Last Updated on February 22, 2022 by Diana Kelley
On December 1 2020, an event that has been anticipated for the latest several years took place — Ethereum 2.0 went live. Its launch has been rescheduled several times, while the expectations from a new stage of Ethereum development are extremely high.
With all the advances that will be implemented in the network in the next few years, Ethereum is to drastically increase its scalability, efficiency, and security without any harm to decentralization. From a widely recognized open-source platform for DApps’ developers, Ethereum is aiming to become a pillar of the decentralized world anchoring itself firmly in history. This may result in a significant price of Ethereum and Ethereum cap growth.
But what is Ethereum 2.0 and where will it bring us?
What is Ethereum 2.0?
Ethereum 2.0, ETH2 or “Serenity”, it has different names, is an updated Ethereum blockchain. Its consensus mechanism is going to change from proof-of-work (PoW) to proof-of-stake (PoS). Due to this Ethereum capacity is going to increase, gas fees reduce and the network will be more sustainable.
Ethereum 2.0 having multiple phases to release. The first one was called Beacon Chain and delivered on December 1st of 2020. It introduced staking, the main feature of the PoS consensus mechanism.
The second phase “The Merge” will be released in the first or second quarter of 2022 as expected, and will merge Beacon Chain with Ethereum mainnet.
The last, Shard Chains, will have a key role in scaling the network and spread all operations across 64 new blockchain. Although, there is no expected date yet.
The reason for Eth2
Ethereum has been around since 2015 and has gained enormous traction since then. Hundreds of projects have based their DApps on the Ethereum blockchain. And at one point, it became clear that with the existing architecture, Ethereum will not make it through — critical congestion levels led to extremely high transaction fees and lowered speed.
Think of it as an urban train system in a beautiful city. Once, its population was only 100,000, and trains were dealing well with the passenger traffic. But the city has carried out a cool policy and became attractive for the citizens. Another 900,000 flowed in, and the transportation started to collapse. They had to raise fees and lengthen the trains, but that didn’t work out. Some kind of revolutionizing solution was needed to change the very way the system functions. And Ethereum 2.0 is the one.
The problem of Ethereum’s poor scalability became clear long before now: in now-far 2017, the harmless CryptoKitties game has congested the network raising ETH difficulty so much that it has even been inscribed into the history of Ethereum as a CryptoKitties Congestion Crisis.
Breaking the trilemma
Ethereum 2.0 seems to resolve an issue that Ethereum co-founder Vitalik Buterin has once called a “blockchain scalability trilemma.” It says that you can’t easily increase the security and scalability of a blockchain without making it more centralized. Not easy, but not impossible — in fact, this trilemma is exactly what Eth2 is aiming to solve.
Briefly, here are the major upgrades in this network:
- Proof of Work to Proof of Stake transition. This consensus algorithm shift is supposed to increase the efficiency and security of the network. Below, we’ll see how.
- Sharding of the blockchain into 64 parallel lines. This will increase the transaction per second rate by at least 64, and possibly by hundreds.
- eWasm instead of EVM. Ethereum Virtual Machine is a platform that allows developers to create decentralized applications. Its new generation will increase the functionality of smart contracts and lower the network fees.
Here’s the plan
The Ethereum transformation is taking place in three stages:
Phase 0 has started on December 1. The main event here is the launch of the Beacon chain — a version of Ethereum functioning on a Proof of Stake consensus algorithm. Basically, this is still a testnet — there are no DApps and other full functionality here. But the deposit for staking has already started: at Phase 0, Ethereum promotes locking funds for the staking that will start in approx. 2022. Recently, the total amount of Ether locked in Ethereum 2.0 has surpassed $1 billion.
Phase 1 introduces sharding — a mechanism of splitting the whole Ethereum blockchain into 64 shards. The transactions will now be processed in 64 parallel lines which will increase the speed of Ethereum — this is the main thing Ethereum 2.0 is about. Ethereum 1.0 blockchain will become one of the shards in order to avoid the hard fork.
Phase 2 will start in 2022, and this is where all of the improvements will have been implemented. Fully functioning staking, DApps, and Ethereum WebAssembly — eWasm which is dedicated to redesigning the Ethereum smart contract execution layer.
How will that all change the network?
Here’s how all these improvements are to affect Ethereum functionality:
- Scalability. At some point, Ethereum will be capable of 100,000 transactions per second compared to the current 15. This will make Ethereum even more competitive as a global decentralized programmable blockchain for building DApps.
- Efficiency. No more cumbersome Proof of Work! The transition to Proof of Stake will make Ethereum a platform that demands far less computing power than before.
- Security. In the Ethereum 2.0 Proof of Stake, transaction validators will get rewarded for performing honestly and penalized for the opposite. Cheating validators will be forced to exit the network with penalizing their stake, which means that it’s impossible to attack the network without any money loss for themselves. Also, Ethereum is building a dedicated security team to maintain the proper functioning of the network.
- Accessibility. In Ethereum 2.0, the barrier for entry will be lowered for the developers as smart contracts are not as expensive anymore. As for end-users, they will be able to use Ethereum even from resource-constrained devices such as PCs or older cell phones.
The bright future for Ethereum
The transition to Ethereum 2.0 is promising not only to drive the platform’s growth but to advance the whole crypto market. Implementing all the scaling solutions may increase the institutional investors’ interest in crypto which may result in its further robust advancement, same as the increasing Ethereum vs. Bitcoin competition. Large investors can drive the current price of Ethereum to increase their crypto capital. As for Ethereum price, it may also grow significantly from the current Ethereum to USD $600.
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