The Ethereum 2.0 upgrade will bring the following changes to the cryptocurrency market:
Impact on Ethereum itself
- Performance improvement and application expansion: Through sharding technology, the transaction processing speed of Ethereum has significantly increased, theoretically reaching thousands of transactions per second, capable of supporting more decentralized applications (DApps) and transactions, promoting the prosperity of the Ethereum ecosystem, attracting more developers and users, and increasing the demand for Ether (ETH).
- Change in economic model: After the upgrade, it will enter a deflationary phase, with the EIP - 1559 transaction fee burning mechanism and reduced PoS issuance rate, increasing the scarcity of ETH. Meanwhile, the staking mechanism requires users to stake a certain amount of ETH in smart contracts, locking a large amount of ETH and reducing circulation. This provides price support under constant or increasing demand.
Overall impact on the cryptocurrency market
- Change in competitive landscape: The performance improvement of Ethereum gives it a competitive advantage over other public chains. While chains like Solana and Sui have certain advantages in scalability, Ethereum, backed by its strong ecosystem and this upgrade, solidifies its leading position in the smart contract and DApp fields, potentially altering the competitive landscape of public chains.
- Promotion of industry technology development: The Ethereum 2.0 upgrade provides a technological innovation model for the entire cryptocurrency industry, such as the successful implementation of PoS mechanisms and sharding technology, offering references for other blockchain projects in improving scalability, reducing energy consumption, and enhancing security, promoting technological advancement in the industry.
- Market confidence and investor sentiment: As the second-largest cryptocurrency, a successful upgrade of Ethereum will enhance market confidence in cryptocurrency technology, attracting more traditional investors and institutions into the cryptocurrency market, driving overall market development. However, if the upgrade encounters technical failures or security issues, it may trigger market panic, leading to a decline in investor confidence in the entire cryptocurrency market.
- Development in the DeFi and NFT fields: Ethereum is the main platform for DeFi and NFTs. The post-upgrade high scalability and low latency will make the user experience of DeFi applications smoother, enabling developers to build more complex contracts and driving explosive growth in DeFi. At the same time, it will further promote the prosperity of the NFT market, reducing minting and transaction costs, improving transaction speeds, and attracting more creators and investors.
