all you need about Ethereum 2.0?
There is a †Ethereum-killerâ€TM everywhere these days. At times, it appears as if protocol knights in fully-coded armour appear on a monthly basis to slay the cyberspace dragon known as Ethereum. The high gas fees, low transactions per second, and revolutionary qualities of the [insert X] blockchain protocol are cited by those who believe Ethereum's reign will come to an end.
While it is possible that Ethereum will not be the preferred blockchain for the development of decentralised applications (dapps) in the future, thousands of projects have already been built on the Ethereum blockchain. Ethereum's community is rapidly expanding, from the world's largest decentralised exchange, Uniswap, to the world's largest NFT marketplace, OpenSea.
The much-anticipated upgrade Ethereum Serenity, also known as Ethereum 2.0, has many people believing that the Ethereum project will reach new heights. It is expected to be released in 2022, and Ethereum supporters are hopeful that it will be able to solve all of Ethereum's current problems. Ethereum supporters are also concerned that other blockchain projects will catch up in the meantime due to the 2022 release date.
Only time will tell if Ethereum's first mover advantage will allow it to maintain its position as the world's second best cryptocurrency (as measured by market cap). Let's take a look at what Ethereum 2.0 has to offer until then.
Ethereum 2.0?
Ethereum 2.0, also known as Ethereum Serenity, is not a different cryptocurrency. Ethereum 2.0 should be viewed as an enhancement to the Ethereum network. This upgrade aims to address a number of key blockchain issues, including scalability, usability, and long-term viability. Despite the fact that Ethereum has reached unprecedented market valuations this year, popular projects such as Cardano, Zilliqa, Solana, AAlgorand, and others could threaten Ethereum's position as the second largest crypto coin if it does not address many of its issues.
Newer protocols, unsurprisingly, boast higher transactions per second, better scaling solutions, and network fees that aren't prohibitively expensive. Because blockchains have taken years to develop, older technology often has an advantage over newer technology. In order for older technology to keep up, upgrades are required. This is also true of Ethereum.
Usability
Ethereum has been hit with massive transaction fees, known as gas fees, in its current non-upgraded state. Gas fees help to fund the energy required to validate and process transactions on the Ethereum blockchain. These high fees occur when the network is overburdened with transactions. On busy days, even a simple transaction on decentralised applications can cost upwards of USD 200. This may seem like child's play to whales with millions of dollars of ETH to play with on decentralised finance (DeFi) applications. However, paying USD 200 to transfer a cute digital monster NFT in a video game isn't appealing to the average person who works a 9-5 job.
This has made Ethereum applications like trading crypto on Uniswap or purchasing a digital cat on CryptoKitties more difficult for average users to use. The blockchain's usability would suffer as the barrier to entry would be too high for the average person to overcome.
Scalability
Let's pretend that these gas fees are actually low enough for the average crypto user to not notice when making transactions, such as USD 0.25 per transaction instead of USD 200. Even so, Ethereum can currently only process 15 transactions per second (tps). By comparison, Visa processes around 1,700 transactions per second, which is more than a hundred times faster than Ethereum's non-upgraded version.
Although Ethereum's transaction speed is three times faster than Bitcoin's 5tps, decentralised applications should at least match the speed of traditional financial tools like Visa if they are to be widely adopted. When transaction speeds remain low, it's difficult to imagine Ethereum being as scalable as traditional financial institutions.
To be sure, using blockchain technology feels a lot faster than answering all those Know-Your-Customer questions and jumping through other banking hoops. In crypto, all you have to do is enter your wallet address and wait for the money to arrive. Without the hoops, even Bitcoin, the oldest cryptocurrency, feels quick to wire. Even so, once scalability solutions are in place, there will be even more reasons to look to the decentralised world for financial needs.
Sustainability
Media outlets have attacked Proof-of-Work consensus mechanisms as unsustainable due to environmental impact, despite the fact that cryptocurrencies have been shown not to have the large-scale environmental impact that the outlets claim. Even so, anything that contributes to a more resilient, decentralised ecosystem will be welcomed by many. Instead of mining, Proof-of-Stake provides this solution by running validator nodes. Because mining blocks in Proof-of-Work requires a lot of electricity, running validator nodes to validate blocks will save a lot of energy, making sustainability a reality.
If successful, Serenity, or Ethereum 2.0, will have the usability, scalability, and sustainability to serve users all over the world. This will make DeFi apps like Aave and Compound run more smoothly. If decentralised financial tools require USD 100 to complete a single transaction, few people will consider them a viable alternative to traditional banking. Also, if that much money is required to sell a piece of digital property or artwork, one has to wonder about its widespread use.
