ETH 2.0: A beginners guide to Ethereum most significant upgrades
September 2, 2022 8:41 PM
Ethereum, after Bitcoin, is the second most widely used blockchain platform. Even though progress is slow, the Ethereum platform has lofty ambitions to one day surpass Bitcoin. Vitalik Buterin, founder of Ethereum, proposed the concept of a blockchain platform in 2013 that could host applications and provide other benefits not limited to monetary transactions. He foresaw a future in which programmers could use decentralization to establish authoritative structures.
Buterin and the ETH team came up with a plan to improve Ethereum's scalability, and it's called Ethereum 2.0. The information in this post about Ethereum 2.0 alters the original protocol. Ethereum 2.0 represented a significant change to the network's consensus algorithm. Ethereum 2.0 upgrade means moving from a proof-of-work algorithm, which consumes a lot of energy, to a proof-of-stake algorithm.
What is Proof-of-Stake with Proof-of-Work?
Proof-of-work was the first blockchain-based validation method, introduced by Bitcoin. For PoW to work, users need to pool their computing resources, such as CPUs and GPUs, to solve complex algorithms and validate blocks. It is the job of each block in the blockchain to store a certain number of transactions.
However, proof-of-stakes eliminates many of the issues that have historically plagued PoW consensus algorithms. PoS is similar to mining in that it depends on user verification of transactions. Each node in a Proof-of-Stake (PoS) network is referred to as a validator. The validators in a blockchain are the users who "stake" or "lick-in" a certain amount of cryptocurrency. To lock their funds, users must indicate to their networks that they wish to act as validators. In this case, the user's staked funds serve as the basis for the rewards they receive for participating in the network.
Transitioning to Ethereum 2.0
Several steps involve transferring value using Ethereum. Phase 0 is the initial stage.
During this initial phase, the so-called Beacon Chain is first introduced. To be precise, it went live on the first of December, 2020. It all started with the Beacon Chain, which marked the beginning of the transition to PoS. This allows users to stake Ethereum and participate in the network as validators. The main Ethereum blockchain is unaffected by Phase 0.
First stage: Originally scheduled to debut in the middle of 2021, it will now debut in early 2022. Ethereum 2.0 has been delayed due to unfinished development and code auditing, according to the project's developers. The next phase integrated the Beacon Chain into the mainnet and made the official transition to the PoS consensus algorithm.
In the second stage, Ethereum WebAssembly (EWASM) was released. The World Wide Web Consortium developed WebAssembly. The goal here was to improve Ethereum's performance relative to its current state. Ethereum makes use of a special type of virtual machine called an EVM (Ethereum Virtual Machine). To function as a worldwide supercomputer, Ethereum can be run on an EVM. In addition to decentralized applications and intelligent contracts, this computer is accessible to users anywhere in the world (DApps).
A question remains: what happens next?
Ethereum's long-term viability depends on the implementation of the 2.0 upgrade. Users waste a lot of energy, pay exorbitant prices for gas, and have to wait ridiculously long for transactions to be validated under the current system.
Ethereum's inability to scale has repercussions beyond the transactional ease for which it is known. Ethereum's shortcomings have an effect on decentralized monetary features like loans and borrowing. The same holds true for NFTs. Due to high network traffic, the gas costs associated with creating and trading NFTs on Ethereum, for example, can easily reach several hundred dollars.
Once Ethereum 2.0 is released, the entire network will begin to enjoy its benefits. The price of buying and selling and creating new NFTs on Ethereum will go down thanks to sharding and the proof-of-stake consensus algorithm. Developers working on Ethereum can benefit from eWASM because it simplifies the compilation of smart contracts and the creation of decentralized applications. eWASM is built in a Web-standards compliant manner, making it easier to implement support for Ethereum lite clients in browsers. By switching to proof-of-stake, Ethereum will be more decentralized than ever before while leaving virtually no environmental impact.
Long-term effects of Eth2 are less certain. Unlike Bitcoin, the native currency of the Ethereum network, Ether, isn't meant to be held as a store of value. The primary use case for Ether is the transfer of value between different geographical locations. For example, a user could put their Ether into DAI and start lending it out to others for interest. Many cryptocurrency experts believe that Ethereum 2.0 will cause the price of Ether to soar into the five-digit range, but it's possible that this won't happen.
After all, expanding the Ethereum ecosystem is as simple as allowing for more ERC-20 tokens. The ERC-20 technical standard must be met by all Ethereum-based assets. Any two ERC-20 assets can interact with one another because all ERC-20 tokens follow the same standards. More and more users will join the Ethereum network, buying Ether to use the many decentralized applications available on the platform, and then exchanging it for other ERC-20 tokens. Ideally, investments made in Bitcoin's ecosystem's value will be there for the long haul, driving up the price. The Ethereum network's efficiency is inversely proportional to the rate of value's constant circulation.
Examples include how other blockchain networks will take note as decentralized application (Dapp) developers start to use Ethereum 2.0's proof-of-stake features. Ethereum's rivals will need to provide features similar to Ethereum's scalability if they want to keep up development or even a user base. The PoW consensus method is inefficient, and Bitcoin may come under pressure to change.
As Ethereum 2.0 features like staking take hold, more people and companies will become acquainted with cryptocurrency. More people may decide to join the Eth2 network if the interest rates for staking are significantly higher than those offered by traditional banks.
There will be a record number of people interested in validating transactions on the Ethereum network and learning about blockchain technology as a result. If the lessons learned on Eth2 are applied to other networks, more people may enter the crypto industry. Traditional financial institutions could lose business to decentralized finance (DeFi) lending platforms if investors there receive higher returns on their capital. The Ethereum network is so widespread that citizens can move their entire savings balances there. When a user transfers money to Ethereum, they are no longer at the mercy of an intermediary like a bank that may limit their transactions or charge them for doing so.
Successful implementation of Ethereum 2.0 could transform Ether from a highly sought-after commodity into a critically important asset. To create decentralized databases and applications, Ether can be used by businesses and individuals alike. The world's opinion of Ethereum is changing, and that's excellent news.
In conclusion, Ethereum 2.0 upgrade is critical for the platform's long-term success. Because of the current system's high gas prices and lengthy transaction validation times, users waste a lot of power in the course of completing these tasks. No more headaches thanks to Ethereum 2.0. The market perception of Ether's worth will change after Ethereum 2.0 is released. If all goes according to plan for Ethereum 2.0, Ether may go from being a highly desirable commodity to an indispensable asset.