Ethereum, the second-largest cryptocurrency after Bitcoin, continues to be among the favorites of both investors and developers. It was surpassed by XRP briefly in 2016 and 2018, but other than that, it has steadily held on its second rank on CoinMarketCap’s top cryptocurrencies by market capitalization list. Though 2019 was a sluggish year for the cryptocurrency where it traded at less than 10% of its January 13, 2018 ATH of $1432.88 – reaching a high of only $361.40 on June 26, 2019, the state of affairs is poised to change in the year 2020.
Here are 3 reasons why ETH price may hit the moon in 2020 –
#1 – Ethereum 2.0 Is On The Way
At the time of its launch, Ethereum had announced a 4-stage roadmap for development, which will eventually result in Ethereum becoming a supercomputer that is capable of executing any code efficiently. The 4 phases are as follows –
- Frontier (July 2015) – The initial stage which allowed users to mine Ether with Proof of Work (PoW) consensus and developers to build DApps.
- Homestead (March 2016) – The upgrade laid the foundation for future improvements and made it easier for developers to utilize the Ethereum platform for creating minimum viable products.
- Metropolis (October 2017) – This stage’s Ethereum Improvement Proposals (EIPs) focused on security and speed on the Ethereum platform. It was conducted in two phases – Byzantium and Constantinople.
- Serenity (Lined up for 2020) – This update will finally bring Proof-of-Stake (PoS) consensus algorithm to Ethereum to make it more efficient and less energy-consuming among other things.
We are presently in the Metropolis phase and the Serenity phase is about to begin. Leading developer at the Ethereum Foundation Péter Szilágyi recently confirmed that the Istanbul hard fork was scheduled to be initiated on the 4th of December, 2019. The hard fork, aimed at reducing gas costs, increasing compatibility with Zcash, enhancing scalability and introducing versatility in contracts, will bring Ethereum closer to version 2.0.
The Serenity stage will include several EIPs to help Ethereum become a supercomputer. They include –
- Proof of Stake (PoS) consensus method – One of the most exciting upgrades that Ethereum will receive is the shift to the PoS consensus method from Proof of Work (PoW). PoW consensus method entails solving a complex mathematical problem to validate a block, and thereby, mine cryptocurrency. The method has been criticized severely for the high amount of energy it consumes. However, the Casper Protocol, which will utilize the PoS method, will require Ethereum holders to stake their ETH to validate transactions on the network. Upon confirmation of a block, staking users will win block rewards and network fees. This method, since it doesn’t require any mining, will be much more energy-efficient.
- Sharding – Sharding is a solution for scaling in Ethereum. In sharding, transactions are divided among groups of nodes known as shards. Each shard processes their set of transactions, rather than processing all the transactions on the network. In this way, numerous transactions can be processed in parallel.
- eWASM – Ethereum WebAssemly (eWASM) is a replacement for the Ethereum Virtual Machine (EVM). It will allow developers to code in languages other than Ethereum’s own – Solidity. Also, it will make Ethereum more versatile – allowing many more functions to be written into smart contracts and deployed on the blockchain rather than conducting a hard fork for the same.
- Plasma – Plasma is also an upgrade aimed at enhancing the scalability of Ethereum. In Plasma, side-chains, or “child chains” will be introduced on top of the main Ethereum blockchain to process transactions. By doing so, the possibility of congesting the main Ethereum blockchain will be reduced.
- Raiden – Raiden network, like Plasma, is a scalability solution for Ethereum, similar to what the Lightning Network is to Bitcoin. The Raiden solution will take transactions off-chain, making them near-instantaneous, inexpensive, and more private.
On Ethereum 2.0, Ethereum co-founder, Joe Lubin says that it will solve many problems for a variety of users – from enterprises to banks to consumers.
“It’ll enable us to build a much more scalable system in time and enable us to build different kinds of focused execution environments for different kinds of problems. Different architectures are more efficient for different problem domains.”
