What is Ethereum 2.0? Is it really worth investing in now? What does it mean for the future of Ethereum?
Ethereum 2.0 is the next version of the Ethereum network, one of the largest cryptocurrency. The new protocol will be released in 2022. This means that the new version will come out around 7 years after the launch of Ethereum.
Ethereum 2.0 being a major upgrade will bring several improvements to the existing Ethereum protocol. These include faster transactions, better scalability, and improved security. In today's post I will explore when Ethereum 2.0 is planned to release, the benefits of Ethereum 2.0 versus Ethereum 1.0 and how you can get prepared for the release.
What is Ethereum?
Ethereum was created by Vitalik Buterin in 2013, at least the concept white paper was released. The cryptocurrency itself was released July 2015. It is a decentralized platform where anyone can use their own resources to create their own applications or smart contracts.
Smart contracts are self-executing agreements which execute automatically once certain conditions are met . They are also known as "code is law" because they give developers the power to write down rules into code instead of having to rely on lawyers and courts to enforce them.
The main purpose of Ethereum is to provide an environment for smart contracts . Smart contracts allow people to build their own digital currencies, exchange assets, store data, run crowdfunding campaigns and even play games without any middleman involvement.
The value of Ethereum has risen dramatically since its creation, from $0.30 per coin in July 2015 to over $3,000 per coin as of April 2022. A 10,000X.
How Does Ethereum Work?
There are two types of accounts on the Ethereum blockchain: users and contract accounts. A user account represents a person who owns some amount of Ether. Contract accounts represent programs running on the Ethereum blockchain allowing web3.0 applications.
When a user sends funds to another address, these funds go through three steps:
- First, the sender creates a transaction with his private key.
- Then, he signs this transaction using his public key.
- Finally, he broadcasts this signed transaction to the network so that everyone can see it.
If all goes well, the recipient then verifies the signature and approves the transaction
Ethereum 2.0 Improvements over Ethereum 1.0
Some of the current issues with Ethereum 1.0 are really hindering the cryptocurrencies growth. Because of the issues, the people behind Ethereum decided to work on the network upgrade known as Ethereum 2.0. The following three issues are aimed to be improved through the upgrades within the major upgrade known as Ethereum 2.0
Better Energy Efficiency
One of the biggest problems facing Ethereum right now is energy efficiency. Because every computer node runs 24/7, Ethereum consumes a lot of electricity.
This problem could become much worse if Ethereum becomes popular among businesses. If businesses start adopting Ethereum, the number of nodes will have to increase significantly causing the consumption of electricity to grow exponentially.
To solve this issue, Ethereum 2.0 will be able to do away with Proof of Work mining and replace it with Proof of Stake. The two methods just described are known as consensus mechanisms. This change has many benefits but first we must understand what proof of work is.
the Proof of Work consensus mechanism is the process of solving complex mathematical equations to verify transactions. The complexity of these equations makes it very difficult to find solutions, hence why miners need to spend a lot of electricity to solve them.
With the Proof of Stake consensus mechanism, there is no need for miners to waste electricity on finding solutions. Instead, they simply lock up their coins and wait for someone else to pay them. Once they receive payment, they release their coins back to the system. This process is known as staking and hence the term Proof of Stake.
Consensus mechanisms are required so that the transactions within the system can be verified through a form of consensus.
Ethereum 2.0 is More Scalable
In order to scale Ethereum, sharding is one of the best ways to achieve this goal. Sharding divides the entire blockchain into smaller pieces called shards. Each shard contains its own copy of the Ethereum blockchain.
Shards communicate with each other via gossip protocols which allows them to share information about blocks and transactions. These shards being linked together is referred to as shard chains. In this way, shards can operate independently while still being connected to the rest of the network.
The downside to this utilising shard chains is that it requires more computing power than traditional blockchains. However, because of the increased scalability, the cost of computation per unit of time decreases dramatically.
Ethereum 2.0 is More Secure
Another big concern when it comes to scaling Ethereum is security. With the introduction of smart contracts in Ethereum, hackers have found new ways to attack the network.
