What Is Ethereum? The ULTIMATE Beginner’s Guide to Ethereum 1.0 AND 2.0 + 2021 Price Predictions

Sometimes Ethereum goes up, sometimes it
goes down. The only way you'll have conviction as an investor is if you
understand what you're investing in What's up everyone, my name is Ben, I'm a
former JP Morgan investment banking analyst and welcome to rareliquid, the
best channel for tech investing Today we're going to dive deep into
Ethereum and Ethereum 2.0 and this video is going to be a part of a playlist on
my channel called rare deep dives into crypto assets
Okay so today's agenda looks like this First I'll be explaining what Ethereum
is, then I'll talk about proof of work
versus stake, then I'll go into Ethereum 2.0,
the competitive landscape, and lastly, some price predictions
Before I get started if you'd like a chance to win 10% of my May 2021 YouTube
earnings, then check out this picture of Oprah on
my Instagram and you can check out the post for all the instructions
Also a quick shout out to two new Terabyte Patreons Richie G
and sorry I don't know what your name is because I don't speak this language but
I promise in the next video I'll get your name and I will give you a shout
out Alright, so first up let me help explain
what Ethereum is In one sentence, Ethereum is a
decentralized platform that runs smart contracts and let's break down the
two key concepts in here The first concept is decentralization
Ethereum is a worldwide computer that is the sum of a lot of computers
working together To explain this a bit further, when you
need to upload something onto the cloud, you might use amazon's computers and
servers through AWS which is Amazon's cloud services
platform.

Amazon is an example of a centralized entity
Amazon controls everything and they could shut down, decide to stop serving
you, or they could even get hacked On the other hand, decentralized
platforms like Ethereum are run by a network of thousands of computers that
no one individual owns and each computer is incentivized to
contribute to the network by being paid tokens which in Ethereum's case is
called Ether. Decentralized systems are
incredibly hard for anyone to shut down and hack because essentially it would
require controlling thousands of computers
across the world.

Attacking a centralized system
is kind of like trying to defeat Voldemort one on one, which definitely is
hard but attacking a decentralized system is
like trying to find and destroy all of the seven
horcruxes to defeat Voldemort, which obviously is a
lot harder Hopefully you get that harry potter
reference because otherwise you're gonna make me feel really really old
But anyway decentralization is a common concept across all blockchain platforms
even Bitcoin and other ones that you may have heard of so
let's talk about the second concept, smart contracts
Ethereum is the pioneer of smart contracts and what they essentially do
is take out the middleman in transactions. For companies like Uber,
you request a ride and when the driver picks you up and drops you off then the
transaction is complete and everyone is paid
Uber in this scenario is a centralized entity that takes a fee for each
transaction and the company runs the entire Uber
ecosystem and by the way it's currently highly unprofitable and
operating at huge losses Smart contracts have predetermined rules
that allow people to send money to one another once a certain set of conditions
are met So if someone were to recreate Uber on
Ethereum they could create a rideshare mobile application
without the need of a middleman and thus lowering costs for customers
Expanding on this a little further, you can pretty much build any application
that you know today on Ethereum or any smart contract platform
such as social media websites like Facebook, you can build an application
for that, or something like Google Maps Of course you still will need people, at
the end of the day, to be building the applications designing things and you
may need some people and employees to just be able to run
everything even if it is on a decentralized application,
so it's not like there's zero costs included, but there is a potential
in theory to take out a lot of the middleman costs
by building on smart contract platforms like Ethereum
currently Ethereum has the largest smart contract ecosystem versus all
other crypto platforms and this is a huge reason why Ethereum has the second
largest market cap in the entire crypto space
Next up, let's talk about proof of work versus proof of stake
These two concepts are known as consensus mechanisms and this is going
to set up our discussion for Ethereum 2.0
For proof of work, when person A sends a transaction to person B
through a blockchain there are hundreds of computers also known as miners
that work to confirm the transaction by solving many many tiny math problems
Essentially, the first computer that is able to solve enough of these math
problems correctly produces a block and once the network
agrees that the transaction is correct, the miner is rewarded with tokens like
Bitcoin or Ethereum Mining is a very competitive process and
so proof of work is more like a lottery than a race
because you just don't know which computer is going to be successfully
generating the block As a result, basically the more
computational power you have through having a lot of computers and servers,
the higher chance that you'll be selected to generate the block and
earn Bitcoin or whatever token that you're mining for
There are farms of computers across the world especially in China working to
mine and this consumes tons of energy, which is why Elon Musk recently tweeted
that tesla would stop accepting Bitcoin as payment
Because of all this kind of unnecessary energy consumption and the whole
inefficiency with the whole process the improvement upon proof of work is
called proof of stake and this is what Ethereum will be
upgrading to.

