What is ETH2 doing on Coinbase?

Coinbase users might be somewhat confused to find there appears to be a new ‘coin’ listed on its crypto price index called ETH2. It is listed as having the same price as ETH, so what is it and why is it there?

According to Yash Gola at Cointelegraph, this ETH2 is a “mirrored version” of ETH, and he believes Coinbase has added it ahead of a key Ethereum network upgrade that is to happen on 10th December. One Twitter user questioned if Coinbase is promoting it as a new coin, but it can’t be that, because the exchange has no data for it regarding Trading Activity, Popularity Score, or Typical Hold Time. Instead, Gola answers, it’s function is to “track the ETH market data until at least mid-2022.”

He comments, “ETH2 seems to have been posing as the native token of Ethereum’s ongoing upgrade, dubbed Ethereum 2.0,” which is expected to go fully live by June 2022. Although there may be an alternative reason for listing it, given that a fork called ‘Arrow Glacier’ is scheduled for implementation ahead of that, with the function of making it easier for developers to prepare for Ethereum 2.0.

The Arrow Glacier is intended to delay “an incentive hardcoded inside the Ethereum blockchain since its launch in 2015, which would make it difficult for people to mine ETH.” This ‘incentive’ is also being called a ‘difficulty bomb’, because if it were triggered, it would excessively slow down the Ethereum network while it remains a proof-of-work blockchain.

Tim Beiko, one of the core developers working on the Ethereum upgrade, noted that Arrow Glacier might be the last upgrade before Ethereum 2.0, aka ‘Serenity’ goes live next year. Ethereum 2.0 will enable the big transition from energy-intensive proof-of-work (PoW) to proof-of-stake (PoS). It will use ‘sharding’ which divides the network into various segments (called shards) and randomly assigns nodes to each shard. This will improve the speed and costs required to maintain the network. The Beacon Chain, which is the backbone of Ethereum 2.0, will validate the transactions on each shard, thus assisting the entire Ethereum 2.0 network in reaching consensus.

And then this is where ETH2 comes in. It is likely to serve as a staking token for validators on the new PoS network, so they receive block rewards. As Gola points out, “Beacon Chain’s deposit contract has received over 8.42 million ETH tokens from 55,300 unique depositors (validators) since its launch in December 2020.”

But ETH2 is not a new digital asset, it’s more like a placeholder for when Ethereum fully transitions. It is also possible, indeed very likely, that ETH2 may end up becoming a rebranded version of the original ETH, “without needing holders to swap one version for another.”

So now you know what ETH2 is on Coinbase!

The Bitcoin bounce back

At the end of last week a new Covid variant appeared called Omicron. As a result, the cryptocurrency market experienced a sell-off on Friday 26th. It wasn’t the only market where panic had set in. But by the end of the weekend, we had seen some confidence returning as traders realised that it was likely there would be no return to full lockdowns this time round.

Yesterday, Monday 29th November looked very promising. Digital assets were mostly back in the green, although as Billy Bambrough points out, Bitcoin appeared not to be leading the market in this bounce back. Instead it was noticeable that the assets rebounding most strongly were Ethereum (ETH), Solana (SOL) and Polkadot (DOT) showing higher gains of around 7%, while Bitcoin (BTC) was somewhat lower at +4-5%. But there were still several wins for Bitcoin along the way.

El Salvador buys ‘discounted’ Bitcoin?

As Bitcoin dipped to $53,000 some were ready to buy the dip. Nayib Bukele, El Salvador’s “bitcoin-besotted” president was one of them. He announced to the press that his country had bought another 100 Bitcoins during the dip at the end of last week, adding to El Salvador’s stash of 1,000 BTC. Luckily for Bukele and his country, Bitcoin rallied after he’d made what he referred to as his ‘discounted’ BTC purchase, so he must be happy at least.

However, Bambrough points out that there Bukele’s buy should be noted, because he is “is doubling down on bitcoin in the face of international warnings and condemnation.” What is this about?

Well, last week plans were announced for a $1 billion bitcoin bond. This is supposed to fund an ultra-low tax city. However, it had the effect of sending El Salvador’s dollar-denominated bonds to an all-time low, and gave the country a debt profile that is even worse than that of Lebanon. In fact, it’s the worst in the world now. The Bank of England governor had warned last week that the “country’s decision to adopt Bitcoin as legal tender alongside the US dollar was concerning because people could be caught out by its volatility. He couldn’t believe that a country would choose Bitcoin as a national currency he told Cambridge University student union. He also told the assembled students that the IMF was really not very happy with El Salvador.

Did Microstrategy power the bounce back

But El Salvador’s purchase of 100 BTC was nothing compared to Microstrategy’s announcement that it had acquired 7,002 Bitcoin on Monday at an average price of $59,187 per coin. It’s an announcement that pleased the bitcoin bulls, as did the one from the German stock market operator Deutsche Boerse, which is listing the Invesco Physical Bitcoin, an exchange-traded note (ETN).

And in other good news for Bitcoin supporters: over the past week, the Bitcoin network has transferred or settled an average of $95,142 of value for every $1 worth of fees. This means the network’s value settlement efficiency has been improving steadily recently, with more being settled for lower fees. On-chain analyst, Dylan LeClair, tweeted, “Bitcoin is the most efficient monetary settlement network the world has ever seen.” Despite its recent ups and downs, Bitcoin is here to stay, and it’s still a digital asset with enormous influence, even if a handful of altcoins occasionally deputize as market leaders.