Hopefully, Ethereum 2.0 will put an end to all of these concerns, allowing its large global user base to continue to function normally.
Ethereum 2.0 Solutions
These issues are said to be addressed in Ethereum 2.0, which is said to have next-generation blockchain solutions. The problem of scalability will be solved by employing a different consensus mechanism, or a way for computers in a network to agree. If computers all over the world use Ethereum, they'll need a way to communicate with one another. Proof-of-Work is Ethereum's current consensus mechanism, which relies on mining to validate blocks, or data sets. These are frequently associated with issues that Proof-of-Stake attempts to address.
How Does Proof-of-Stake Work?
Instead of mining, which necessitates a large amount of electricity, Proof-of-Stake secures the network with validator nodes. Validator nodes are a type of mining alternative in which users set up a node for a single ETH. To make blocks, these nodes, or computers that process the network, will be chosen at random. In cryptography, blocks are cryptographic files in which data is recorded, similar to a digital ledger.
To effectively mine blocks for Ethereum and other legacy cryptocurrencies using traditional mining, you'll need a lot of resources. It heavily favours those with money in this way. You only need a decent computer with a good CPU or GPU to stake ETH and run validator nodes, not a mining rig that costs thousands of dollars. Validator nodes, on the other hand, have the same chance of mining a block as a person with a regular rig and a company with vast resources and multiple nodes. It won't be like mining, where having more computational power means having a much higher chance of mining blocks. Each validator node will have an equal chance of receiving block rewards.Even if a company has a hundred validator nodes, each of them has the same chance of receiving rewards as a single computer node. Because the rewards are randomised, this is the case. The company will have a better chance of receiving rewards simply because it has a hundred of them, not because its rig is more powerful.
A 51 percent attack, or an attack that takes control of the network, appears to be more likely; however, there is little incentive to do so because it would devalue the network. Imagine spending a few hundred billion dollars to gain a majority stake in Ethereum and control the entire network. If you took control of the network and made millions of users around the world distrust it, you'd probably lose hundreds of millions, if not a billion dollars.
In my experience, Proof-of-Stake appears to be a significant improvement over Proof-of-Work. This isn't a given, though, because the protocol is still in its infancy, which is the main criticism levelled at Proof-of-Stake. Only time will tell if it can truly replace Proof-of-Work.
The Beacon Chain
The Beacon Chain will be used to coordinate the future Ethereum network and will be the first to implement Proof-of-Stake. It will create shard chains, which will speed up transactions and expand the network. The Beacon Chain will manage old Ethereum, the mainnet, into the Proof-of-Stake system, making it more †secure, sustainable, and scalable.â€TM
The Beacon Chain is †Phase 0â€TM, making it the foundation of Ethereum 2.0.
The Merge
The main Ethereum network will be combined with Proof-of-Stake using the Beacon chain to form a potentially better Ethereum. Proof-of-Work, which runs in parallel with Proof-of-Stake, currently secures the Ethereum network. The Merge, which sounds like the start of an epic film, is the point at which these two will become fully intertwined. As a means of securing the network, mining will be discontinued. According to Ethereum, this will result in †endless shard chainsâ€TM and †endless scalability.â€TM
Shard Chains
The shard chains will expand the network's load and provide †endless scalabilityâ€TM after the merge, while keeping node requirements low. In computer science, sharding is a method of horizontally splitting a database. This will make the load on the Ethereum network more manageable, increasing the number of transactions per second and reducing network congestion in these new chains, or shards. The expected transaction per second (tps) will be 100,000, compared to Ethereum's current rate of 10-15 tps. Shard Chain Version 1: Data Availability is the name for this. Shard Chain Version 2: Code Execution will provide shards with a slew of new features, including smart contract execution and account management.
Closing Thoughts
Ethereum is the most widely used platform for developing decentralised applications. DeFi applications like Aave and Compound will be easier to run after it is implemented. If decentralised financial tools require USD 100 to complete a single transaction, few people will consider them a viable alternative to traditional banking. Also, if that much money is required to sell a piece of digital property or artwork, one has to wonder about its widespread use. Serenity on Ethereum will try to solve these issues.
Ethereum will most likely remain relevant in blockchain for years, if not decades, due to all of the funding and intelligence invested in its continued development, as well as its army of fans and developers. Ethereum Serenity, or Ethereum 2.0, will be the litmus test to see if Ethereum's use-dominance over other protocols can be maintained. Only time will tell whether a †Ethereum-killerâ€TM emerges to slay the mystical beast, or if Ethereum remains the primary network for decentralised applications.