Will ETH1 and ETH2 Have a Different Price?


Ethereum abstract

As final preparations are underway for the beginning of the process to launch ethereum 2.0, starting with the deposit contract and testnet which should be out soon, many are wondering whether there will be two different coins with different prices.

As you may know ethereum is to launch the Proof of Stake (PoS) Beacon chain which is a completely new blockchain that can be described as midway between a testnet and a mainnet or a dummy blockchain.

Anyone can send eth to this blockchain by sending it to the deposit contract once it goes out, which then basically destroys this eth and gives you the same amount on the beacon chain.

So there will not be two coins, it’s not a fork, it’s more of a migration. However initially this eth on the beacon chain won’t quite be able to move, with it just for staking. Making it effectively locked eth.

There were some whispers at Devcon about exchanges providing liquidity for this eth2.0, so at some point exchanges will have to decide whether they list it as just eth or whether they add a new listing of eth2 or beth.

That’s because the Proof of Work (PoW) chain will continue running for at least three years or more at the same time as the PoS chain. Yet while eth can be transferred to PoS, it can not be transferred back to PoW.

Danny Ryan, the eth 2.0 coordinator, suggested this is more of a sort of policy decision, rather than because technically it can’t be done.

He said allowing transfers back to PoW would slow down the eth 2.0 development, but technically you would “require 1.0 clients to be light clients of 2.0 and finalize 1.0 with 2.0 and expose beacon chain state root to 1.0 [and] add additional consensus rules to 1.0 and 2.0 to handle the reminting on 1.0 with proof of burn on 2.0.”

So you’d do the same thing as for the transfer to the Beacon, but in reverse. Making eth on PoW or PoS indistinguishable.

It’s not clear they plan to add this transfer however, with much seemingly in flux. Justin Drake, seemingly the mastermind of this eth 2.0 plan, and ethereum’s co-founder Vitalik Buterin, have suggested it might be implemented by the end of 2020, but Joseph Lubin of ConsenSys stated phase 1 and 2 are to be merged and are likely to go out by the end of 2020.

So what exactly is the situation remains somewhat unclear, but exchanges have a few options.

ETH 2.0 Listing Politics?

From what we understand exchanges will be able to list ethereum coins on the Beacon chain soon after it launches, with validators seemingly able to transfer eth to other validators.

It’s not clear whether such eth can be transferred to someone that just has a beacon chain address, or whether there will be non-validator addresses at all on the beacon chain to begin with.

That’s because the beacon is meant to be just a coordinator of where and which shard the eth should validate, but there would initially be no shards in which to move and do things, with it being a dummy blockchain to start off.

Why this eth would be listed at all during this period is not very clear. Obviously stakers might want to not stake anymore and give this eth to someone else who doesn’t want to bother going through the deposit contract, but they could also just wait.

Otherwise you’d think there would have to be an eth1 and eth2 listing as they’re obviously sort of different coins because one has the defi and everything, while the other is just staking.

If they wait instead for full sharding before listing, then arguably it’s still two different coins because one is on the PoS chain, while the other is on PoW.

To what extent they’re different coins may depend on how wallets are implemented and just what the addresses are.

If we’d have two different address formats, which you’d think there would be as it’s different blockchains/networks, then trying to send PoS eth to a PoW address might be no different than sending it to a bitcoin address.

That suggests there might be no choice but to have two listings, as the only way these blockchains can connect is through a “centralized” point by going through the deposit contract at either end.

Otherwise they’re kind of different worlds with no relation to each other from a usability perspective until they merge with eth1 becoming a shard of eth2.

So there might actually be no listing politics as it may be the case objectively there will have to be two listings to begin with until the merger, but that can become quite a bit messy.

Primarily because which one is actually eth? They both are, but at least for some time they’re not quite one eth.

Twilight Cryptoeconomics

Analyzing this from the prospective of a consensus that two eths will initially be listed, is not easy at all because eth1’s supply will fall as it burns, while eth2’s supply will rise to the same extent.

People will not have both eth1 and eth2, so it wouldn’t be a ‘doesn’t matter because combined price’ situation.

So as supply falls you’d think eth1’s price would rise, but only if demand remains constant or increases. Some such demand might actually fall as it goes to eth2, otherwise the latter wouldn’t have a market.

Eth1 would probably be the dominant chain for some time because eth 2 would basically have to start from scratch presuming they have different addresses which you’d think they would.

So this is both a migration and a split like btc/bch but without cloning accounts in as far as every single eth business/service would have to upgrade.

It’s different networks. Even with eth1 sharded into eth2, the eth infrastructure might itself be “sharded.” Hence perhaps why Buterin initially said such merger would be in many, many years.

Does it Matter?

Not if you have eth1, excluding what demand it might attract because of the eth2 plans. That’s because if eth2’s price is much higher, then you just go to eth2.

Likewise if the price of eth1 is much higher, since technically apparently it’s just a smart contract deposit to go back from eth2, you just go to eth1.

Meaning at an individual level it might not matter much, and this ability to go back and forth can be done by bots, but it’s not clear whether much value would be lost to these bots as unlike in a chain-split, everyone has only one coin, yet there could well be two different prices.

Nor is it clear which one would be called eth exactly. Justin Drake, as far as we are aware, distinguished some time ago between eth and beth, unless we mis-remember and it was someone else. Point being ethereans themselves are already calling the place they’re going beth.

The Ethereum Foundation has the trademark for ethereum as far as we are aware, but it’s not clear whether there’s any trademark for eth. So there could well be a situation where what is intended to be eth ends up being beth.

Making all this quite a bit of a mess that can’t even be avoided because obviously it’s a fairly big ecosystem with some unfriendly exchanges which, in some cases, should be expected to do what is the most damaging for eth.

Or there’s just two eths with their own use cases during some transition period of years, with this then somehow to become one eth even though you have to move the entire global network, without a clear answer as to why they should move.

Capacity, obviously, but BCH has capacity yet not much use. Eth has smart contracts dapps, is more decentralized, and has adoption, but that’s eth1.

Does MakerDAO for example go to eth2, when, how? Do they just cut it off at eth1 and pack their bags to eth2, or copy paste on eth2 with it being on both. If the latter, how long would that take after the launch?

Replicate that for the entire ecosystem, and you have to wonder whether this isn’t going into some wilderness.

Editorial Copyrights Trustnodes.com


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