What is Ethereum 2.0?
Ethereum 2.0 is a set of improvements that are being introduced to the Ethereum blockchain to improve its scalability, security, and sustainability. The updates have been in the works since 2014 and will represent a major shift for the second-most popular cryptocurrency in the world.
Ethereum 2.0: introducing the new version
Developers are turning to sharding, a method that will further distribute the volume of the Ethereum network by creating 64 new chains. As a result, the massive amount of data currently stored on Ethereum nodes will be divided into smaller groups and stored on more databases, easing pressure on the current system and allowing for more transactions per second. Sharding is a very important part of the process and will make the network more secure and sustainable. As sharding becomes more popular, ordinary users will be able to perform Ethereum transactions on their personal computers, which will lead to an increase in network participants and a more decentralized Ethereum network. Hackers will find it more difficult to take over a large portion of the network as there are more users and nodes.
Aside from reducing energy consumption, Ethereum 2.0 plans to use staking instead of mining to implement the new idea. Bitcoins are largely the result of mining, in which people using high-speed computers to solve complicated math equations very quickly to obtain new tokens. Mining cryptocurrency has required an increased amount of computing power and hence energy as demand has increased. By using sharding, mining can be eliminated. As an alternative to staking, Ethereum owners will store tokens in a crypto wallet on their device, and then use those tokens to validate and forge new Ether tokens. It is estimated that Ethereum 2.0 could improve energy efficiency by nearly 100%.
The final step will be for Ethereum to be able to execute smart contracts on a broad scale once all of these upgrades have been completed. These are smart contracts, which are automatable and cannot be amended retroactively, as well as contracts that run without any third-party involvement. Using a smart contract, a tenant and landlord could sign a lease, where the tenants agree to the terms and the landlord receives the tenants’ rent automatically, without the usual friction involved in these relationships.
Updating ETH 2.0:
Beacon Chain features
Proof-of-stake will be introduced to Ethereum via the Beacon Chain. Keeping Ethereum secure has never been easier with this new method. It is a public good that makes Ethereum healthier and earns you more ETH. To activate the validator software, you will need to stake ETH. A validator processes transactions and adds blocks to the chain.
Validating and stake-taking are easier than mining (the current method of securing the network). Additionally, Ethereum is expected to be more secure as a result of this. The more participants in the network, the more decentralized and safe it will become.
The merge
We need to keep in mind that the Beacon Chain initially shipped separately from mainnet – the chain we use today. Despite the parallel use of proof-of-stake by the Beacon Chain and the mainnet, Ethereum mainnet remains secured by proof-of-work. It is at the merger when both systems merge.
It is like an interstellar ship that isn’t quite ready for the journey. The community built a hardened hull and a new engine with the Beacon Chain. At the appropriate time, this system will dock with the current ship, making both ships one when it’s ready to unleash some serious lightyears.
Smart contracts will be run in Mainnet’s proof-of-stake system, as well as current Ethereum state and history, ensuring a smooth transition for ETH holders.
Shard chains
With sharding, Ethereum will eventually run on your personal computer or phone. Consequently, more people can participate or use a sharded Ethereum. Decentralizing the network will increase security because the attack surface area will be smaller.
Because sharding requires less hardware, you can run clients on your own, without needing to use any intermediate services. Run as many clients as you can if you can. Further reducing failure points can help network health. Connect to an Ethernet network
Stake proof is the most important factor for Ethereum
Ethereum is currently at an all-time high when it comes to the demand for it to move to PoS. It’s simple. Cryptocurrency has overwhelmed Ethereum due to its popularity explosion. The gas fee is sky-high, and the transaction time is longer than usual.
As a result of the recent success of Ethereum, network fees have reached record levels, making most transactions prohibitively expensive for the average person.
Buterin acknowledged the urgency of switching to PoS: “Ethereum is home to a lot of other projects, but its ability to handle all of the transactions are running low, which is exactly why all of these developments with scalability and proof of stake are so critical..”
Bitcoin’s main appeal as a “digital gold” allowed it to benefit from the PoW model because it could afford to be slower to be more secure. Ethereum, on the other hand, is seen as a utility platform similar to Apple’s app ecosystem. Because Ethereum cannot scale up, it is losing market share in DeFi.
Advantages and risks
Although there are many expected benefits from Ethereum 2.0, the panelists also outlined a couple of possible risks. Wearn emphasized first that the lower transaction fees for Ethereum will make it more accessible to more people.
A majority of Ethereum’s success has come from decentralized finance (DeFi) and the nonfungible token (NFT). The transactions generated by these are, however, typically of a higher value. Due to high transaction fees, users with smaller amounts of money are usually priced out. With more people now being able to use Ethereum, he hopes new applications will emerge as a result of this upgrade.
A major risk of implementing a proof-of-stake consensus mechanism is that governance could be consolidated into the hands of a few who accumulate the most Ethereum. He points out that Ethereum currently has one of the most decentralized distributions of Layer1 protocols, according to Matter Labs CEO Alex Gluchowski. But, he noted, such a wealth accumulation would be problematic.
Furthermore, Wearn noted that exchanges are also going to become validators. Consequently, investing with them may create a centralization risk. In some cases, users who are not technologically inclined may have difficulty transferring funds elsewhere if external forces were to influence them.
A liquidity pool could also issue redeemable notes, which represent the staked tokens of its users.
Users will likely choose the one that is most liquid if many DeFi protocols do this. It can also lead to the centralization of liquidity, according to Hoffman.
