Ethereum 2.0 Is Being Rolled Out: Here’s What You Need to Know
Ethereum, the second-biggest blockchain platform after Bitcoin, by market cap, is in the midst of enormous changes which, over the next few years, should make it scalable and capable of supporting many more users.
Ethereum 2.0 is an upgrade to the current ETH1 network- and is also referred to as “Serenity.” At the end of it all, Ethereum will become much faster and less susceptible to attacks on the network. In many ways, Ethereum 2.0 is the combined effort of thousands of developers who have worked on the upgrades for years.
Opponents of Ethereum have often criticized the network’s high transaction costs and fragility during peak usage. Will Ethereum 2.0 be able to fix this problem? This guide will cover the timeline for the upgrade to ETH2.0 and the solutions proposed.
What is Ethereum 2.0? And Why is it Necessary?
The current Ethereum protocol, while popular with developers, has been prone to numerous problems. The proposed ETH 2.0 upgrade will eradicate many of the existing shortcomings and make the entire network more efficient. Here are the key upgrades expected in the ETH network:
Enabling Higher Number of Transactions Per Second
The software upgrade’s key focus is implementing sharding, which Ethereum Co-founder Vitalik Buterin says will exponentially increase the number of transactions per second.
In Ethereum 1.0, the blockchain can perform an average of 15 transactions per second — a fraction of what traditional payment systems can do. For instance, VisaNet, the centralized electronic payment system of Visa Inc, can perform 24,000 transactions per second.
Crypto users say this scalability problem has plagued the decentralized network industry for years. A limited number of transactions per second means that cryptocurrency users have to wait longer to pay and receive digital money. They can opt to pay a higher transaction fee to speed up the process, but this will add to their costs.
Currently, miners of a blockchain, such as the existing ETH blockchain, consume computational power and electricity to solve a mathematical problem. Miners who solve the problem first will be able to mine a new block of transactions and be rewarded with Ether.
The new block and recently completed transactions will then be validated by all the nodes, which are computers and servers around the world that keep a copy of the Ethereum blockchain’s public ledger, before being added to the blockchain.
When sharding is implemented, the validation process on Ethereum 2.0 will be different. Basically, all the nodes of a particular blockchain will no longer validate transactions stored in a single blockchain. Instead, they will be assigned to validate transactions in different shards, which can be perceived as sub-chains, in parallel with each other.
And there could be hundreds or a thousand shards, meaning that instead of a single-lane highway, sharding will turn ETH 2.0 into a multi-lane highway. This way, Ethereum 2.0 could, theoretically, process thousands of transactions per second.
Migrating to Proof-of-Stake (PoS)
Another notable change under Ethereum 2.0 is that the miner’s role will be taken out of the equation altogether as there will no longer be a function to mine for new blocks of transactions.
Ethereum 2.0 will adopt the proof-of-stake (PoS) method instead of the current proof-of-work (PoW) approach. The new method provides a new way to incentivize industry players to keep records of blockchain transactions and maintain their integrity on the system’s back-end.
Under PoS, there are no mathematical problems to be solved, and blocks of transactions will no longer be mined through the consumption of enormous computational power and electricity.
Instead, new blocks will be assigned without being mined to nodes or validators [through different shards or sub-chains without being mined]. Validators will validate these blocks of transactions and be rewarded for performing their task correctly.
Those interested in participating in the validation process will need to stake a minimum of 32 ETH (equivalent to around $6016 as of May 11, 2020) with the Ethereum 2.0 blockchain.
There are two main benefits of such an initiative. Firstly, because there will no longer be mining activities, the new method will consume much less electrical power and is more environmentally friendly than the PoW method adopted by ETH, BTC, and many other blockchains.
The adoption of PoS will also lower the barrier to entry for the general public to participate in the Ethereum blockchain and earn rewards. Those who wish to earn rewards by validating the blockchain no longer need to invest a significant sum of money in setting up a server, buy a graphics processing unit (GPU) or application-specific integrated circuit (ASIC) to mine new blocks.
Better Infrastructure and Prospects
Due to the higher number of transactions per second and a lower entry barrier, it is not hard to see that the Ethereum blockchain will receive more attention in the future as ETH becomes more commonly utilized.
CoinGecko co-founder Tom Lee says Ethereum 2.0 will encourage more developers to launch various dApps on the Ethereum blockchain, especially decentralized finance (Defi) projects that allow people to lend and borrow money on a decentralized network using cryptos.
Defi projects include SALT Lending, allowing borrowers to use their crypto assets as collateral to secure a cash or stablecoin loan. There is also Singapore-based REN, which is developing solutions that allow cryptocurrency holders to lend and borrow digital currencies.
“If Defi projects become more popular and serve the global need for an alternative financial system, I expect a trickle-down effect to happen. More developers will flock to the Ethereum blockchain to build new applications,” says Lee.
Other emerging trends in the blockchain industry, including security token offerings (STOs), could benefit Ether’s price if they continue to gain traction in the market. Many of these offerings utilize the smart contract feature of the Ethereum blockchain to perform automated transactions.
There have been concerns in the market that the Ethereum blockchain is losing out to its rivals in recent years. But Lee says it has not faced stiff competition so far. He commented:
“We saw many [potential] ‘Ethereum killers’ launching in 2018 and 2019, namely EOS, TRON, and NEO. These are all smart contract platforms with higher scalability aimed at competing with Ethereum. Based on what we can see today, none of these have come close to replacing Ethereum.
Lee added that most developers are looking to build decentralized applications that typically consider Ethereum before using the others.
What is The Current State of Ethereum 2.0?
As of April 2020, the Testnet for Ethereum 2.0 Beacon Chain has been launched by Prysmatic Labs with astounding results. So based on the below Ethereum 2.0 Roadmap diagram, we are working through Serenity Phase 0. Reception to the testnet has been overwhelming, with more than 20,000 validators signing up and dedicating their resources to help with the Beacon Chain Testnet.
Vitalik Buterin – the founder of Ethereum, has stated that this will not be the “Final” test of the Beacon Chain, so we expect even more community participation in the months ahead.
The current Eth1 blockchain and the new Eth2 blockchain will exist side by side before eventually merging. This will include all Decentralized Applications (DApps), Decentralized Finance (Defi) protocols, Decentralized Autonomous Organizations (DAOs), and tokens currently active on the Ethereum blockchain.
To facilitate this, Eth2 has been split across different phases to ensure a slow but smooth transition to the new network. During this, Ethereum blockchain will continue normal functioning until the developers believe and prove that both blockchain and transition to the new network can occur without any issues.
Ethereum 2.0 will be rolled out in three phases — Phase 0, 1, and 2. Phase 0 is expected to be kick-started with the launch of the Beacon Chain in July.
Phase 1 of the software upgrade is slated to take place in 2021 when multiple shards are deployed. Phase 2 is projected to roll out in 2022 when ETH 2.0 will become fully functional.
In the coming months, Ethereum will be on an interesting journey to upgrade the ecosystem to a new, more secure, more powerful, and flexible set of consensus technology. Ethereum co-founder Vitalik Buterin said that the new upgrades on ETH 2.0 would increase the network’s capacity by a thousandfold.
Moreover, ETH 2.0 will be quicker and more robust, as it will support sharding protocols that split up processes on the network into smaller nodes, allowing it to handle more transactions.
If all goes as planned, ETH 2.0 is expected to go live later in July 2020, as the original launch date of January 2020 was pushed back due to a change in the sharding plan.