What Is Ethereum 2.0? Why Ethereum 2.0 Is Important?
Ethereum 2.0, the next version of the Ethereum blockchain, which has long been the focus of the crypto community, is expected to be launched in two months or less. So what is Ethereum 2.0? Why Ethereum 2.0 is important?
As the name suggests, Ethereum 2.0 is the major upgrade to the blockchain network of Ethereum, the second-largest cryptocurrency by market cap after Bitcoin. Before dive deeper into Ethereum 2.0, let’s briefly recall what the original Ethereum was. Ethereum is a decentralized software platform launched in 2013 by Russian computer programmer Vitalik Buterin and British programmer Gavin Wood. Besides its open-source and Blockchain-based structure, Ethereum supports a computer protocol called “smart contract.” From its very first launch, the Ethereum platform had a development plan. Its developers wanted Ethereum to be a long-term project and to provide security, functionality, and decentralization to its network. Even as the dates and details of its predicted developments changed, Ethereum consistently stuck to its upgrade plan. The upgrade stages of the development plan are:
“Homestead” (March 2016)
“Metropolis Byzantium” (October 2017)
“Metropolis Constantinople” (February 2019)
“Istanbul” (December 2019)
Also known as Eth2, the “Serenity” update aims to improve both the performance and adoption of the Ethereum network. According to Vitalik Buterin and the developers of the platform, December 1, 2020, will most likely be the launch date for Ethereum 2.0, after years of anticipation and delays.
Why Ethereum 2.0 Is Important?
Two consensus algorithms are used in blockchains where crypto money transactions are carried out: proof-of-work and proof-of-stake. The primary innovation we will see with Ethereum 2.0 will be the transition of Ethereum’s existing algorithm from PoW to PoS.
Rewarding miners or stakes to validate transactions and create new blocks is the way a blockchain generates new coins. These rewards also encourage network users to secure the platform and avoid potential attacks. The current Ethereum network is protected by Proof of Work. To be able to validate a new transaction, miners spend both their time and heavy computing power. In this process, they compete with each other and try to gain Ether from each completed block, which is the native currency of Ethereum. The more computing power and time a miner puts in, the better their chance of completing the block. However, there are three main problems posed by the Proof of Work consensus mechanism that Ethereum uses.
Three Major Problems of the Proof of Work Mechanism
Ethereum’s current Proof of Work mechanism requires high-cost computing power, as we mentioned earlier. Therefore, only individuals and institutions with very high financial status can afford it. This makes the network inaccessible to everyone. Proof of Stake, on the other hand, will solve this problem by giving everyone the chance to contribute to the security of the platform. There is one entry barrier that applies to Proof of Stake. To qualify as validators, participants must deposit a fixed amount of cryptocurrency one week before the scheduled “genesis event.” This minimum staking requirement is 32 ETH for Ethereum 2.0.
Need for Scalability
By adding sharding to the network, Ethereum 2.0 will significantly increase the efficiency of resource utilization and create multiple chains of parts. The new system will do this by dividing data validation tasks among clusters of nodes, each one solely responsible for validating the data it receives.
Changing the consensus algorithm to Proof of Stake and leaving Proof of Work and the introduction of the so-called “sharding” method will make a significant difference to scalability issues in the Ethereum network, especially for improvement.
The expensive mining process of the PoW mechanism can cause a 51% attack by a group of miners who control more than 50% of the mining hash rate of the network. This is against centralization, which is the most prominent feature of blockchain technology. The transition to the PoS mechanism aims to eliminate this problem as it will randomly select stakes that make verification.
The Roadmap to Serenity
The transition of the Ethereum network to the Ethereum 2.0 will not happen overnight. Because the users of the system are quite a lot. The planned transition to Ethereum 2.0 takes place in three stages, as outlined below:
Serenity Phase 0 – “Beacon chain” – It’s kind of a transition phase. PoS works in parallel with the existing system.
Serenity Phrase 1 – “Shard chains” – Introduction and testing of the sharding. This phase includes improvements in block processing capacity in the Ethereum network.
Serenity Phrase 2 – “State execution” – Launch of eWASM as the successor of EVM and complete shutdown of the PoW mechanism.
Ethereum 2.0 is moving to Stage 0 on December 1, 2020. The transition to Stage 2 may take 2022 or even 2023. Vitalik Buterin mentions a rate of 100,000 TPS for the speed reached at the end of Phase 2. Many analysts and investors assume these events will have an impact on Ethereum’s adoption and will have a positive influence on Ether’s price.
Disclaimer: All information provided in the content is for informational purposes only and should not perceive as investment, financial, or trading advice. Any investment decision you make should be a personal choice based on financial knowledge, experience, and market research.