Ethereum, with its ETH token, is currently the world's second most popular blockchain platform (and one of the most popularly traded cryptocurrencies on C-Trade) after Bitcoin (BTC), seeks to be everything that its predecessor isn't. A few of Bitcoin's shortcomings, such as the emphasis on a proof-of-work (PoW) consensus protocol and apparent lack of scalability, are holding it back. The Ethereum upgrade which is planned in multiple phases, that include the Beacon Chain, Merge Chain, and Shard Chains, focuses on improving the Ethereum network's scalability and security by modifying its architecture. The most noticeable is the switch from a proof-of-work (PoW) consensus approach to a proof-of-stake (PoS) model, which each have their own set of advantages and disadvantages.
Vitalik Buterin, who created Ethereum, advocated a blockchain platform in 2013 that supported programs and other services that weren't necessarily related to banking. Buterin saw a world in which developers might use decentralization to create governance systems, financing platforms, databases, and digital representations of physical goods, among other things. However, despite Vitalik’s claims that Ethereum is a massive supercomputer, the network fails to authenticate a few hundred transactions in a reasonable amount of time. On Ethereum, users who trade modest sums of money must pay fees and other expenditures that can amount to over 100%.
Buterin, other network engineers, and the Ethereum Foundation are all aware of the project's constraints, which is a positive factor. Ethereum's developers also recognise that Ethereum's blockchain constraints deter institutional investors and other concerned parties from adopting the cryptocurrency.
Vitalik and the Ethereum team have proposed a network upgrade termed Ethereum 2.0, or Eth2, to address Ethereum's scalability issues. Ethereum 2.0 will transform the way Ethereum functions from the ground up, but it will take years to accomplish. Ethereum engineers have been working relentlessly since 2020 to complete the network's upgrade, with the goal of making Ethereum quicker, more secure, and more accessible than ever before.
What is Ethereum 2.0?
Ethereum 2.0 is a multi-year network update for the Ethereum platform. Ethereum currently faces scalability challenges, as well as issues about how it is safeguarded. The Ethereum 2.0 upgrade aims to improve scalability, security, and decentralization. There are a number of planned modifications to Ethereum's functionality and are the most important to be aware of.
Miners fight to solve a difficult arithmetic problem on Ethereum. The fastest solution is then able to add a new block to the longest chain that has been observed. The quantity of electricity and hardware required to mine Ethereum is significant, posing a major barrier to entry. Mining Ethereum at home is a waste of time and money. Furthermore, finality is probabilistic, which means you'll have to wait for other blocks (also known as confirmations) to be created on top of the block holding your transactions before you can be sure it's part of the canonical chain.
What if there was a technique to introduce additional blocks which is more energy efficient? What if we could lower the bar for everyone to contribute to network security?
What if you could attain finality in a definite way?
Proof of Stake resolves this by replacing miners with validators who, with only 32 ETH and minimum gear, may participate in the act of adding new blocks and finishing blocks. Validators alternate presenting and voting on the blocks they believe are correct. Honest validators will receive newly issued ETH, while fraudulent validators will have their 32 ETH balance lowered.
PoS vs PoW, the Complete Breakdown
Proof-of-work has been the primary method used by Bitcoin (the world's first cryptocurrency) for blockchain consensus. Miners, who give their computer processing capacity, such as graphics processing units (GPUs) and central processing units (CPUs), perform difficult algorithms and validate blocks in the PoW system.
To avoid double-spending or duplicate transactions, each block of transactions must be certified unique. Every block has a 64-digit hexadecimal code that proves its uniqueness, but miners must locate it. The proof-of-work term refers to the employment of miner machines' computing capacity to crack the hexadecimal code. To put in labour and solve for a block, a computer uses real power. Not only is this economically impractical, but this is also bad for the environment.
It consumes a lot of energy and raises a miner's electricity expenses dramatically. Furthermore, cryptocurrency mining is a competition. Miners with a single graphics card are up against operations with hundreds of graphics cards. Only the first miner who identifies the code receives a Bitcoin reward, restricting users who do not have a lot of money to invest in a decent mining rig. Joining a mining pool is an alternative to mining alone, however, the mining benefit is distributed among dozens of members.
Proof-of-stake, on the other hand, eliminates many of the issues that a PoW consensus algorithm has. Users must confirm transactions in Proof-of-Stake, which is comparable to mining. Validators are participants in a PoS network. Users who stake, or lock-in, a certain amount of cryptocurrency into the network are known as validators. These users communicate to the network that they want to be validators in order to lock in funds, and the more funds staked by a validator, the more incentives these users gain for their involvement.
As a validator, a user is in charge of validating transactions in the block in which they participate. A transaction is sent to the chain after a validator approves it, and the validator receives a reward. PoS is more accessible than a PoW system because it does not require expensive hardware and everyone can join if they have the money.
As more consumers enter the network and validate transactions, scalability is improved. A network with more people certifying it has better security and decentralization. Instead of a single central point for bad actors to assault, a PoS network has an increasing number of stable points.
