ETHEREUM 2.0
Ethereum’s most ambitious upgrade yet, which will radically shift Ethereum’s economic model, resource usage and governance to boon is launching its Phase 0 on 1st December, 2020. The major update aims to address the network’s scalability and security through a number of changes to its infrastructure — most notably, the switch from a proof of work consensus mechanism to a proof of stake model.
Since the release of Ethereum, the development of new technologies in the form of decentralized application (Dapps) and other blockchains has greatly expanded. More importantly, many of these technologies have been built on top of the Ethereum network. Some of the biggest innovations of Decentralized Finance (DeFi) — a significant portion of them are running on top of Ethereum.
Unfortunately, scalability issues started to emerge. As the number of transactions increased on the Ethereum network, so did the cost of performing these transactions (which are paid in Gas). If Ethereum is supposed to be the platform that ushers in the next generation of the Internet, the economics have to make sense. Otherwise, it becomes impractical to use.
That’s where Ethereum 2.0 comes in. The proposed ETH 2.0 upgrades to the Ethereum network are supposed to address, primarily, the scalability issue. These improvements will create a contrast to the existing version of Ethereum, all of which will be rolled out through a carefully planned roadmap.
What Is 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 without sacrificing security and decentralization so that it can process more transactions and ease bottlenecks. Ethereum 2.0 is launching in several phases, with the first upgrade to launch on 1st of December, 2020.
The following are the broad design goals for Ethereum 2.0:
● to minimize complexity, even at the cost of some losses in efficiency
● to remain live through major network partitions and when very large portions of nodes go offline
● to select all components such that they are either quantum secure or can be easily swapped out for quantum secure counterparts when available
● to utilize crypto and design techniques that allow for a large participation of validators in total and per unit time
● to allow for a typical consumer laptop with O(C) resources to process/validate O(1) shards (including any system level validation such as the beacon chain)
Differences Between Ethereum and Ethereum 2.0
The biggest differences between Ethereum and Ethereum 2.0 involve the use of the Proof of Stake (PoS) consensus mechanism, shard chains, and the beacon chain.
Let’s take a look at these differences in more detail.
1) Proof of Stake
Proof of Work (PoW) is Ethereum’s (and many other blockchains’) way of keeping the network secure and up-to-date by rewarding miners to create and validate blocks on the blockchain. Unfortunately, PoW is not scalable since it demands an increasing amount of computing power as the blockchain grows.
Proof of Stake (PoS) solves this by replacing compute power with “skin in the game”. That’s to say, as long as you have a minimum of 32 ETH, you can commit it (i.e., stake it), become a validator, and get paid by confirming transactions.
Proof of stake will make the consensus mechanism completely virtual. While the overall process remains the same as proof of work (POW), the method of reaching the end goal is entirely different. The validators lock up some of their Ether as a stake in the ecosystem. Following that, the validators bet on the blocks that they feel will be added next to the chain. When the block gets added, the validators get a block reward in proportion to their stake.
2) Sharding
Anyone who wants to access the Ethereum network must go through a node. A node stores a copy of the entire network, which means the node has to download, compute, store, and process every single transaction since the beginning of Ethereum’s existence. While you as a user don’t necessarily have to run a node just to transact, this slows everything down.
Shard chains are just like any other blockchain, except they only contain specific subsets of one whole blockchain. This helps nodes by only having to manage a slice, or shard, of the Ethereum network. This should increase transaction throughput and Ethereum’s overall capacity.
One simple example would be a multi-asset blockchain, where there are many shards and where each shard stores the balances and processes the transactions associated with one particular asset. In more advanced forms of sharding, there exists some form of cross-shard communication capability, where transactions on one shard can trigger events on other shards.
3) The beacon chain
With shard chains working in parallel, something’s got to make sure they all stay in-sync with one another. Well, the beacon chain takes care of that by providing consensus to all the shard chains running in parallel. It will introduce staking, paving the way for the shard chain upgrade to follow.
