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ETH 2.0 …holds the potential to disrupt and possibly dominate alternative L1s

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Coinbase, the global cryptocurrency exchange platform, has published its latest market intelligence report, looking at the future of Ethereum

The report, published by Head of Institutional Research, David Duong, provides insights into the role of Eth 2.0. The report includes insights into the impact of Eth 2.0 on the cryptocurrency market and how it may influence future activity. David is available for an interview, upon request. The full report can be accessed, here, however, key highlights are also listed, below.

Key report findings: 

  • ETH 2.0 is set to disrupt L1s (eg Solana and Avalanche) by resolving its scalability issues and reducing the high gas fees associated with ETH
  • Most apps on L1 networks are being developed in the Ethereum blockchain – meaning that their value is at risk once ETH 2.0 becomes a faster and cheaper option
  • The upcoming merge of Ethereum’s Mainnet with the Beacon Chain will transition Ethereum from a proof-of-work to a proof-of-stake consensus mechanism. This is important because it could mean more ETH being staked and less being created. Coinbase believes this could reduce ETH issuance by up to 90% and the amount being sold on exchanges by at least 30%-50%. 
  • Coinbase believes there is room for multiple chains to coexist – not least as the official implementation for ETH 2.0 has moved forward to 2023 and also as the industry is constantly evolving, meaning that algorithm improvements could lead to better sharing across L1 networks in the future.
  • However, the window of opportunity for L1 alternatives is expected to narrow considerably in H2 2022 – as Coinbase foresees Zk proof technology to improve and rollups to gain more widespread use – improving transaction execution speeds and reducing fees.

David Duong, Head of Institutional Research at Coinbase commented on what this could do to the value of ETH:“In a proof of work model, miners tend to be forced sellers due to high overhead costs associated with maintaining expensive rigs that verify transactions. However,  in a transition to a proof-of-stake model with validators, ETH issuance comes down first because there are fewer validators than miners and there’s less ETH forced selling as competition to validate transactions is avoided and thus lower operating expenditures. 

“There have been a lot of similar estimates in terms of issuance reduction, but the 30-50% reduced selling is what could create upward pressure on ETH price from a supply-demand perspective”.

About Coinbase 

Coinbase is building the cryptoeconomy — a more fair, accessible, efficient, and transparent financial system enabled by crypto. The company started in 2012 with the radical idea that anyone, anywhere, should be able to easily and securely send and receive Bitcoin. Today, we offer a trusted and easy-to-use platform for accessing the broader cryptoeconomy. Coinbase is listed on Nasdaq under the ticker symbol COIN.

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