For enterprises and banks, the upgrade is great news as its gives opens more doors for innovation for them, Ethereum Enterprise Alliance (EEA) is an organization focusing on developing open, blockchain specifications that drive interoperability for businesses and consumers worldwide. Its members include corporates like Accenture, Cognizant, Ernst & Young, Microsoft and Price Waterhouse Coopers (PwC). Recently, Great Britain’s banking giant Standard Chartered also joined the organization.
Serenity will include the implementation of several of the aforementioned solutions that make Ethereum more efficient, secure, versatile and easy-to-use. Thus, with Ethereum 2.0, we can expect more use cases for Ethereum, primarily scalable decentralized solutions for businesses, banks and consumers, which in turn will increase ETH adoption.
#2 Ethereum Futures May Get Regulatory Approval From CFTC
Bitcoin derivatives have made a big market for themselves. But, Ethereum Futures (unregulated) are slowly catching up. BitMEX, OKEx (futures), Kraken (futures), Deribit, and Binance JEX are some of the top exchanges that offer Ethereum perpetual contracts. Ethereum futures contracts are traded on exchanges like BitMEX, Huobi DM, OKEx (futures), Kraken (futures) and Deribit. There are also a host of other exchanges offering Ethereum derivatives. They include BiBox, Gate.io (futures), BTSE (futures) Bitfinex (futures), and Great Britain-based Monfex.
The volume of Ethereum derivates, though much smaller compared to Bitcoin derivatives’, is decent. At press time, BitMEX’s 24-hour ETHUSD volume is over $165 MM, making it the top performer among Ethereum perpetual contracts. The 24-hour volume of ETH_CQ on Huobi DM is over $288 MM.
The reason why Ethereum derivatives may become a game-changer for crypto market because is that they might get regulatory approval from the Commodity Futures Trading Commission (CFTC) soon. In October, CFTC chairman Heath Tarbert had suggested that Ethereum futures might get regulated in the next six months to one year.
“I’d say it is likely that you would see a futures contract in the next six months to a year,”
said Tarbert while speaking at DC Fintech Week in October.
The approval of Ethereum derivatives will open new doors for institutional investors, and it is likely that Ethereum price hits new heights when that happens.
#3 The Rise of DeFi
One more thing that has been brewing at Ethereum is Decentralised Finance (DeFi) applications. This special kind of DApps enables more people to access financial services like loans and investments. The beauty of DeFi apps is that they are not controlled by centralised authorities, but by smart contracts.
For example, in lending protocols, users can borrow a crypto asset or cash by giving another asset as collateral – ETH, usually. The debt has an accruing interest which is to be paid off when along with the principal amount. The collateral paid is always higher than the loan amount, and if the value of the collateral begins to fall, then the borrower has to supplement the existing collateral with more to maintain the stipulated level. In case the value of the collateral falls below a certain, then it automatically gets unlocked and liquidated in the open market. The rules of borrowing in any lending app are embedded in the smart contracts.
DeFi protocols are so popular that just within a little over 2 years, the total value locked in DeFi apps has reached a whopping $650 MM. DeFi Pulse lists 20 DeFi apps, and out of these 20, 19 are based on Ethereum. The top 3 apps, MakerDAO, Compound, and Synthetix have $341 MM, $114 MM and $99 MM worth of value locked in each of them respectively.
“The goal of DeFi is to reconstruct the banking system for the whole world in this open, permissionless way. You only get that shot every 50 years.”
says Alex Pack, managing partner at Dragonfly Capital, a $100 million crypto fund.
DeFi, at the moment, is a small market, but, it has the potential to disrupt financial services with greater awareness and adoption by people. In fact, the total value locked in DeFi (in Ether), recently hit an all-time high on November 9, 2019 with 3.523 ETH. The fact that DeFi makes financial services more accessible to people securely, inexpensively and efficiently, is a strong argument in favor of DeFi’s narrative of financial disruption.
Do you think Ethereum will beat its 2018 ATH in 2020? Share your views with us in the comments below!
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