Ethereum 2.0 Set to Cause “Halving”, the Aftermath of Ethereum’s Proof of Stake

The launch of ETH 2.0 is speculated for July, this is a major event for the 2nd largest cryptocurrency, Ethereum, while Bitcoin undergoes its halving in May.

ETH 2.0: The Technicalities Defined

ETH 2.0 is an upgrade that will move ETH away from a mining consensus mechanism to staking, which encourages committed holders to stake their coins in exchange for rewards.

Staking- The act of locking up one’s coins or tokens to help verify transactions for cryptocurrencies with Proof of Stake consensus. Stakers earn staking rewards.

Proof of Stake (PoS)- a consensus algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. In PoS, the creator of the next block is chosen through the stake which is a combination of random selection and wealth or age.

Proof-of-Work, or PoW- the original consensus algorithm in a Blockchain network which is used to confirm transactions and generate new blocks. With PoW, miners compete against each other to complete transactions on the network and get rewarded.

ETH 2.0 Halving Explained, Key Facts About ETH Proof of Stake

ETH Supply to Be Halved- presently, Ethereum has about 4.7 million ETH in issuance yearly, with ETH 2.0, ETH supply will range between 100,000 and 2 million annually, apparently less than 2 million. This fact was emphasized by Ethereum Co-founder, Vitalik Buterin who stated that the reason behind the preference of Proof of stake consensus was to reduce ETH issuance to somewhere around 2 million, which is a “halving ” of the around 4.7 million yearly supply. He stated that a calculation has been inputted in the specs of ETH 2.0 that will bring the theoretical maximum issuance to about 2 million yearly even in the face of maximum participation.

Halving Will Be Accompanied by “Burning”- following every significant increase in transaction volumes, the total ETH in circulating supply will be reduced due to “burning”.

Explaining what was meant by “burning”, Buterin said that the initial transaction fees charged by the protocol will be halved, the first part goes to the miner as a ‘reward’, while the other part just gets burnt.

Block Size Reshaping- ETH 2.0 will see to the adjustment of block sizes rather than transaction fees in response to network activity. Buterin noted block size will be volatile rather than transaction fees. He believes that this will help lessen hassles faced by users such as difficulty in deciding a transaction’s optimal fee charge and enormous processing times.

An Impending Bull Run

Adam Cochran of MetaCartel Ventures DAO sees ETH 2.0 as one of the biggest “Economic Shifts”. He sees a switch to staking and a supply shock increasing demand, necessitating a bull run.

However, Wilson Withiam of Messari research and Nick Hill of Invictus Capital hold conflicting views that demand may not necessarily increase as seen in the ETH DeFi scenario.

Although, the number of addresses holding 32 ETH which is the exact amount required for validators to stake in ETH 2.0 increased by over 14% since 2019 indicating a demand surge. On-chain analytics, Glassnode, puts this figure at over 116,351 Ethereum addresses.

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