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The 4 stages of Ethereum’s upgrade plan were initially mapped out in 2015, providing insight into the direction that the blockchain would take in the years following its launch. The version of Ethereum we experience today is in the middle of stage 3 (Metropolis), which was broken down into two smaller upgrades, Byzantium (merged in 2017) and Constantinople (expected January 2019). These upgrades have paved the way for Ethereum’s transition from a scrappy and sluggish blockchain to a permissionless and trustless virtual machine that can process tens of thousands of transactions per second.

While the previous upgrades have implemented meaningful improvements (EIPs), the more dramatic changes to the Ethereum protocol have been scheduled for the next and final phase: Serenity. Serenity, also referred to as Ethereum 2.0, is a major network upgrade that will fundamentally change the economics of Ethereum for users, developers and investors alike.

What Can Investors Expect From Serenity?

Serenity implements a number of major changes which have been discussed and researched for the past several years. These changes have only recently been specified and as such we can draw some conclusions about their various impacts on the ecosystem at large.

Proof of Stake & Ethereum Monetary Policy

Proof of Stake (PoS) has been on the Ethereum roadmap for several years with launch schedules regularly being pushed back as further testing is completed. Ethereum’s implementation of Proof of Stake, which focuses heavily on decentralization, has become one of the most anticipated network upgrades in the blockchain ecosystem and brings with it some major changes that investors should note:

What Can Investors Expect?

Investing in blockchain protocols like Ethereum should be considered a long-term prospect, and it is this author’s opinion that Ethereum has, by some distance, the most clearly defined long-term value proposition in the space. Over the coming years, investors can expect Ethereum’s monetary policy to significantly tighten with a massive upsurge in the level of demand for Ethereum-based applications once onchain throughput issues are resolved with sharding.

Ethereum’s move to Proof of Stake may also have some less obvious impacts on its demand. Other than the potential for validators to receive a regular “interest” payment on their staked ETH, a move to PoS will reduce the electricity consumption of the blockchain from a small country down to a medium sized village. The level of criticism faced by Bitcoin this year for its massive energy consumption should go some way to demonstrating just how well the mainstream media might receive this migration.

Staking will also have the impact of locking up a significant level of ETH; with anywhere between 0.5M tokens and – assuming 100% adoption – 9.6M tokens being (effectively) permanently locked. Under current expectations, Ethereum is likely to never have anymore than 120M tokens in circulation; so as much as 8% of the circulating supply could be removed in the years ahead.

A Changing Narrative

The narrative surrounding Ethereum is absolutely out of kilter with reality. This narrative centers around three main criticisms which can be boiled down to:

Those who can look past these simple criticisms will find a project that has the backing of thousands of developers who are all working to resolve a vast array of different problems that not only tackle these over-stated criticisms but turn them on their head.

A more pertinent criticism of Ethereum that is rarely discussed but has the most potential downside is the risk that these low-level protocol changes might – silently – expose vulnerabilities. Ethereum is implementing modern cryptographic research that has never been deployed to a production environment before. The risk that an upgrade like Serenity might introduce a currently undiscovered exploit is non-zero. There is a real possibility that such a major change to the protocol brings about a catastrophic network disruption that may leave Ethereum’s reputation in tatters.

Serenity marks a moment in Ethereum’s history where the network will likely enter two possible outcomes: a surge in value that exceeds all expectations or a monumental crash that brings this experiment to a dramatic end. My bet is on the former.

author Nick C

Nick studied Economics at University and was introduced to Bitcoin in 2011, quickly realizing an opportunity for the cryptocurrency's use in online poker. Since then, the space has expanded beyond his expectations and in January 2016 he dedicated more time towards studying Ethereum and other blockchains.

Nick is currently the sole author of this blog and writes on a range of topics from the technical to the financial. He also developed the Ethereum price tracker.