You’ve probably heard that Ethereum blockchain is doing a new upgrade called Ethereum 2.0. But do you know what it is? Don’t worry, this post is for you.
We’ll tell you what Ethereum 2.0 is, its history, when it will release, what problem it’ll solve, and more. Let’s start with what it is.
What Is Ethereum 2.0?
Ethereum 2.0 is the merger between the Ethereum Mainnet and Ethereum Beacon Chain. When it happens, the entire Ethereum platform will fully adopt the Proof-of-Stake (POS) consensus mechanism.
The goal of Ethereum 2.0 is to solve the crypto trilemma, so the Ethereum blockchain becomes more scalable, secure, and sustainable.
History of Ethereum 2.0
Ethereum 2.0 was expected to be fully released at the end of 2019. Later, it was announced that Ethereum 2.0 will be launched in 3 phases, and the 1st phase (Beacon Chain) was launched on 1st Dec 2020.
The next phase is expected to be launched in June 2022, and the date for the final phase hasn’t been released yet. Most people believe it’ll happen near the end of 2023.
Although it seems Ethereum 2.0 will adopt the POS consensus mechanism by Jun 2022, during the second phase, many people are pessimistic about it. We can’t blame these people because Ethereum has lied in the past, so it makes sense people will lose trust in Ethereum’s words.
What Is Consensus Mechanism?
Earlier, we told you that Ethereum 2.0 is the adoption of a new consensus mechanism. Before moving on, it’s important that you know about what a consensus mechanism is.
In case you’re already familiar with what’s a consensus mechanism, feel free to skip this section. In case you’re not, let’s talk about it.
The word consensus means to agree, and the goal of a consensus mechanism is to achieve security, trust, through agreement.
There are two types of consensus mechanisms. A centralized consensus mechanism, and a decentralized one. Let’s look at how they are different.
Centralized Consensus Mechanism
In any centralized organization, there is a person/a small group of people who control the database of the entire organization.
This person or a group of people is called administrator/administrators. The administrator has the authority to add data to the database and remove data from the database.
A system where one entity has control over the database of the entire organization is not secure. It’s super easy for the entity to manipulate the database for their benefit.
Decentralized Consensus Mechanism
A decentralized consensus mechanism works in a completely different manner. No single entity has control over the database. A transaction is only processed when the majority of the nodes confirm it.
In a decentralized consensus mechanism, the database exists on a blockchain network where the majority of nodes control the database. For anyone to manipulate the data (data is transactions in this case), they will need to hack the majority of the nodes.
Here is the thing. Huge crypto networks such as Bitcoin have thousands of nodes. For anyone to hack such a huge blockchain network, they’ll need to hack thousands of nodes. Therefore, the blockchain networks are super safe.
Let us illustrate how difficult it actually is to hack a huge blockchain network. It’s difficult to hack 1 node. It’s super difficult to hack a dozen nodes. It’s nearly impossible to hack 100 nodes. It’s impossible to hack 1,000 nodes. And to hack a huge blockchain, the hacker will need to hack thousands of nodes.
Why Is POS Important?
Currently, Ethereum uses the Proof-of-Work (POW) consensus mechanism. This consensus mechanism has helped Ethereum become one of the largest cryptocurrency in the world, but it’ll keep Ethereum from growing further.
This is where POS kicks-in. The POS mechanism will help Ethereum grow beyond its current limits by solving the problems that come with POW.
What are these problems? Here are the 3 major problems:
Speed: The current transaction speed of Ethereum is quite slow. Ethereum can process between 12 to 15 transactions per second (TPS). The POS consensus mechanism is expected to increase the speed by thousands of times!
The max expected TPS of Ethereum 2.0 is a staggering 100,000. Therefore, the transaction speed of Ethereum 2.0 will be insanely faster than the current version.
Fee: Since Ethereum 2.0 will be able to process an enormous amount of transactions per second, the price of a transaction will reduce significantly.
Energy Consumption: The POW consensus mechanism consumes a huge amount of energy. How much energy are we talking in terms of kilowatts per hour (KWH)?
The current version of Ethereum uses 44.5 TWH every year. Since 1 TWH = 1B KWH, Ethereum is using 44.5B KWH of energy every year. It’s insanely high!
According to Vitalik Buterin, Ethereum 2.0 will reduce the energy consumption per transaction by a factor of 1,000 (or more). This means ETH 2.0 will be super eco-friendly.
As you can see, adoption of POS is essential for Ethereum’s growth.
How Does POS Work?
The answer to this question lies within the question. The POS consensus mechanism allows the users to stake their coins to get a chance of validating transactions.
The person who stakes their coins is called a validator, and the validator is eligible for validating transactions. The validator is selected based on 3 factors, so let’s look at them:
Amount: The amount of ETH a validator has staked.
Time: For how long the user has staked their coins.
Randomness: The purpose of this factor is to make the selection process fair. Without the element of randomness, the user with the highest amount and the longest timeline will always get the validator rights.
Here are the benefits users get for staking ETH:
Validation Rewards: The validator that processes the transaction gets ETH as a reward.
APY: People who stake their coins also get annual percentage yield (APY) as a reward for providing their coins to help the Ethereum network function.
Better for the environment.
How POS Will Impact Ethereum 1.0 Projects like Qawalla?
Ethereum 2.0 will have a positive impact on Ethereum 1.0 projects, such as Qawalla. Currently, the transfer fee for Ethereum networks is extremely high and Ethereum 2.0 will reduce it significantly.
How high is the transfer fee? It’s so high that it’s not worth it for the users to make small transactions. This is because the fee is often higher than small transactions.
Ethereum 2.0 will reduce it so much that it’ll be worth it for the users to make even a tiny transaction of one USD.
