What is Ethereum 2.0
The most-awaited Ethereum upgrade is coming! Ethereum 2.0 is a multi-phased upgrade that aims to improve the Ethereum network’s scalability and security through several changes to the network’s infrastructure — most notably, the switch from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model. Developers at the leading altcoin are saying that the process should start mid-September of 2022.
Defining Ethereum 2.0
Ethereum 2.0, also known as Eth2 or “Serenity,” is an upgrade to the Ethereum blockchain. The upgrade aims to enhance the speed, efficiency, and scalability of the Ethereum network so that it can avoid bottlenecks and process more transactions simultaneously.
But Ethereum 2.0 also doesn’t really exist — in January 2022, the Ethereum Foundation said it would stop referring to the upgrade as Ethereum 2.0. The rebrand is intended to reflect the fact that what’s happening is a network upgrade rather than the launch of a new network. Accordingly, Eth1 is now known as the “execution layer,” where smart contracts and network rules reside, while Eth2 is referred to as the “consensus layer,” which ensures that devices contributing to the network are acting in accordance with its rules.
The name Ethereum 2.0 has stuck, however.
When Will Ethereum 2.0 Happen?
The second phase began earlier in 2022 through a series of “merges” with testnets, culminating in a merge with the Ethereum mainnet slated for September 2022. These merges are simply integrations of the Beacon Chain with various testnets. When it merges with the mainnet, Ethereum will have officially moved to a PoS model.
All of the latter changes relate to the consensus model of the network, but the Ethereum 2.0 upgrade will also involve the implementation of sharding, which tackles the scalability of the network. Sharding follows the merges and is the final phase of the Ethereum 2.0 transition. This phase should be complete by 2023.
There are plans for changes after sharding; however, these are not the current immediate focus. The improvement of the Ethereum network is an ongoing process.
Ethereum 1.0 vs. Ethereum 2.0
The major difference between Ethereum 2.0 and its counterpart is the consensus mechanism that they use. Ethereum 1.0 uses a proof of work (PoW) mechanism, while Ethereum 2.0 uses a proof of stake (PoS) mechanism.
The proof of work mechanism is an energy-intensive process in which complex mathematical puzzles are decoded by miners with the help of computer hardware processing power. This is also used to verify new transactions. Whoever decodes the puzzle first, adds a new transaction that contains the previous transactional records making up the blockchain.
In the proof of stake mechanism, crypto is used to verify a transaction by the transaction validators instead of miners. The validators must propose depending on the time and amount of crypto they hold. When a majority of validators claim to have seen the block, it is added to the blockchain and they are rewarded for conducting the block proposition successfully. This is how “forging” or “minting” takes place.
PoS is a more energy-efficient mechanism as compared to PoW since it uses less computing power to secure a blockchain.
The Impact of Ethereum 2.0 on Ethereum’s Price?
Many have speculated that Ethereum’s upgrade could be followed by an increase in its price. This is mainly due to the fact that Ethereum and its DeFi network will become far more practical to the average person that may not have a lot of money.
Fees to make transactions on Ethereum will likely drop to a point that allows users to move smaller amounts of value. Right now, only those with more money can take the immense transaction fees.
Those who stand to benefit the most from Ethereum’s upgrade are those who do not have access to the modern banking system that exists today.
These people include third-world citizens, refugees and the nearly 2 billion individuals that do not have access to modern financial products like bank or investment accounts.
Many people live in nations without the infrastructure to provide identification to their citizens, without which you cannot get a bank account or use any modern payment apps. Ethereum’s decentralized financial ecosystem allows these types of people to access financial accounts, loans, investment opportunities and more.
With low fees and a lowered barrier to entry, DeFi has the potential to grow significantly, and Ethereum’s price along with it. That, of course, all depends on the success of Ethereum 2.0.
Ethereum 2.0 has been long-anticipated and much discussed in the blockchain ecosystem. Proof of Stake and sharding will bring considerable improvements to scalability, security, and accessibility. For ETH holders, Ethereum 2.0 provides a new opportunity to participate and receive rewards for maintaining the network.