What is Ethereum 2.0 and Why Does It Matter?

In the letter

  • Ethereum, the second largest cryptocurrency by market capitalization, is planning a major update of its network.
  • The Ethereum 2.0 upgrade aims to improve the scalability and security of the network.
  • In the first phase of the upgrade, due in 2020, Ethereum will switch to a consensus mechanism for proof of stake.

It took a long time, but Ethereum 2.0 is finally on the horizon. The major update aims to improve the scalability and security of the network through a number of changes to its infrastructure – most notably by moving from a consensus mechanism for demonstrating work to a model for deploying deployment.

What is Ethereum 2.0?

Ethereum 2.0, also known as Eth2 or “Serenity”, is an upgrade of the Ethereum blockchain. The upgrade aims to improve the speed, efficiency and scalability of the Ethereum network so that more transactions can be processed and bottlenecks removed.

Ethereum 2.0 will be launched in several phases. The first upgrade is expected to be released in late 2020.

How is Ethereum 2.0 different from Ethereum?

While Ethereum 1.0 uses a consensus mechanism called Proof of Work (PoW), Ethereum 2.0 uses a PoS (Proof of Stake) mechanism.

How does the proof of commitment differ from proof of work?

With blockchains like Ethereum, transactions have to be validated decentrally. Ethereum, like other cryptocurrencies, currently uses a consensus mechanism called Proof of Work (PoW).

In this system, miners use computer hardware processing power to solve complex math puzzles and verify new transactions. The first miner to solve a puzzle adds a new transaction to the record of all the transactions that make up the blockchain. You will then be rewarded with cryptocoins. However, this process can be energy intensive.

The Proof of Stake (PoS) differs in that transaction validators instead of miners use crypto for the right to verify a transaction. These reviewers are chosen to propose a block based on how much crypto they contain and how long they kept it.

Other reviewers can then confirm that they saw a block. If there are enough certificates, a block can be added to the blockchain. Validators are then rewarded for the successful block proposal. This process is known as “forging” or “stamping”.

The main advantage of PoS is that it is far more energy efficient than PoW because it decouples the energy-intensive computer processing from the consensus algorithm. It also means that you don’t need a lot of computing power to secure the blockchain.

How can Ethereum 2.0 scale better than Ethereum 1.0?

One of the main reasons for upgrading to Ethereum 2.0 is scalability. With Ethereum 1.0, the network can only support around 30 transactions per second. This leads to delays and overloads. Ethereum 2.0 promises up to 100,000 transactions per second. This increase is achieved through the implementation of shard chains.

Did you know already?

The current Ethereum setup has a blockchain, which consists of a single chain with consecutive blocks. This is safe, but very slow and inefficient. With the introduction of shard chains, this blockchain will be broken up so that transactions can be processed in parallel chains instead of consecutive chains. This speeds up the network and is easier to scale.

How is Ethereum 2.0 becoming more secure?

Ethereum 2.0 was designed with security in mind. Most proof-of-stake networks have a small number of validators, which leads to a more centralized system and reduced network security. Ethereum 2.0 requires at least 16,384 validators, which makes it much more decentralized and therefore more secure.

However, according to to Lior Yaffe, co-founder of Jelurida and leading core developer of zeal and Nxt Blockchains have a potential security flaw that focuses on the level of participation rates in the network.

Security reviews of the Ethereum 2.0 code are carried out by organizations including the blockchain security firm Least of all authority.

The Ethereum Foundation is setting up a special security team for Ethereum 2.0 to investigate possible cybersecurity problems in the cryptocurrency. In one TweetEthereum 2.0 researcher Justin Drake stated that the research will include “fuzzing, bounty hunting, pager duty, crypto-economic modeling, applied cryptanalysis and formal verification.”

How is the Ethereum 2.0 upgrade carried out?

After a series of testnet starts topaz, Medal, Spadina and sinkThe full introduction of Ethereum 2.0 takes place in three phases: Phase 0, 1 and 2 (developers like to count from zero). Phase 0 aims at a Start date 2020The other phases come in the following years.

Phase 0 sees the implementation of the beacon chain; This will save and manage the registration of validators and provide the PoS consensus mechanism (Proof of Stake) for Ethereum 2.0. In addition, the original Ethereum PoW chain is executed so that data continuity is not interrupted.

In phase 1, which is due in 2021, the verification of broken chains will be integrated. The network is expected to start at 64 shards (which allows 64 times the throughput than Ethereum 1.0), although accounts or smart contracts are not supported at startup.

