Ethereum’s Serenity: A Potential ~10x Increase In Demand For Gas and Increasing Scarcity Could Both Drive ETH’s Price Higher

Ethereum’s Serenity: A Potential ~10x Increase In Demand For Gas and Increasing Scarcity Could Both Drive ETH’s Price Higher

 

Progress lies not in enhancing what is, but in advancing toward what will be.

– Khalil Gibran

 

Executive Summary

 

Serenity is the next iteration of Ethereum. It is a major shift to a markedly advanced platform packed with foundational improvements to power the future of the most prominent programmable public blockchain. Ethereum is a Turing complete platform, able to execute any code as written given enough computational resources.

 

Net, we expect Serenity will lead to a collapse in the price of transactions and much higher throughput, which will ultimately drive wider adoption of DApps. This will drive an increase in demand for gas (gas is the network computation and is paid for with ETH) and increasing scarcity for ETH (as ETH is locked up for staking), both of which could be positive for the value of ETH.

 

Ethereum’s Serenity Is A Complete Rebuild

Ethereum’s Serenity update is a paradigm shift from Ethereum 1.0, offering serious upgrades over the current platform.

 

 

The most important change is switching Ethereum’s consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS) which shifts from massive electricity usage and high upfront costs surrounding mining equipment to a software light validation technique. To avoid confusion, PoS is also referred to as Casper.

 

In PoS, users will stake ETH to become a validator, which means users will lock away their ETH to process transactions on the network. This helps solve the “principal agent problem” as those who own the network will be securing it, versus in PoW where miners and token holders have different incentives.

 

Serenity will also feature eWASM, which expands the coding options and capabilities for the Ethereum Virtual Machine (EVM) to allow code to execute faster.

 

Serenity’s economic finality will also make it practically impossible to revert transactions, and offers stronger guarantees over PoW systems. This offers more confidence in the system since the value of the system is more resilient to change.

 

Most importantly to the community, Serenity will feature throughput 2 orders of magnitude or higher than current levels to support new and expanding use cases. This will be achieved through layer 1 solutions including sharding and layer 2 solutions (Plasma, ZK-Snarks). These solutions are a runway and not a light switch, as some layer 2 solutions are gaining traction today such as Loom Network.

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Recognition

We would like to thank (Sam Corso), (Itamar Rogel), (Eric Olszewski) for their input on this report.

 

Disclosures

Tom Shaughnessy owns tokens in Ethereum (ETH). This research is strictly informational and is not investment advice. Do not buy or sell any securities based upon this research. This research strictly reflects our views and opinions which can be wrong. 51percent did not receive compensation to create this report, outside of our subscription paying members. Cryptocurrencies are extremely risky amount numerous factors (price, volatility, new entrants) and is a nascent ecosystem. By reading this post you agree to 51percent’s full terms and conditions.

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