What is ETH2 doing on Coinbase?

Coinbase users might be somewhat confused to find there appears to be a new ‘coin’ listed on its crypto price index called ETH2. It is listed as having the same price as ETH, so what is it and why is it there?

According to Yash Gola at Cointelegraph, this ETH2 is a “mirrored version” of ETH, and he believes Coinbase has added it ahead of a key Ethereum network upgrade that is to happen on 10th December. One Twitter user questioned if Coinbase is promoting it as a new coin, but it can’t be that, because the exchange has no data for it regarding Trading Activity, Popularity Score, or Typical Hold Time. Instead, Gola answers, it’s function is to “track the ETH market data until at least mid-2022.”

He comments, “ETH2 seems to have been posing as the native token of Ethereum’s ongoing upgrade, dubbed Ethereum 2.0,” which is expected to go fully live by June 2022. Although there may be an alternative reason for listing it, given that a fork called ‘Arrow Glacier’ is scheduled for implementation ahead of that, with the function of making it easier for developers to prepare for Ethereum 2.0.

The Arrow Glacier is intended to delay “an incentive hardcoded inside the Ethereum blockchain since its launch in 2015, which would make it difficult for people to mine ETH.” This ‘incentive’ is also being called a ‘difficulty bomb’, because if it were triggered, it would excessively slow down the Ethereum network while it remains a proof-of-work blockchain.

Tim Beiko, one of the core developers working on the Ethereum upgrade, noted that Arrow Glacier might be the last upgrade before Ethereum 2.0, aka ‘Serenity’ goes live next year. Ethereum 2.0 will enable the big transition from energy-intensive proof-of-work (PoW) to proof-of-stake (PoS). It will use ‘sharding’ which divides the network into various segments (called shards) and randomly assigns nodes to each shard. This will improve the speed and costs required to maintain the network. The Beacon Chain, which is the backbone of Ethereum 2.0, will validate the transactions on each shard, thus assisting the entire Ethereum 2.0 network in reaching consensus.

And then this is where ETH2 comes in. It is likely to serve as a staking token for validators on the new PoS network, so they receive block rewards. As Gola points out, “Beacon Chain’s deposit contract has received over 8.42 million ETH tokens from 55,300 unique depositors (validators) since its launch in December 2020.”

But ETH2 is not a new digital asset, it’s more like a placeholder for when Ethereum fully transitions. It is also possible, indeed very likely, that ETH2 may end up becoming a rebranded version of the original ETH, “without needing holders to swap one version for another.”

So now you know what ETH2 is on Coinbase!

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