)
I read about this concept in this article by Dan Elitzer, definitely worth a read. The DETH of Ethereum How DeFi Will Centralize Stakingmedium.com
DETH is a derivative of ETH, meaning that it can be withdrawn or traded without worrying about your staked Ether. This would also allow you to stake less than 32 Eth.
DETH can have different protocols set by the issuer.
Binance — Till ETH2.0 launches transfer feature, you will be able to redeem any staked ETH for BETH in a 1:1 ratio.Redemption will be determined based only on the amount of BETH you have available at the time, and is unrelated to the amount that you initially staked or exchanged.
This means that you can buy BETH as you would normally buy Ether and exchange it for Ether when ETH 2.0 is live and gain rewards. This would basically give you the power to stake without worrying about anything.
What’s the catch?
A system like this would create a huge centralized system and would defeat the purpose of a decentralized network. If such a system goes down or encounters a bug, it can affect the whole network, and may even shut the network down, at least for the short term. You can lose all your money if that happens. 'Accidental' bug may have frozen $280 million worth of digital coin ether in a cryptocurrency… Millions of dollars' worth of ether, the digital token of the ethereum blockchain, could be frozen on a cryptocurrency…cnbc.com
DeFi
Decentralized finance is still in its infancy. Most of the DeFi applications run on top of Ethereum because of programmable smart contracts. Smart contracts provide a variety of financial applications in cryptocurrency, some only possible with smart contracts.
DeFi provides various options to make money from money. You can lend cryptocurrencies in lending platforms, bet in prediction markets, use flash loans, and exercise all kinds of financial instruments.
There is a higher risk involved in these practices, but at least your money won’t be locked in for an unknown period as with staking.
There are pros and cons and varying degrees of risk involved with any type of investment. The only way to make the right decisions for maximum returns is to do extensive research and analysis.
Please share your thoughts on this :)