Because smart contracts run code on the blockchain, they are susceptible to attacks such as re-entrancy bugs and denial-of-service attacks. These types of attacks make it impossible for smart contracts to function properly. To prevent these kinds of attacks from occurring, Ethereum 2.0 introduces an upgrade called Casper.
Casper is a new consensus protocol that uses randomness instead of energy. It also implements a new method of validating transactions called slashing. Slashing means that if a malicious user attempts to double spend his or her funds, the attacker's account would be slashed by half. This prevents attackers from spending their money twice.
Casper also introduces a new type of transaction called a commitment transaction. A commitment transaction is used to guarantee the execution of a contract at a specific block height.
The Beacon Chain
Every shard chain has its own beacon chain. The beacon chain acts like a centralised ledger that records all the events that occur within the shard chain. It also keeps track of all the transactions that happen within the shard chain and ensures that those transactions are executed within the correct timings.
The beacon chain also supports the new Proof of Stake system and due to it being such an integral part of Ethereum 2.0, it has been described as the spine that supports the whole of the new Ethereum 2.0 system (https://coinmarketcap.com/alexandria/glossary/beacon-chain)
Ethereum 2.0 Release Date
There is no exact date set yet for the release of Ethereum 2.0. However, there are some estimates that suggest that the launch could take place sometime between 2022 and 2025. Although the first phase (phase 0) has already been released in 2020, there are still two more phases which need to be released.
How you can get Ethereum 2.0
The Ethereum 2.0 upgrade will happen in three phases. The first phase, called phase 0 was launched in December 2020, with the remaining two phases said to arrive in the following years. Phase 0 welcomed the implementation of the Beacon Chain and the introduction of the Proof of Stake mechanism. However, Proof of Work will not be completely done away with during this phase; it is still going to run alongside PoS.
The beacon chain is a layer built on top of the existing Ethereum network. It is responsible for keeping track of all the transactions that take place on the network.
Due to phase 0 having already taken place, apps such as Coinbase have been updated to support the new features introduced in this phase. This means if you purchase Ethereum 1.0 within Coinbase you can begin staking your coins immediately to earn interest and eventually gain Ethereum 2.0.
In addition to this, there has been a lot of progress made towards implementing the second phase of the upgrade. This includes the development of the Casper testnet.
Summary
As mentioned above, the Ethereum 2.0 upgrade is split into three phases. In the first phase, known as phase 0, the Beacon Chain was implemented. This allows for the creation of a decentralised blockchain where every node is equal. This is achieved by using a consensus algorithm called proof of stake.
This is followed by the second phase, which is expected to come out around 2022/23. This phase is referred to as phase 1 and it focuses on improving scalability through sharding. Sharding allows for multiple blockchains to exist within one single network. Each shard contains a copy of the blockchain and each shard operates independently.
Finally, the third phase is expected to come out within the next couple of years. This is called phase 2 and it introduces the Casper protocol. Casper is designed to make sure that Ethereum 2.0 remains secure.
Although we still have some time to go, you can get started staking your Ethereum through providers such as Coinbase so you are ready for when Ethereum 2.0 is fully released.
I hope you enjoyed this blog post about Ethereum 2.0. If you did then please feel free to share it with your friends and family. You can also leave any comments or questions below.
Thanks for reading! 😊
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FAQ
Is Ethereum 2.0 a new coin?
Ethereum 2.0 is not a new coin, and will not change the amount of ETH you hold. In terms of Ethereum vs Ethereum 2.0, Eth2 is simply an upgrade that will improve the Ethereum blockchain.
Source: (gfinityesports.com)
What to expect from the next two phases of implementation
Ethereum’s history has been one of consistent improvements and upgrades to the core protocol. We first heard about Eth2 in Buterin’s 2018 Devcon speech. Eth2’s gradual approach, with its multiple stages, each initially estimated to be one year apart from each other, is guided by five design principles: simplicity, resilience, longevity, security and decentralisation.
Source: (fool.co.uk)
How do I stake?
To become a full validator on the network, you'll need to stake 32 ETH. If you don't have that much, or aren't willing to stake that much, you can join staking pools. These pools will let you stake less and earn fractions of the total rewards.
Source: (ethereum.org)
