The term Ethereum 2.0 has been floating around for quite some time now. This multi-phased upgrade to the Ethereum ecosystem is a highly significant milestone for the crypto industry. Ethereum 2.0, also known as “Serenity” or Eth 2.0 will be bringing many changes to the network, most notably, switching its consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS).
The Vision For Ethereum 2.0
The Ethereum network currently suffers from scalability issues resulting in slow and expensive transactions. With the increasing adoption of the network, scalability and security need to grow. Additionally, the network requires an extensive amount of computing power and energy to run. The Etheruem 2.0 upgrade is aiming to make the network more sustainable, secure and scalable.
Moving to Proof of Stake Consensus model
Currently, the Ethereum network, like Bitcoin uses proof-of-work to validate transactions on the network. This involves miners using purpose-built supercomputers to solve mathematical problems and verify transactions. The first miner that is able to solve the problem is allowed to add the transaction to the blockchain. Thereafter, they are rewarded with the native currency of the network. This mechanism requires large amounts of computing power making it very energy-intensive.
Proof-of- stake on the other hand allows users to stake the network’s native currency to become a validator. A validator serves a similar purpose as a miner on the network, in that they validate transactions and verify that no fraudulent transactions are taking place. The network chooses a validator to add a new block based on the amount of crypto they have staked and how long they have staked it for. This new block is attested by other validators and once enough attestations have been reached, it is added to the blockchain. The validators are then rewarded for proposing the block.
The biggest advantage of PoS is that it consumes a lot less energy compared to PoW protocols since no supercomputers are required to validate transactions.
Security of the Network
The Ethereum 2.0 upgrade will be improving the security of the network against coordinated attacks. During a coordinated attack where the majority of the network is compromised, attackers can force fraudulent transactions on to the blockchain.
The move to the proof of stake model allows the protocol to have a better defence mechanism against attacks. Validators are required to stake a significant amount of Ether into the protocol to be able to secure the network. If these validators try to attack the network, their ETH can be automatically destroyed.
The proof-of-stake model also makes it easier for people to participate by becoming a validator. Validators do not require expensive hardware to run an Ethereum node and this should encourage more people to participate. This increases the decentralization of the network, making it more difficult for attackers to take control.
Increasing the Network’s scalability
One of the biggest issues faced by the Ethereum network is scalability. The network can currently handle 15-45 transactions per second, which results in delays, congestion and high transaction costs. Ethereum 2.0 aims to tackle this problem and promises to potentially process up to 100,000 transactions per second.
The network aims to solve this issue using shard chains, which will introduce 64 new chains to the network to spread the load. This will reduce the congestion currently experienced by Ethereum and improve the transaction speed.
The increased number of chains will also mean less work for the validators. Validators will be assigned to random shards by the network and will only be required to run their shard. This will result in the validator nodes staying lightweight and help the decentralization of the network.
Then Release Plan
Ethereum 2.0 is a massive upgrade to the network and will be rolled out in phases. The first phase of the upgrade is the Beacon Chain, which has already gone live on December 1, 2020. The introduction of the Beacon Chain brings staking to the network, which is a key feature of the move to the Proof-of-Stake consensus mechanism. This is a separate Blockchain from Ethereum.
The second phase, also dubbed as “The Merge” is expected to happen in the first half of 2022. It will be merging the Beacon Chain and the Ethereum mainnet together, allowing staking on the entire Ethereum network and marking an end to the energy-intensive mining process.
The last phase of the upgrade will be the Shard Chains. This will be playing a vital role in the scaling of the Ethereum network. With the introduction of shard chains, the operations on the network will be spread across 64 new chains, rather than being settled on the Ethereum mainnet. Shard Chains are expected to arrive sometime in 2022.
The Future of Ethereum
Many experts are speculating that the price of Ether will rise with the release of Ethereum 2.0. This is primarily because with the new upgrades Ethereum and the DeFi services built on the network will become more practical for the average person.
Currently, the gas fees on the network make it difficult to move small amounts of value. The upgrade will likely cause these fees to drop enough to make small transactions more practical. People that are expected to benefit the most from the upgrade are those who do not have access to traditional financial services such as banks, investment accounts, etc. The Ethereum network along with the wide array of projects built on it provides these individuals with access to such services.
The lower fees and smaller barrier to entry could potentially mean many new users joining the ecosystem. Historically, the increase in usage would mean an increase in the price of Ether, but it will come down to how successful Ethereum 2.0 is.