Penning A/S, recently recruited the crypto community’s well-experienced member, Peter Gelardi Mikkelsen as part of it’s advisory team, exercising his role as Head of DeFi. Peter G. is a highly specialized consultant, advisor and investor in the global Web3, DeFi, Cyper Security, NFT & Crypto space since 2013. With almost a decade worth of knowledge Peter’s role at Penning is to advice on opportunities and identify “the bleeding edge” in the global DeFi space for our investors and Penning’s future Growth. As part of Penning’s AIF (Alternative investment fund) fase 1 investment strategy, The Pen team asked Peter on his views on the upcoming ETH 2.0 merge. Here’s what he has to share:
1. THE PEN: IN A FEW WORDS; WHAT DOES THE ETH MERGE MEAN EXACTLY?
Peter: This a historic moment when Ethereum will finally change it’s consensus mechanism. And to those who are new in the sector, basically consensus is the crocs of blockchain. It is literally the mechanics by which the system self-governs, self audits and self-book keeps. So this is a huge event because Ethereum is the 2nd largest chain and now they’re transferring from proof of work to proof of stake. It means they’re going from a 100 percent mechanic, automated computing system to introducing some aspect of human element. It has taken 5+ years and this will be a defining moment for Ethereum because it has everything to lose if anything goes wrong. If they succeed however, and if this helps with their scalability, there will be plenty of competitors who will be left in the dust. A lot of new, competitors to Ethereum has emerged, and it is very much a question of, how many of these will remain existing if Ethereum should be successful in this endeavor. So, we’re all eating a lot of popcorn and excitingly waiting for what will happen here.
2. THE PEN: HOW IS IT DIFFERENT FROM THE EXISTING ETH 1 AND MANY OUT THERE WANT TO KNOW, WHAT WILL HAPPEN TO THEIR OLD TOKENS?
Peter: I will interpret that as what will happen to people’s existing Ethereum, because it’s important to distinguish between a mainchain, (which is it’s own blockchain like bitcoin, Ethereum etc.) and tokens which is basically a mini ledger on the ledger (simplified), so just a very important distinction there. What will happen to the existing Ethereum is that it will now be open to staking, which means that you can actually stake your ETH and thereby help Ethereum govern itself through it’s proof of stake consensus and thus contribute to the network. This contribution to the network governance lets you earn a reward from that. This is of course technically difficult, but that’s why Penning exists so that we can make it easy for people and thereby people can earn an interest. If you may, we like to call it a staking reward, but you can it a yield, you can call it whatever you want, I’m sure our lawyers can tell us exactly what’s it (read: allowed) to call. And that would be the fruit of supporting the system, through staking your eth, so that is super, super exciting..
3. THE PEN: DO YOU THINK IT COULD BE POTENTIALLY BE A BTC "KILLER", MEANING BECOMING THE DOMINANT PROTOCOL?
Peter: This is very good question to address, because this is coming up often, and it is in my opinion a very “wrong” question to ask, because it assumes that it’s a zero-sum game, where there can only be one winner. Instead, what I would like to argue is that we are looking at a landscape like an eco-system. It’s better to think of it as an eco-system where each of the protocols may or may not have something new to add to the table. So bitcoin was the number one, and I believe it will always be the number one because it is scarce in it’s token supply. This means there will always only be 21 million bitcoins, and that means it serves as a digital equivalent to the noble medal. Ethereum on the other hand has an emission so it’s not scarce, so it is designed for something entirely else, it’s designed for applications. And through interoperability these two protocols are able to add value to each other, through synergies. In other words, I see it as an eco-system where they all synergize with each other.
4. THE PEN: WHAT INVESTMENT OPPORTUNITIES DO YOU SEE FOR INSTITUTIONAL INVESTORS WITH ETH 2?
Peter: I would like to go back and say that crypto and blockchain is a matter of belief, do you believe that we are building the next financial eco-system of the world? Because if that is the case then of course I will let people make their own conclusions about whether that serves as a platform for good investment opportunities or not. But of course if you don’t believe that crypto and blockchain will be the next financial world eco-system, I will also let you derive your own conclusions on that aspect.
5. THE PEN: HOW DO YOU VIEW ETH STAKING AS A FUTURE STABLE INVESTMENT CASE?
Peter: I will answer the question in the following way; all yields are not created equal, as the last few months has certainly shown. The proof of stake is the highest quality of yield you can produce. That is, in it’s original understanding and conceptualization, which is what we see now with eth. (where you basically stake your Ethereum, and you thereby add to the consensus protocol). Because what you’re really doing is contributing to the system and adding value. In other words, you’re part of the system, you’re putting your Ethereum to work essentially. I know it’s a horrible choice of words, because the former consensus was called proof of work, but still by adding your Ethereum to an Ethereum staking node, then you are contributing to the network and thus being rewarded by the network and thus earning a yield and I do believe this is the highest quality of yield you can receive.
6. THE PEN: WITH THE MICA FRAMEWORK MOST LIKELY HAPPENING, HOW DO YOU THINK IT'LL EFFECT THE MERGE IF SO?
Peter: This is a question for the lawyers and the regulators, because of the very idealistic discussion about whether the regulation will mature the industry. It’s a very political discussion.
7. THE PEN: DO YOU HAVE ANY PRICE PREDICTION ON ETH (SAY 2-3 YEARS) ONCE THE FULL TRANSITION HAS HAPPENED TO POS?
Peter: Well if I knew what the ETH price would be I would probably not be sitting here right now. I think that it’s “impossible” to say, because we have no idea what will happen, we don’t know if the merge will be successful, we don’t know if there is a bug in the code and it’ll get hacked, we don’t know anything right now, so I cannot predict the price at all. But I can say, that we are building the future financial eco-system of the world and therefore I certainly believe in Ethereum and I do believe that Ethereum is the number one protocol after bitcoin in terms of being the application layer. I think it’s second to none, I think there are a lot of competitors out there to Ethereum, but I believe at the end of the day what will matter is critical mass and the quality of the code. Ethereum has more brilliant people than any other protocol working on it. And they have more critical mass than anything else. If they’re successful with 2.0 they will leave many competitors in the dust and keep their position for many years going forward.
8. THE PEN: DO YOU THINK ETH CAN BECOME A "KILLER" FOR ANY EXISTING PROJECTS, I.E. WON'T SURVICE TO SERVE A PURPOSE?
Peter: I think this is addressed by the previous question. I absolutely believe that if the 2.0 is successful, there will be many projects that will be looking for a new day job.
9. THE PEN: ANY CONCLUDING THOUGHTS ON THE ENTIRE FUTURE OF DEFI?
Peter: My concluding thoughts are that I do believe we are building the future financial world system. I do believe that, that system will be more friendly to the end user with lower costs and better services, faster processes and that the banking services of today can be done peer2peer. I do believe that the regulation will eventually catch up to us, and I do believe that innovation will always be ahead of regulation so I hope our politicians are wise enough to realize this as a beautiful progression of civilization and work with it, instead of against it.
That is my hope and my wish.
All the best
The Pen: Thank you!