Ethereum 2.0 is coming, and you better prepare for it. The upgrade, also called Eth2 or Serenity, has been in the works for a while and is the biggest change to the Ethereum network in years.
While Ethereum has become popular since its launch in 2015, it has come under scrutiny in recent years. Common points of frustration for users include high transaction fees and low scalability, which prevent the execution of complex applications.
Ethereum 2.0 is designed to address some of the problems confronting the current infrastructure. According to Vitalik Buterin, Ethereum’s founder, the upgrade will accelerate the blockchain's capabilities and encourage mass adoption.
If you keep asking, “what is Ethereum 2.0?”, then you’re at the right place. We’ll go over the fundamentals of the Ethereum 2.0 release and see what changes the upgrade will introduce to the system.
Ethereum 2.0 isn't a one-time upgrade. Rather, it's a series of changes to the Ethereum network set to be implemented across the next few years.
To understand Ethereum 2.0, we must understand how the current version (Ethereum 1.0) works. Ethereum uses the same Proof-of-Work consensus mechanism found in Bitcoin. While PoW systems are highly secure and decentralized, they have several defects.
In a PoW blockchain, participants compete for the right to validate new transactions. Called mining, this activity demands high computing power as participants must solve complex cryptographic problems to get selected.
This increases electricity consumption, which is why cryptocurrencies have been targeted by environmentalists. Moreover, transactions on PoW blockchains are slower since miners must go through the long process of getting selected before they can validate transactions.
Ethereum 2.0 uses a proof-of-stake consensus mechanism which uses a different system for selecting validators. Instead of solving mathematical puzzles before verifying transactions, prospective validators must lock some of the network's cryptocurrency in a smart contract. Then the network pseudorandomly selects validators by analyzing a combination of factors, including the size and age of the stake.
The Beacon Chain, a test platform for the Ethereum 2.0 upgrade already has more than 290,000 validators. That number is projected to grow after the main Ethereum network merges with the Beacon Chain later this year.
Ethereum 2.0 is one of the most-anticipated developments in the blockchain community's recent history—for good reasons. If everything goes as planned, Ethereum may solve its scalability problem, increase accessibility to ordinary users, and bolster the capabilities of decentralized applications (dApps).
Let's look at some of the important benefits of the Ethereum 2.0 launch:
Exorbitant transaction fees rank among Ethereum's biggest criticisms today. This is hardly surprising, given the shocking amounts of ETH users pay for "gas" to process transactions on the Ethereum network.
Gas in Ethereum-speak refers to money paid to miners who expend computing power in validating transactions. Measured in "gwei", gas prices fluctuate based on the demand on the network.
Often, gas prices will skyrocket once transactions clog up the blockchain. In such situations, miners may prioritize transactions with higher gas prices since it benefits them.
With Ethereum's switch to a Proof-of-Stake mechanism, processing transactions will get easier. This will prevent a situation where unprocessed transactions clog the network, forcing miners to demand higher gas prices before validating transactions.
Part of the Ethereum 2.0 upgrade includes the introduction of 'sharding'. Sharding is a procedure designed to split a blockchain into multiple chains, which can process transactions independently of the main chain.
PoW blockchains record transactions on a single, unbroken chain. This is why we can see the history of transactions on the Bitcoin blockchain up until 2009 when the first block was mined.
However, there's only so much processing that can happen on a single chain. Unsurprisingly, Ethereum's processing rate has hovered around 10-15 transactions per second. Bitcoin is worse, with a throughput of 7 transactions per second.
Sharding will create newer chains from the existing main chain. According to the Ethereum Foundation, the sharding procedure will split the blockchain into 64 different chains.
With more chains available for verifying transactions, the burden on the main Ethereum network will reduce. That further means the ecosystem can process more transactions. An estimate from Vitalik Buterin suggests the Ethereum 2.0 upgrade will increase throughput to 100,000 transactions per second.
When Satoshi Nakomoto designed the first blockchain, he meant for everyone to participate in the validation and recording of transactions in the system. However, changes in the system have made it impossible for average individuals to access the blockchain.
In Bitcoin's case, growing miner difficulty made it necessary to invest in expensive, high-grade computers. Ethereum has faced the same problems, too.
Moreover, nodes must hold a copy of the blockchain's record. And that, according to the latest estimates, is asking nodes to house around 4 terabytes of data.
