TokenSmart NFT Humpday Report #9: What's Eth2 Mean for the NFT Ecosystem? 👀
Welcome to the 9th issue of the NFT Humpday Report, a weekly column providing embedded analysis on the NFT economy’s biggest topics du jour. Brought to you by WIP meetup collaborators and nft42 community hub TokenSmart.
Ethereum, the most-used blockchain and home to the vast majority of DeFi and NFT activity to date, is on schedule to start its biggest upgrade ever, Eth2 or Ethereum 2.0. That’s because community members just deposited the needed 524,288 ETH into the deposit contract address of what’s known as the Beacon Chain, which will serve as a foundation for Eth2 and will launch next week on Dec. 1st.
Why it matters: Ethereum can handle ~15 transactions per second right now. The Eth2 upgrade will eventually allow Ethereum to power millions of transactions per second and thus mainstream usage, a la Visa. Moreover, this upgrade will considerably improve the decentralization, security, and energy-efficiency of Ethereum in shifting the blockchain from from proof-of-work (PoW) mining to an optimized proof-of-stake (PoS) staking system.
Visualizing Eth2: In Oct. 2020, ETHGlobal Community Manager lead Trenton Van Epps published a graphic that makes it easy to visualize how Eth2 will play out. As seen below, note how the upgrade is multi-staged. This means all of Eth2’s benefits won’t be rolled out at once but steadily instead. “Phase 0,” which is what’s kicking off on Dec. 1st, will see the genesis of the new PoS Beacon Chain.
Source: Trenton Van Epps
In the image above, notice that the Eth1 chain, which is what we all use today, will exist alongside the Eth2 Beacon Chain until Phase 1.5, when Eth1 will be rolled into Eth2 as a shard. This meld will end Ethereum mining for good.
Sharding is the ultimate scaling technology of the official Ethereum roadmap. The tech works essentially by splitting the blockchain into lots of constituent blockchains.
Notice how rollups are independent of both Eth1 and Eth2 above and feed into and through both. Rollups are advanced sidechains that are created by third-party teams. Each rollup project has its own pros and cons, but taken altogether the blooming rollup ecosystem already has incredible potential to scale Ethereum independently from, and all along the way with, Eth2.
Better infrastructure, better for us all: One of the reasons why the cryptoeconomy is turning bullish once again is because its infrastructure has considerably improved since the last market cycle. And a massive example of this infrastructure improving right in front of our very eyes is the ongoing Eth2 rollout. Going forward, a stronger Ethereum will lead to a stronger cryptoeconomy (just as a strengthening Ethereum has done so over the past 3 years). This in turn should provide increasingly fertile conditions for NFT innovators.
Zooming in on NFTs: In my previous TokenSmart Humpday Report, I noted that an increasingly bullish cryptoeconomy would be a boon for the treasuries and pocketbooks of NFT projects and NFT creators. In that piece, I also argued that NFT markets were now positioned to “capture swathes of new users if cryptocurrencies really catch fire once again.”
Eth2 actualizing has brought a tremendous amount of attention and optimism to Ethereum at a time when bullishness has been booming in the cryptoeconomy like we haven’t seen in years. I think the start of this major evolutionary upgrade is a big part of the current puzzle when it comes to what “cryptocurrencies catching fire again” looks like. A better Ethereum should lead to better, bigger, and buzzier DeFi and NFT markets, in other words!
Additionally look for more NFT users to double down in their support of, and active participation around, the Ethereum ecosystem with Eth2 now in motion. This is on account of growing interest and enthusiasm around Ethereum, and also the fact that these NFT users will have been stakeholders and firsthand witnesses, whether directly or indirectly, to the biggest blockchain evolution to date. Looking ahead, then, expect Eth2 to steadily lead to a whole new wave of very savvy and NFT-experienced Ethereum community participants.
Things to watch out for:
We’ll likely see more NFT artists gunning for 32 ETH, the minimum amount needed to stake on Ethereum.
We’re already seeing, and will see more, Staking-as-a-service providers rise to cater to anyone who wants to easily stake ETH.
There are plug-and-go nodes for Eth2 staking, like from Avado or DappNode. This will be the route to go for users looking to maintain sovereignty around staking.
Eth2 staking returns likely won’t beat out DeFi’s more aggressive rates or NFT flipping opportunities, but they should be exponentially better than any mainstream alternatives, e.g. bonds. This reality alone should attract more mainstream eyes going forward, as well as crypto users who want to lock in solid returns + enjoy the potential future upside of the ETH price.
Thanks for reading the 9th NFT Humpday Report! Check back this time next week for more excellent NFT ecosystem coverage! Cheers🌠