In proof of work, the miners who are willing to spend more dollars on
energy consumption are selected to confirm the transactions on the
blockchain In proof of stake, miners are called
validators and validators are chosen based on the amount of money they lock
away or basically how much they have staked
and the more validators have staked the more likely that they will be chosen
to confirm transactions and thus earn transaction fees in the form of
tokens. So for example, if there is a blockchain
with 1 000 coins and you own and stake 100 coins,
you have a 10% chance of earning tokens This also makes the entire network
secure because basically in order to control an entire network,
you're gonna have to own 51% or more of the total supply available
and obviously for something like Ethereum which is currently at like
a 400 billion dollar market cap no one's going to really have the money to or
really the desire to do that Also if you're a validator and you try
to do something sketchy or fishy like attack the network,
then your tokens will be taken away from you from something called slashing
and this is another layer of protection with proof's sake
Alright so now that we have the fundamental concepts down let's talk
about Ethereum 2.0 Ethereum currently uses the proof of
work consensus mechanism, which frankly is pretty outdated in the crypto
space.

This is because proof of work results in really slow transaction
speeds with Bitcoin only able to process 7 transactions per second
and ethereum 30 per second. Comparatively visa requires 65,000 transactions per
second and the NASDAQ 500,000. As a result, in order for crypto to
truly serve a worldwide audience and justify the sky high valuations that
they have today they need to be scalable and that's what
Ethereum 2.0 is trying to achieve On a high level, you can imagine Ethereum
right now as a one lane road while Ethereum 2.0 will become
a 64 lane highway with each lane having the same capacity
as the original Ethereum 1.0 This will be done through a scaling
solution known as sharding and there are three phases that it will
take for ethereum to be upgraded and let me walk you through each one
Phase 0 is called the Beacon Chain and this phase introduces
proof of stake and creates the foundations for the Ethereum 2.0
blockchain Imagine this phase as the setup period
during which the foundations of the 64 lane highway are being built
completely independently and separately from the current Ethereum 1.0
The Beacon Chain launched on December 1, 2020 and it allowed people to start
staking their ethereum in order to earn rewards
As of the making of this video about 4.5 million Ethereum has been staked which
currently yields a 7.4% annual return which is pretty much what
the stock market returns so that's pretty solid
Staking also lowers the supply of Ethereum that can be traded
and so that has in part helped contribute to Ethereum's recent increase
in price The next phase is called the Merge and
this is where ethereum 1.0 merges with the beacon chain
The merge is scheduled to ship in 2021 or 2022
and this is when Ethereum officially switches to proof of stake
and there will be no more proof of work mining.

On Ethereum's website they use
the analogy that Ethereum 1.0 is currently a spaceship that isn't ready
for interstellar travel The Beacon Chain is a new engine and
hardened hull and when everything is ready
everything will merge together into one spaceship and this completes the merge
phase for Ethereum 2.0 During the transition, the full history
and current state of Ethereum will be transferred onto
Ethereum 2.0 so the entire process will be very seamless
In fact if you're an Ethereum holder right now as the whole upgrade from
Ethereum 1.0 to 2.0 happens you don't really have to do anything if
you just want to maintain holding your Ethereum
Eventually it's just going to be upgraded and if the price goes up
it'll go up and your holdings will go up you really don't have to do anything
The third and last phase is what we discussed earlier called Sharding
and this will drastically improve Ethereum's scalability
This phase is expected to happen in 2022 and the details are still being figured
out by Ethereum developers Sharding was actually supposed to occur
before the merge but with the boom of layer 2 scaling
solutions, the priority has shifted first to the merge versus sharding.

