Ethereum 2.0 Could Send Prices Even Higher
A few years ago, when business travel still existed, I struck up a conversation with my Uber driver en route to the airport.
The driver told me this was a part-time job, and that he was also working his way up in the real estate business.
I was curious about how much of my $75 fare the driver actually kept. “About $55,” he said, “after Uber takes its 25% commission.”
I sat there, bewildered that the tech giant was able to generate so much commission by simply offering a virtual taxi stand.
That conversation made me think about the service that Uber performs.
At the core of its service is a giant database that keeps track of passengers and drivers. The database contains ratings that both passengers and drivers leave for one another after completed trips.
It’s this database that allows a passenger to trust that they’ll safely arrive at their destination when they jump in the back of an Uber.
It also allows the driver to trust that the passenger won’t be unruly or rude. If your ratings drop below a certain threshold, you can’t use Uber’s platform anymore. The same goes for drivers.
When you think about it, any tech platform that matches people who provide goods and services with people who want those goods and services is just a database.
EBay is a database of buyer and seller ratings.
Airbnb relies on traveler and host feedback to ensure that properties are what they claim to be.
And banks use a database of credit history to determine whether or not their loans will be paid back.
In all of these examples, the platform is a middleman that takes a cut of every transaction. That could be a small fee, like a 2.5% charge to process a credit card, or a large fee, like 25% of an Uber trip.
This is why the promise of cryptocurrencies is so revolutionary. They’re digital currencies that can be programmed to keep track of who owns what.
They allow for a giant database that can create trust between two parties with no prior history. And they accomplish this without a middleman taking a cut of every transaction.
At least, that’s what we’re hoping for. In their current iterations, the platforms that cryptocurrencies permit are costly and slow.
But this problem won’t last forever. That’s because Ethereum is in the middle of a massive upgrade called Ethereum 2.0.
Ethereum’s Multistep Upgrade
The decentralized exchanges based on Ethereum allow for trading with no middleman.
Instead of trading a cryptocurrency on a centralized exchange like Coinbase, Ethereum allows traders to execute orders via smart contracts.
But the costs are extremely high. When the network is busy, it can cost $100 to execute a $1,000 trade.
However, the multistep upgrade to Ethereum 2.0 began in November. Since then, Ethereum’s price has jumped from under $400 to $1,730 today.
And the next step in this transition is only months away, so it looks likely that another increase in the price of Ethereum is imminent.
The Biggest Driver of Ethereum’s Price
In the current system, Ethereum pays fees to miners for processing transactions.
Miners set the rates, and this leads to a guessing game on how much processing a transaction will cost. It’s like pulling up to a gas station and not knowing how much a gallon of gas costs until your tank is full.
But in July, Ethereum Improvement Proposal 1559 will go live.
When that happens, there will be a standard rate across the network instead of random fees. The fee will rise when the market is busy and fall when it’s quiet.
This change could lead to another sharp rise in Ethereum.
However, the biggest driver of Ethereum’s price will arrive when the network switches to rewarding investors for holding Ethereum. It will also allow for more and faster blockchain transactions.
At that point, we will see a proliferation in blockchain-based smart contracts that target real-world companies such as Uber, Airbnb and eBay.
Editor, Automatic Fortunes