Is Ethereum too expensive?

I’m not referring to the Ethereum token (EYH), but to the gas fees associated with using the Ethereum blockchain, the main ‘go-to’ for DeFi. Will Gottsegen in a fine opinion piece for Coindesk quotes a crypto investor named Zhu Su who pulled no punches last weekend, when he tweeted, “Yes Ethereum has abandoned its users despite supporting them in the past. The idea of sitting around jerking off watching the burn and concocting purity tests, while zero newcomers can afford the chain, is gross.”

Before we go any further, Gottsegen says we should be aware of the fact that Su is a founder of investment firm Three Arrows Capital, which is betting big on an Ethereum competitor called Avalanche. So there is an agenda behind Su’s attack on Ethereum, but he may have a point about the gas fees.

If you want to use dapps, explore DeFi protocols, or get in on the NFT (non-fungible token) trend, you will eventually come up against Ethereum’s fees which – at this point in the development of the blockchain – can be shockingly high, as Gottsegen says. He points out that minting an NFT on Ethereum will generally cost between $60 and $250, depending on the time of day and the stress on the network. And the more users there are competing to get their transactions through, the higher the fees go.

Gottsegen describes his own experience when he tried to swap “about six cents worth of ETH for 50 Pisscoin”, the latter being an Ethereum-based token he was researching for a story, only to be told “I would need to pay an additional $616.10 for a transaction that might clear in about 40 minutes.” What is more, if the transaction failed the fees would be lost forever, as is the case with crypto.

Of course, Ethereum has its many defenders. Crypto venture capitalist Chris Dixon, whose company, Andreessen Horowitz, is heavily invested in the Ethereum ecosystem replied to Su’s tweet suggesting that the network is still in its infancy, and that infrastructure may eventually make things cheaper and easier to use.

But at the moment infrastructure is minimal. Polygon, a so-called “layer 2″ scaling product built on top of Ethereum, is designed to make fees a little cheaper. Other networks, like Solana, are betting that users may just ditch Ethereum altogether.

Gottsegen concludes by saying, “As it’s now set up, Ethereum is like a poker table with a high buy-in. Everyone else will have to wait for a cheaper option.”

Who is buying the doggy coins?

Almost every time one opens a crypto publication these days, there is likely to be a picture of a dog somewhere amongst the headlines. Now we know that posting images of furry friends both canine and feline is very popular on social media, but they’re apparently just as popular in the crypto sphere.

I’m talking about Dogecoin and Shiba Inu, of course. And as Lawrence Lewitinn writes at Coindesk, “Bitcoin may be the alpha dog of crypto, but for many small retail investors these days, dogecoin and shiba inu are the pick of the litter.”

Craze almost collapses Indian exchange

The buying craze for these two coins reached such a height in India, that Binance subsidiary, WazirX, India’s largest cryptocurrency exchange, suffered outages as traders jumped into the fray, buying shiba inu and stressing out the platform’s servers last Wednesday. Its CEO, Nischal Shetty tweeted that over half a billion dollars’ worth of trades were done on WazirX that day, the highest of any crypto exchange in India.

“It basically brought down our exchange,” Siddharth Menon, one of WazirX’s co-founders and its chief operating officer. ““The kind of active numbers and the active users that we saw in the last 48 hours has actually shocked us. We were not ready for it. We were all ready for the bitcoin move, but we were never ready for shiba inu.”

Menon says he suspects some kind of unit bias is at play here. What he means by this is that novice traders may jump in and buy a lot of one kind of cryptocurrency because the price of one unit of it is relatively small compared with, say, bitcoin even though one can buy the same dollar amount in bitcoin as the low-priced coin. And as Lewitinn comments, “For investors who are dipping their toes in the water with a relatively small amount of money, a low-priced coin can make one feel a little richer. For example, as of this writing, $620 buys 0.01 BTC. On the other hand, it buys about 10 million SHIB.”

Led by retail buyers

Although some who might be called ‘the smart money’ are buying dogecoin and shiba inu, they are still more interested in buying Bitcoin and Ethereum. For example, on Coinbase, the average Bitcoin trade size is hovering at around $2,000, while ETH trades average $1,600. On the other hand, the exchange sees average trades for dogecoin and shiba inu at around roughly $800.

Clara Medalie, strategic initiatives and research lead at digital asset data provider Kaiko, says, “This suggests price action is mostly retail-driven,” adding, “While average trade size isn’t a perfect gauge for institutional investment – most large traders break apart their orders into smaller sizes – we can still observe clear trends that correspond with waves of interest.”

But these meme coins also serve another purpose: they allow retail traders to test out the experience of buying, holding and selling a small amount of cryptocurrency on new platforms by placing different types of orders and seeing how they get filled – or not. They do this even though buying Bitcoin is much easier. No doubt they are encouraged by the recent story that has been widely circulated in the mainstream media about the mystery trader who bought $3,400 of SHIB last August, the month the meme coin launched, and is now a billionaire.

As with Dogecoin, tweets from Elon Musk have helped Shiba Inu’s spectacular rise, and its listing on Coinbase in June this year has also helped it.

Before anyone rushes to put all their life savings into SHIB, we have to ask ourselves if it will continue to rise in value at the same rate as it has over the last twelve months. Some analysts say it’s highly unlikely it will ever reach the $1 mark, as it can’t compete with rival Dogecoin. But if you’re a dog lover, it’s probably worth buying some, if only for the fun.