Layer 2
technologies allow decentralized applications to roll up transactions off
of Ethereum and use cryptography to submit it to the
Ethereum chain and this combined with the 64 shards is
what will help Ethereum 2.0 achieve the much
discussed 100,000 transactions per second. Okay so there's a lot more we
could go into here but if you want to learn more I'll leave
some links in the description below and by the way while I have your
attention if you could please smash that like button and subscribe if you're not
already I would really appreciate it because I
pretty much spent all night working on this video
Okay so next up, let's talk about the competitive landscape
If Ethereum 2.0 is able to achieve everything it is working on then
Ethereum's 2.0 transactions per second will theoretically be competitive with
any other blockchain out there today Just as a disclaimer, the data you see
here are based on what can be achieved today so this isn't really the fairest
comparison since other blockchains will improve over time as well
For example Solana's transactions per second can scale to infinity
with better hardware and Cardano is also theoretically able to achieve
transactions per second of 1 million with its hydra scaling solution.

Sharding
solutions are also not as clean as Layer 1 solutions where everything is built on
chain and nothing is built off the platform and connected back, so this is
something that's a bit negative for Ethereum 2.0 but from my research I've
also read that sharding is really not a deal breaker
With all this said, I think that the undisputed advantage that Ethereum has
is its first mover advantage. There are currently over 3,000
decentralized apps running on Ethereum and really the only thing holding
Ethereum back right now is the problems with its scalability and transaction
fees As a result if Ethereum is successfully
able to upgrade to 2.0 before a lot of developers migrate to
other platforms like Solana then there is a lot of reasons to be
really bullish on Ethereum Last up, let me go into some price
predictions In short if we're gonna compare Ethereum
to Bitcoin which are just the two giants in the crypto space today
I personally feel that Ethereum has way more room to run, has a lot more use
cases, and is upgrading to proof of stake while
Bitcoin is stuck on proof of work Over time, I believe that as investors
get more comfortable with Ethereum and get knowledgeable about what the
platform really provides then I think that it really would make a
lot of sense to me for Ethereum to overtake Bitcoin's market cap
Comparing Ethereum and Bitcoin's market caps today, we see that Ethereum is about
half of Bitcoin's market cap and so if we use Bitcoin as a proxy for how large
a crypto asset can grow in the next one to two years, then I
think it's very possible that Ethereum can double in market cap,
bringing the price to over eight thousand dollars.

Now of course this is
really dependent if the entire crypto market holds up
and I personally believe that if Ethereum rises to $8,000 to $10,000
later this year or early next year, I think that move will just have been way
too fast I would think that we're really in the
heart and deep into the bubble if that happens and so I personally
would sell 80 to 100% of my crypto holdings if
we move way too quickly If you want to know five reasons backed
by data and charts as to why Ethereum's price has been rising over the past year,
feel free to check out my video I posted a few days ago and also I have some
additional videos about Bitcoin versus Ethereum and just
the potential crash that might be coming up and when to cash out so check those
videos out if you're interested If you'd like to follow my crypto moves
and get some buy sell alerts, then check out my Patreon in the description below
and right below that there will also be a link to the free
newsletter I will be sending out about the crypto space, stocks,
and just finance in general.

Also I have a link to some exchanges where you can
earn free money if you want to buy Ethereum or maybe other
types of crypto and with that said thank you so much
as always for watching. Please like and subscribe if you thought this video
was helpful share with your friends we really appreciate that thanks so much
again as always for tuning in and catch you in the next
one, peace out [Music].

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