A PoS network also has fewer negative effects on the environment because it uses less electricity than a PoW network. More decentralization on a network also helps against what's known as a 51% attack, which occurs when a bad actor gets control of 51% of nodes on a PoW network and verifies ill-intended transactions. Proof-of-stake, in a sense, prevents a 51% attack because it necessitates possessing 51% of all tokens on the network. On a PoS network, holding 51% of all tokens sounds nearly unfeasible, as it would necessitate stealing from thousands of Ethereum wallets all at once.
Transitioning to Ethereum 2.0
The entire process of Ethereum’s transition can be broken down into three phases.
The Beacon Chain is introduced in Phase 0 of the Ethereum 2.0 upgrade. The Beacon Chain, which went live towards the end of 2020, marks the transition to PoS by allowing users to stake (lock away) their ETH and become validators. However, Phase 0 has no impact on the main Ethereum blockchain; the Beacon Chain coexists with Ethereum's mainnet. The Beacon chain and the mainnet will eventually be linked further in the transition process. The goal is to simplify and merge Mainnet into the PoS system that is governed by the Beacon Chain.
Furthermore, potential validators can still stake 32 ETH to declare their interest in the Beacon Chain. Demanding that customers invest 32 ETH is a tall order, given that 32 ETH is valued tens of thousands of dollars in Ether. Staked funds will be held for at least two years before being released when Ethereum 2.0 is fully operational. The stringent entrance requirements are expected to attract early validators who are passionate about the project's future.
Phase 1 was supposed to begin in mid-2021, but developers pushed it to early 2022, citing incomplete work and code audits as major causes for the delay. The Beacon Chain will be merged with the mainnet in this step, officially transitioning to a PoS consensus mechanism. Starting with Phase 1, Eth2 will store Ethereum's complete transaction history and implement smart contracts on the PoS network. As Ethereum 2.0 removes mining from the network, stakers and validators will be called into action. Many miners are expected to stake their holdings in order to serve as validators. Developers intended for Phase 1 of the Ethereum 2.0 upgrade to incorporate sharding. Sharding is the process of breaking down a large database, such as the blockchain, into smaller chains known as shards. Eth2 will contain 64 shards, which means the network's load will be distributed across 64 additional chains. Shards make it easier to run a node by reducing the hardware requirements. After the mainnet and the Beacon Chain have joined, this upgrade will take place.
Finally, Ethereum WebAssembly, or eWASM, will be introduced in Phase 2. The World Wide Web Consortium established WebAssembly with the goal of making Ethereum substantially more efficient than it is now. For the Ethereum smart contract execution layer, Ethereum WebAssembly is a suggested deterministic subset of WebAssembly.
An Ethereum Virtual Machine, or EVM, is what is currently used in the Ethereum ecosystem. Ethereum can function as a global supercomputer thanks to an EVM. Users worldwide can use this computer to run smart contracts and engage with decentralized applications (DApps). The EVM maintains all of the code required to perform operations on Ethereum, as well as supporting transaction wallet addresses and calculating transaction (gas) fees.
The EVM can perform multiple tasks at once, such as determining whether a smart contract should be terminated (it consumes too much gas), whether a DApp is deterministic (it always executes the same inputs and outputs), and whether a smart contract is disconnected (its error will not affect the Ethereum network). The Ethereum network, however, has unfortunately become a touch too congested. Because there are so many transactions going on at once, the EVM is significantly slower than it was designed to be.
The Ethereum Virtual Machine (EVM) is particularly difficult to upgrade because it was designed in Solidity, a tough-to-understand programming language. The eWASM was created to take the position of the EVM, which would be implemented in Phase 2. The eWASM compiles code significantly faster than the EVM, which speeds up network processes.
The eWASM makes Gas operate more effectively, and it's compatible with a variety of standard coding languages including C and C++. The eWASM's main goal is to make Ethereum developments more accessible.
What’s the Future Outlook?
Ethereum 2.0 is a vital improvement for the future of Ethereum. Users currently pay exorbitant gas fees, wait long periods of time for transactions to be validated, and expend a significant amount of energy in the process. The lack of scalability on Ethereum has an impact on more than just basic transactions. Nonfungible tokens (NFTs) and parts of decentralised finance such as lending and borrowing are affected by Ethereum's issues. Due to network congestion, constructing and selling NFTs on Ethereum, for instance, can cost a fortune in gas fees.
When Ethereum 2.0 is released, the ecosystem will significantly benefit in every way. Because of sharding and the proof-of-stake consensus method, trading and minting NFTs will be cheaper. The development of eWASM will make it easier for Ethereum developers to create DApps and compile smart contracts. Because eWASM is built to World Wide Web standards, adding in-browser support for Ethereum lite clients will be simpler. Finally, Ethereum's shift to proof-of-stake will make the network more accessible than ever before while reducing the environmental effects.
Without a question, Ethereum 2.0 will have an impact on how the world perceives Ether's value. If Ethereum 2.0 performs as intended, Ether might transform from a ubiquitous commodity to an essential asset. Businesses and people from all over the world can use Ether in their daily operations, creating databases and apps on the network. A significant shift in the world's perception of Ethereum is a priceless development. Trade Ethereum on C-Trade to participate in the biggest revolution in crypto!
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