The release of Ethereum 2.0, or the so-called “Consensus Layer” on Beacon Chain, will revolutionize the way transactions are validated.
The difference with Bitcoin: the move to PoS
Notably, transactions will no longer be recorded on the current legacy Proof-of-Work (PoW)-based blockchain, but on the new Proof-of-Stake (PoS)-based Beacon Chain.
The first consequence is that Ethereum will differ from Bitcoin in this aspect.
Bitcoin is now more and more of a financial asset, rather than a complex and advanced value exchange network, and with the move to PoS, Ethereum will come to the fore.
However, it is not certain that this detachment will also affect the price of ETH and BTC, which are still highly correlated with each other. Perhaps only in the distant future will it be possible to see the two assets progress in the markets with their own trends that are not influenced by each other.
It is worth remembering that thanks to the Lightning Network, Bitcoin will also be able to provide advanced and complex value exchanges, with speed and profitability perhaps even greater than the new Ethereum Consensus Layer.
Ethereum 2.0 in DeFi
However, Ethereum now dominates the DeFi market, so it’s hard to imagine it being pushed out by Bitcoin, especially in the short term.
For this reason, other PoS-based networks will suffer even more from competition from Ethereum, particularly in the space DeFi.
It is worth noting that it currently seems unlikely that the move to PoS will enable Ethereum to offer similar returns to, say, the Terra ecosystem or Binance Smart Chain any time soon. However, in the medium/long term, it is possible to imagine that Ethereum’s dominance over DeFi could even expandthanks to new, more efficient protocols based on PoS.
However, it should not be forgotten that networks such as Terra or Binance Smart Chain are evolving very quickly, so it is most likely that they will not sit idly by.
Another important change will be the possibility of reduce the creation of new ETH.
Ethereum does not have a scheduled and virtually invariable money supply inflation as Bitcoin, but has already been changed several times over time. This allows it to be reduced, if there is a broad consensus on the matter, when it is no longer necessary to remunerate miners with large amounts of money.
With the transition to PoS, mining will be replaced by node validation, and the nodes do not require a lot of electricity or large rewards to operate. Therefore, the volume of ETH created per day can be reduced to reduce inflation.
PoS also introduces the stake, which actually has already been active for many months. With the legacy blockchain merging with the Beacon Chain, staked ETH will finally be unlocked.
The main impact that the change from Ethereum to PoS could have is related to the greater competition that this network can represent for all other similar networks, thus excluding Bitcoin.
Many potential competitors have emerged in recent years, precisely because PoW makes Ethereum currently slow and expensive. With the move to PoS, these limitations could be greatly mitigated. which perhaps contributes to further reinforce the already undisputed leadership role of Ethereum among smart contract networks.