To interact with the beacon chain, you will need a Beacon Chain Client. You can use Geth, Parity, or Pantheon to run Beacon Chain Client on your machine.
The beacon chain is a brand new blockchain that plays a central role in Ethereum 2.0. Without it, information sharing between shards wouldn’t be possible and scalability would be nonexistent. For this reason, it’s been stated that it’ll be the first feature shipped on the road to Ethereum 2.0.
The Road to Ethereum 2.0
The roll-out of Ethereum 2.0 won’t come all at once. Instead, it’ll be released in three phases, each of which accompanies distinct features to ensure the success of the new Ethereum.
Phase 0 — Beacon Chain
The first phase, or phase 0, will be dedicated to the release of the beacon chain since it’s central to the functionality of shard chains. There won’t be shard chains just yet, but the beacon chain will begin accepting validators (i.e., stakers) through a one-way deposit contract. It’s important to note that all registered validators who stake their ETH won’t be able to “unstake” until shard chains are fully implemented. That means ETH from validators will be locked up until the next phase.
The Eth2 deposit contract reached the required minimum of 524,288 ETH to launch. Phase 0 begins on the 1st of December, 2020.
Phase 1/1.5 — Shard Chain
The next phase is actually a mix of two phases: phase 1 and phase 1.5. Phase 1 will introduce shard chains, which will allow validators to create blocks on the blockchain through PoS. Phase 1.5 is when Ethereum’s mainnet will officially introduce the shard chains and begin transitioning away from PoW to PoS. Phase 1/1.5 is expected to roll out during 2021.
Phase 2 — Execution Engine
The final phase will be phase 2, which is when Ethereum 2.0 will support fully formed shards and become the official Ethereum network. Shard chains will be able to work with smart contracts as well, allowing developers of Dapps and other technologies to integrate seamlessly with Ethereum 2.0. Phase 2 is expected to roll out in 2021 or later.
A scalable ecosystem
It’s worth pointing out that the arrival of Ethereum 2.0 won’t negate the development efforts of the layer-two platforms currently attempting to solve for scalability. Instead, technologies such as rollups or side chains will continue to help Ethereum 2.0 scale beyond its renewed capacity once sharding is fully implemented.
So, strap in and settle down for a long ride. Ethereum 2.0 may be gearing up for an initial launch, but it’s still only the first of many steps on the long road to scalability. The ongoing development of layer-two solutions means there’s plenty of company along the way.
ETH2 Price Predictions
There is a consensus among experts that the ETH price outlook will remain bullish in the coming years. According to insights from leading crypto sources like CoinTelegraph, Ethereum should go through a breakthrough this year.
Plus, much in-depth technical analysis points to ETH reaching highs of around $1400 by the end of 2020. Some analysts even predict that the second biggest cryptocurrency might reach new all-time-high (ATH) levels next year. Generally, the future of Ethereum is looking good in terms of its value and prospects.
ETH2 Price Predictions for 2025
While the year 2025 is another peg on the board for expected milestones for the second most popular cryptocurrency. Based on past performance charts and current developments, the forecast for ETH indicates positive long-term growth. If Ethereum retains its growth patterns, there is room for its value to approach the level of $1,500 in the next five years. This price projection is calculated, taking into account the historical ETH price movements.
For a coin that rallied from $0.25 to an all-time high of over $1,400 per coin in just three years, the present moment offers an ideal opportunity to enter the crypto market at a time preceding historical changes that hold massive potential.
As both scarcity and demand continue to increase, investing in and trading ETH will become more lucrative as well.
KEY TAKEAWAYS
● Ethereum 2.0 is an important upgrade to the Ethereum network for a number of reasons, especially when it comes to scalability.
● Without the new features of PoS, shard chains, and the beacon chain, Ethereum could eventually become unsustainable and no longer the leading smart contract platform in the crypto ecosystem.
● The roll-out of Eth2 will take some time, and it may even take longer than expected. The good news is it’s already well underway and Ethereum developers are dedicated to seeing it through.