Per current market prices, a computer with a > 4 TB storage costs around several thousand dollars. Not many people have that much to dump on a device, which considerably lowers the pool of eligible validators.
Ethereum's introduction of a PoS consensus mechanism means validators don't need high-grade devices. The system rewards funds staked, not computing power used, which means server-grade devices will do for validating transactions.
More importantly, sharding will reduce the disk space allocated to hosting the Ethereum blockchain's history. Since there'll be 64 off-shoot chains, validators only have to hold the history of their chain—that's 1/64 of the total data. Again, this removes the need to purchase expensive computers for participating in the network.
Today, Ethereum is more than a payments settlement system. Developers have taken advantage of Ethereum's programmability to create smart contracts and decentralized applications (dApps) that power the NFT and DeFi industries, amongst others.
This is all possible because Ethereum runs what's known as the Ethereum Virtual Machine (EVM). Think of the EVM as a supercomputer, but one distributed across different computers (nodes) in the Ethereum network. The EVM stores the code executing smart contracts and allows users to interact with dApps.
While EVM has vastly improved Ethereum's network abilities, its usefulness has decreased in recent years—thanks to increasing pressure on the ecosystem. Compared to 2015, when Ethereum launched, there are more dApps running on the network, including everything from games (Axie Infinity, CryptoKitties), DeFi platforms (Uniswap, Yearn), and DAOs (MakerDAO).
The increasing load on the EVM has forced a drastic drop in processing speeds. However, improving the EVM is difficult since the code is written in Solidity, a difficult-to-learn programming language.
According to key players familiar with the development, Ethereum 2.0 will introduce the Ethereum Web Assembly (eWASM) to replace the EVM. The eWASM was designed by the World Wide Web Consortium.
Why is eWASM important?
Well, it lets developers choose from other popular (and easier) coding languages like C++ and Rust. Besides, eWASM is designed to be compatible with current Web standards, so it's easier to run in regular browsers. This will make it easier for users to access dApps from their browsers, without depending on a browser extension.
Perhaps the biggest benefit of eWASM is its impact on the developer ecosystem. With the option to choose other languages ahead of Solidity, more developers will flock to Ethereum—which can only bolster innovation and creativity in the community.
Let’s go green! Ethereum’s switch to a Proof-of-Stake consensus mechanism will reportedly cut electricity consumption and reduce environmental impact. If you recall, the energy-intensive nature of Proof-of-Work blockchains like Ethereum 1.0 and Bitcoin have drawn the ire of environmental activists and regulators.
Most estimates, including this one from the official Ethereum blog, predict PoS will reduce Ethereum’s power consumption by 90-95 percent. Moreover, other scaling solutions like rollups and sharding will decrease the overall energy cost of transactions by expanding the network’s economies of scale.
From information released by the Ethereum Foundation, the Ethereum 2.0 release will launch in three stages:
Phase 0 started with the launch of the Beacon Chain on December 1, 2020. The Beacon Chain introduced Proof-of-Stake consensus, with validators required to stake at least 32 ETH. Currently, the system has more than $30 billion in total locked value (TVL).
The Beacon Chain is set to "merge" with the main Ethereum network in the first or second quarter of 2022. Once that happens, the entire Ethereum network will switch to Proof-of-Stake consensus mechanism.
Phase 1 of the Ethereum 2.0 release is set to occur sometime later in 2022 or 2023. This part of the upgrade will see sharding introduced to the Ethereum network. The Ethereum Foundation planned to release this upgrade in 2022 but postponed it, citing difficulties with code development and auditing.
The final phase of Ethereum 2.0 involves the replacement of Ethereum Virtual Machine (EVM) with Ethereum Web Assembly (eWASM). This will make Ethereum more accessible for both users and developers. For users, in-browser support will make using dApps easier. For developers, the freedom to use other languages will make developing apps for the Ethereum blockchain easier.
Ethereum 2.0 promises to do many amazing things, although whether it will succeed is another question. Although some have expressed concerns over the upgrade’s ability to fix Ethereum’s problems, the signs are relatively positive.
Successful implementation of the Ethereum 2.0 release could be the game-changer for Ethereum. With lower gas prices, greater accessibility, and better user experience, Ethereum may well change the blockchain industry forever.
And perhaps, it may become the real “Bitcoin Killer” this time.
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