The entire cryptocurrency community is talking about Ethereum 2.0. If you have been in the crypto space for some time, there is no chance you have not heard about it. The rise of Ethereum 2.0 will unfold a new era in cryptocurrency technology, which is what most crypto enthusiasts are excited about. This article answers “what is Ethereum 2.0?” and what it can mean for you.
What is Ethereum?
Before knowing about ETH 2.0, letâs start with the basics. Ethereum is the second cryptocurrency that springs to mind after Bitcoin. It is a decentralized platform that allows programmers to build and run dApps (decentralized apps) and smart contracts. Ethereum’s fundamental goal is to create a decentralized financial product suite that anybody, regardless of location or identity, may utilize. Ether is a platform-specific cryptographic token used by Ethereum apps that may be used to purchase other virtual currencies on the Ethereum network. By a programmer named Vitalik Buterin, Ethereum was established back in 2013. It is still far behind despite being the second-largest digital currency by market value.Â
What is Ethereum 2.0?Â
Ethereum 2.0 is also known as Serenity or Eth2. It will be an upgraded version of the present Ethereum blockchain that will ensure better speed, efficiency, and scalability of the already existing blockchain. This upgrade will help avoid bottlenecks and ensure that the blockchain can simultaneously perform transactions in larger bulk.Â
Ethereum vs. Ethereum 2.0
From the beginning of April 2022, Ethereum will be running two blockchains parallelly. One operates using the pre-existing proof-of-work consensus mechanism, and the other new test chain operates via the new proof-of-stake consensus mechanism. With the Merge, the two blockchains will combine into one single blockchain. You might be confused if you already own Ether because you will see two versions of it on different exchanges, including Coinbase and Binance. However, it is important to note that your ETH1, when staked on Coinbase, is converted to ETH2.Â
All the confusion will be eradicated once the merge is complete and the two versions combine to form a single token.
Difference between Proof-of-Work and Proof-of-Stake
Every blockchain requires the validation of transactions. Ethereum, similar to Bitcoin, currently uses a Proof of Work consensus mechanism to validate these transactions. In the PoW system, Miners (participating computers) race to solve these mathematical challenges that aid in verifying a set of transactions known as a block, which is later added to the blockchain ledger. A reasonable sum of cryptocurrency is given to the first computer that does this effectively. However, this race to solve blockchain puzzles consumes significant processing power and electricity.
On the other hand, in the Proof-of-Stake system, Rather than relying on miners, individual token owners can stake their cryptocurrency to become validators. The amount of crypto each individual is prepared to stakeâor temporarily lock upâ is the number of transactions each person may verify. Every person staking crypto is eligible for transaction verification, but the likelihood of being chosen to do so rises with the amount you stake. Since Proof-of-Stake eliminates the energy-intensive equation, it is much more efficient than Proof-of-Work. You can learn more about the
It is assumed that by shifting from PoW to PoS, Ethereum will be able to eradicate its carbon footprint problem.
Conversion Timeline to Ethereum 2.0
Ethereum 2.0 is not a new idea in the crypto community. It has been circling the space for quite some time now. Changing a blockchainâs consensus mechanism is not that simple. That is why ETH 2.0 is launching in several phases.
- On December 1, 2020, the first upgradeâThe Beacon Chainâwent online. This is the test blockchain using the previously announced PoS consensus algorithm.
- The second step is known as the âMerge.â It’s anticipated to happen in the second quarter of 2022. With the merge happening, Ethereum’s transition from a PoW architecture to a PoS one will be complete.
- “Shard chains” represent the last stage. This stage will significantly influence the scale of the Ethereum network. The goal is to have this phase finished by the end of 2023. By doing this, the operations will be dispersed among 64 separate chains rather than only settling on one blockchain.
The complete upgrade from Ethereum to Ethereum 2.0 can finish by the end of 2023. However, there have been multiple delays over time, so there are no guarantees that it will be completed in the expected time.
Benefits of Ethereum 2.0 over Ethereum
Scalability: One of the reasons crypto enthusiasts are so hyped about Ethereum 2.0 is scalability. At the moment, the Ethereum network is able to support 30 transactions/second. This amount of transaction is insufficient, leading to congestion and delays. However, Ethereum 2.0 promises to make up to 100,000 transactions/second. This will be possible because of the implementation of shard chains. By incorporating shard chains, the blockchain will be split up. As a result, the blockchain will be able to handle transactions in parallel chains rather than in consecutive ones.
Security: Ethereum 2.0 is being implemented to improve the security of the blockchain. The majority of the PoS networks present at the moment have fewer validators. This makes the system more centralized and increases the chances of a security breach. In the case of Ethereum 2.0, which hosts a minimum of 16,384 validators, makes it a much more secure blockchain.
How Can Ethereum 2.0 Affect the Pricing?
Ethereum 2.0 will certainly take Ethereum to newer heights. It will create much faster transactions and provide a seamless experience for millions of people. More scalability will ultimately result in more usage, creating a high demand. So, at least, in theory, Ethereum should propel towards a new high when it comes to pricing. In addition, the gas fees of Ethereum will significantly reduce with Ethereum 2.0. For most users, this is a great feature that will help expand this blockchain further.
Additionally, the enthusiasm of Ethereum developers will be strengthened as the community pays attention to significant accomplishments. Despite the short-term volatility that comes with valuing crypto assets, this will have a long-term beneficial effect on the price of ETH. Ethereumâs pricing has been improving from the beginning of the news of this merge. Although it is difficult to make a pricing prediction in the highly volatile crypto market, especially during economic times like this, you can assume that Ethereum is a very bullish project in the long term.Â
Conclusion
By completing the merge and sharding, Ethereum will create a new milestone in the history of cryptocurrency. Proof-of-Stake and Sharding will hopefully significantly improve the scalability, security, and accessibility of the Ethereum blockchain. With the emergence of ETH 2.0, there is growing confidence amongst crypto enthusiasts. Despite crypto winter, the volatility of Ethereum has decreased, and the outflow of Ethereum is more than double the inflows in July. All this indicates a very bullish future for this blockchain.