Ethereum 2.0 has not even launched but commentators are trying to speculate as to what effect this sweeping blockchain upgrade will have on Ether’s monetary properties and characteristics.
One prominent Ethereum commentator has suggested that with the introduction of staking and a certain improvement to the blockchain’s codebase, the number of ETH will actually decrease over time.
Ethereum Could Soon Have a Negative Issuance Rate
Eric Conner — part of the product team at Ethereum-centric startup Gnosis and the co-host of the Into the Ether podcast — remarked that over the past week, Ethereum has generated 1,900 coins in fees. This annualizes to ~700,000 coins spent if fees remain this high all year round.
This is important as with the introduction of Proof of Stake with Ethereum 2.0, Conner estimates that with 10 million coins staked (~8% of the total supply of the cryptocurrency), ~575,000 coins will be generated each year.
The introduction of a “fee burn” to the Ethereum blockchain, meaning coins are deleted whenever you send a transaction, “it’s very likely that we will eventually get to negative annual issuance.”
Over the past week, the Ethereum network has generated ~1900 ETH in fees a day, or ~700k ETH annualized.
At 10mn ETH staked in PoS, the network will produce ~575k ETH a year.
With fee burn in eth2, it's very likely that we will eventually get to negative annual issuance.
— eric.eth (@econoar) May 20, 2020
It’s important to point out that the analyst’s expectation of negative issuance after ETH 2.0 is largely dependent on the abnormally high fees Ethereum users are experiencing at the moment.
As reported by Blockonomi previously, the analyst “Ceteris Paribus” observed that the cost of gas on Ethereum as of May 15th reached 41 Gwei, up around 300% from the end of April. Most of the time, the Gwei cost of gas is around 10, though it often falls even lower towards 4-6. This trend has continued, with ETHGasStation reporting a 67 Gwei gas cost if Ethereum users want their transactions finalized in two minutes.
Gas prices on Ethereum have been skyrocketing over the past month. Average gas price is now 41 Gwei, up 4x since end of April.
It uses oscillates between 10-15 outside of high periods of stress (i.e. Black Thursday). pic.twitter.com/RJmdquQNdC
— Ceteris Paribus (@ceterispar1bus) May 15, 2020
These fees are subject to change as fee market dynamics change, potentially placing the negative issuance narrative in jeopardy.
ETH 2.0 Could Rally
Although modern economies have not had much experience with the persistent deflation of a fiat currency’s monetary base, commentators say that Ethereum 2.0 could benefit ETH’s price. After all, leading cryptocurrencies are largely a game of scarcity, similar to how commodities and precious metals operate in the real world.
Angel investor and professor Adam Cochran wrote in an extensive Twitter thread that Ethereum 2.0, through staking, the fee burn, and other mechanisms, will cause a simultaneous supply shock and demand shock for Ether, pushing up prices at a rapid clip:
Ethereum 2.0 is the perfect combination of instant spikes, repetitive buying loops, competitive race conditions to drive up a short-term price, and just the right amount of background growth rate to catch that price before it falls, and offer a steady growing network thereafter.
Jury Still Out on Launch Date
While many investors are hopeful for the launch, the jury is still out on when Ethereum 2.0 will launch.
Some developers have suggested July, while others have suggested late summer.
Even BitMEX’s research team weighed in, writing in a recent report that they think things will go wrong with ETH 2.0, causing even more delays than the upgrade has already sustained:
Ethereum 2.0 is exceptionally complicated. With so many committees, shards and voting types it seems reasonably likely that something will go wrong and that there will be significant further delays.