After years of speculation, Ethereum 2.0 will finally arrive sometime between Sept. 10th and Sept. 20th. Also known as the Ethereum Merge, this major upgrade will bring some huge changes to the second largest cryptocurrency. If everything goes according to plan, the launch of Ethereum 2.0 should make the Ethereum blockchain faster, cheaper, more energy efficient, and secure. Here is everything you need to know about Ethereum 2.0.
The Ethereum Merge
The launch of Ethereum 2.0 will not see the creation of an entirely new token. Instead, the existing main Ethereum blockchain will be merged with the Beacon chain which has been running in parallel to the main chain since December 2020. Maintaining this parallel chain has allowed Ethereum developers to test out many of the key features of Ethereum 2.0 without any issues impacting the operation of the existing blockchain. The Ethereum Merge will bring these two parallel networks together and bring the Beacon chain's advancements to the main Ethereum blockchain.
The End of Proof of Work
One of the most hype aspects of Ethereum 2.0 is its transition from a proof of work consensus mechanism to proof of stake. This is the method through which transactions are broadcast to the network and verified as legitimate. Originally pioneered by Bitcoin, the proof of work consensus mechanism sees miners use computing power to solve complex equations in a process that verifies transactions and rewards miners with newly created coins. The proof of work mechanism has proven effective in maintaining blockchain legitimacy and safeguarding against bad actors on cryptocurrency networks. However, the process is massively energy intensive and has drawn considerable criticism for its environmental impact.
Ethereum 2.0's new proof of stake mechanism will see users secure the network by staking Ethereum. Like miners in the proof of work system, those who stake Ethereum are rewarded with additional ETH for their contribution. While 32 ETH is the minimum requirement to become a network validator, many major cryptocurrency exchanges have said they will allow ordinary users to contribute smaller amounts of ETH to staking pools in order to receive a share of the network's staking rewards.
As well as reducing the environmental impact of the Ethereum blockchain, this new consensus mechanism could prove valuable to ordinary ETH holders in other ways. Staking is likely to reduce the amount of ETH in circulation, which many expect will lead to a rise in Ethereum's value.
Increased Decentralization and Security
Another expected effect of Ethereum 2.0's switch to proof of stake is greater decentralization, which should theoretically increase network security. The barrier to entry for Ethereum mining is high, requiring immense computing power and energy consumption to be profitable. Ethereum staking should be much more accessible than mining, which many expect will lead to a huge increase in the number of users actively supporting the network's operation. This increased decentralization of the network should also make it more difficult for bad actors to hijack the Ethereum blockchain and take control of its transactions.
Supporting Increased Transaction Volume
Some of the most frequent criticisms faced by Ethereum in recent years relate to the number of transactions that the network can support. At present, the entire Ethereum network is only capable of processing around 30 transactions per second. This obviously leads to delays in verifying transactions, which reduces the capabilities of applications deployed on the Ethereum network. The network's low transaction capabilities also lead to higher transaction fees, as users bid higher amounts to have their transactions verified by miners first. This all leads to an inefficient blockchain network which is both expensive and slow.
Ethereum 2.0 attempts to solve this issue by introducing shard chains. At present, all transactions on Ethereum are broadcast to the main blockchain. Shard chains break the blockchain up into smaller parallel chains, potentially leading to a massive increase in transaction throughput capabilities, consequently reducing both transaction times and fees. Sharding has been touted as being able to process as many as 100,000 Ethereum transactions per second, making Ethereum 2.0 3,333 times more effective than the current Ethereum network.
The Expectations for Ethereum 2.0
The Ethereum network has grown enormously since the changes that will be part of Ethereum 2.0 were first suggested. Ethereum-enabled applications such as NFTs and DeFi have attracted massive mainstream attention, leading to a similarly large increase in Ethereum's value. However, the extra attention has also directly led to network bottlenecks and prohibitively high transaction fees. Ethereum 2.0 looks to solve all these issues and help Ethereum fulfill its potential as the backbone for the next generation of the Internet.
There is a lot riding on a successful launch for Ethereum 2.0. After consistently soaring past previous highs throughout 2020 and 2021, the cryptocurrency market spent the first few months of 2022 sliding into a bear market. A bad launch for Ethereum 2.0 could compound these issues and fully entrench crypto in a long-term downturn. But if Ethereum 2.0 lives up to the hype, it could be the beginning of an exciting new era for cryptocurrency development.