CRYPTOCURRENCY investors may have come across Ethereum 2.0.
We explain what you need to know about it and when it’s set to launch.
Before we do, keep in mind that cryptocurrencies, like any investment, is a risky business and making money is never guaranteed.
Cryptocurrencies are also highly volatile, so the value of them can go up or down in the blink of an eye.
In other words, make sure you can afford to lose the money and never invest in something you don’t understand.
Cryptocurrency firms aren’t regulated in the way that other financial firms are. This means that you won’t have any protection if things go wrong.
5 risks of crypto investments
BELOW are the major risks about investing in cryptocurrencies.
- Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
- Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
- Marketing materials: Firms may overstate the returns of products or understate the risks involved.
What is Ethereum 2.0?
Ethereum 2.0 is an upgrade to the Ethereum network that aims to improve its security and scalability.
The Ethereum technology was released in 2015 alongside cryptocurrency Ether, and it’s now the second largest after Bitcoin.
Ethereum 2.0, on the other hand, is not a cryptocurrency as such but a building block of the crypto world.
The upgrades shift the model from mining to staking, where anyone with a minimum required balance can validate transactions and earn currency.
The upgrades are also said to allow Ethereum to process several thousand transactions per second.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown told The Sun: “Ethereum 2.0 has a head start in its aim to drive the decentralised finance revolution and provide a blockchain technology for a whole variety of financial contracts and other applications.
“But there are plenty of pretenders to the throne, and as technology advances it could be knocked from its regal position.”
When will it launch?
Ethereum 2.0 is launching in three different phases.
On December 1 last year, the Beacon Chain was created in “phase 0” – and it acts as the central coordination of Ethereum 2.0.
Under “phase 1”, the current Ethereum chain is expected to merge with the Beacon Chain.
This will happen sometime in 2021/22, according to its website, but it’s not yet specified a date.
Lastly, “phase 2” involves an upgrade that is said to improve Ethereum’s scalability and capacity – and this will take place sometime in 2022.
Charlie Barton, investment specialist at comparison site Finder, said: “The updates have been in the pipeline for a long time, and are being worked on my multiple teams across the Ethereum ecosystem.
“The aim is to help Ethereum support more transactions per second, in a more secure way, and use less computing power to make it less harmful to the environment.”
What are the risks of investing in cryptocurrencies?
Investing is always a risk but investing in cryptocurrency is an even higher risk as they are VERY volatile, so you should be prepared to lose cash.
Newer cryptocurrencies are typically riskier than others, such as Bitcoin, and make you more open to scams.
There is also no guarantee that you can convert cryptoassests back into cash, as it may depend on the demand and supply in the existing market.
Plus, fees and charges may be higher than with regulated investment products.
Ms Streeter added: “Much of the price rise of Ether is driven by speculation, with many investors hoping to benefit from short term gains, rather than its long term use case.
“Given the volatility in its price, traders should only dabble at the fringes of their investments with money they are prepared to lose.”
In January, the UK’s Financial Conduct Authority warned that households risk losing ALL of their money if they invest in cryptocurrencies.
The value of Bitcoin and Ethereum crashed a few weeks ago after China announced a further crackdown on cryptocurrencies.