In phase 1.5, a preliminary update expected in 2021, the Ethereum mainnet will officially become a splitter and switch to evidence of use.

In Phase 2, which is scheduled to start in 2021/22, shards will be fully functional and compatible with smart contracts. This also includes adding Ether accounts and enabling transfers and withdrawals, implementing cross-shard transfers and contract calls. Execution environments for scalable apps based on Ethereum 2.0 will be created.

September 2020 brought the news that the Spadina test network had encountered problems at launch and forced at least one more “dress rehearsal” before launch. Spadina is a short-term test network designed to test the genesis or creation of the first block on Ethereum 2.0. It differs from the larger Medalla testnet – a generic sandbox that is the operational version of the network. Problems with the Spadina test network included low participation, combined with “confusion” and “invalid deposits”.

In October 2020, Ben Edgington, Product Owner for ETH 2.0 customer Teku at ConsenSys (which finances an editorially independent) Decrypt) written down that the Medalla test network “suffers from very low participation”. He added that “people are a little bored with test nets” and “it is time to move on”.

When will Ethereum 2.0 be released?

Ethereum 2.0 should according to a blog entry from the Ethereum Foundation. However, the start requires that certain criteria are met. There must be 16,384 validators in the network by November 24th, each using 32 ETH, which corresponds to a total of 524,288 ETH.

As part of preparations for launch, the Ethereum Foundation published the version 1.0 specifications for Ethereum 2.0 in November 2020, including a launch padHere users can register as Ethereum 2.0 validators. The main ETH2 deposit contract has also been released – the final “missing link” that allows ETH to be sent between both iterations of the blockchain.

By November 10, 50,000 ETH had already been staked out; over at the time of writing 120,000 ETH was anchored in the ETH2 deposit agreement – 22.9% of that was required for the launch of Ethereum 2.0.

However, the pace of action was slower than expected. The only option that can be used initially is to run an Ethereum 2.0 node, a prospect that ordinary users find “intimidating,” according to Lito Coen, founder of CryptoTesters.

ONE Twitter poll At the beginning of November it was found that half of the respondents did not intend to make a deposit of 32 ETH by November 24th. Only 21.3% stated that they either used or are betting 32 ETH.

This is partly because increasing the 32 ETH is an expensive prospect. At the time of writing, when the price of Ethereum spiked to $ 500 when the ETH 2.0 contract was released, it was over $ 16,400 with funds locked for two years. While this is not a problem for Ethereum whales (Vitalik Buterin has pledged 3,200 ETH, currently valued at $ 1.6 million), smaller owners are effectively barred from participating.

To solve the problem, DARMA Capital has allocated its own $ 50 million in ETH stakes so that institutions and individuals can contribute to Ethereum 2.0 while remaining liquid by entering into a swap agreement with DARMA and over Set LiquidStake.

The future for Ethereum 2.0

Ethereum co-founder Vitalik Buterin has created a roadmap like the next five to ten years could fail for Ethereum 2.0.

He says there has been “a solid shift in the past two years from” blue sky “research to understand what is possible, to concrete research and development to optimize certain basic elements that we know about that they can be implemented, and that they can be implemented. “

He says that most of the challenges now “are increasingly in development, and development’s share of the pie will only grow over time”.

In June 2020, Buterin determined that Ethereum 2.0 had to rely on it current scaling methods like ZK rollups for at least two years before shard chains are implemented.

How could Ethereum 2.0 affect the price of Ethereum?

For some, the Ethereum 2.0 launch is exactly what the cryptocurrency needs.

“As soon as Ethereum is scalable via Layer 2 technology or ETH 2.0, all questions will be answered,” said Jamie Anson, founder of Nifty Orchard and organizer of Ethereum London Decrypt. “The gun will go off.”

In other words, more scalability means more usage, which in turn means more demand. Which – at least in theory – should drive the price of Ethereum to new heights. “If ETH 2.0 and rollups work together, 100,000 transactions per second will be possible. That means a completely seamless experience for the next billion people, ”added Anson.

Matt Cutler, CEO of Blocknative, a company focused on the complexities of the mempool, is equally bullish, especially as gas fees may come down with the introduction of Ethereum 2.0. “Our customer base sees reducing transaction fees and increasing network throughput as great areas of opportunity for the future,” he said Decrypt.

In addition, the ecosystem that takes into account key milestones will add momentum to the Ethereum developers. “This will have a positive long-term effect on the price of ETH – regardless of the short-term volatility, which is an essential part of valuing crypto assets,” added Cutler.