Ethereum 2.0 is dead, long live the consensus layer! The project to upgrade Ethereum, the world’s best-known but most complicated computational blockchain, has evolved into an organization of a “consensus layer” and an “execution layer” as ETH is moving closer to its goal of becoming a useful and scalable network based on proof-of-stake (PoS) block confirmations.
In fact, Ethereum 2.0 isn’t really dead…at least not yet. According to the developers of the Ethereum Foundation, it is essentially a change in terminology to refer to aspects of “upgrading” efforts. The name changes are intended to make it clearer to “explain this development, reduce confusion, and prevent FUD within the community.”
A brief history of the upgrade
Ethereum has followed a “road map” for several years in its attempts to scale globally. Its own founder, Vitalik Buterin, admitted the network has always struggled to evolve into its current form, and the Ethereum Foundation’s renaming announcement reiterates that a major upgrade has always been part of the plan. .
This plan is both ambitious and confusing in its complexity, and Ethereum has seen years of delays, postponements, and changes in direction. Moving from Proof of Work (PoW) to Proof of Stake (PoS) involves substantial changes to Ethereum’s protocol and business model, especially when there are thousands of contracts, DeFi structures, and DApps in the pipeline. running on the network that must remain consensual and continue running throughout the switch. It’s a bit like trying to change the gauge of the tracks on a major rail network… while the trains are still running.
Ethereum developers are also figuring out on the fly how to handle all of this as well. The latest plan is to have a PoS “consensus layer” (aka Eth2) running alongside the current PoW “execution layer” (Eth1) until the two can be merged. Ethereum will at some point remove all PoW miners from its network with a “difficulty bomb” (at the “melting” point) that instantly makes it unprofitable to continue mining, leaving only the PoS confirmation algorithm in place. This event is now scheduled for 2022.
This process was described under the umbrella term “Ethereum 2.0” until this week, but the developers felt it added confusion and made it seem like Eth1 and Eth2 were steps rather than components. There have also been a number of scams reported as bad actors exploited the confusion to sell or list “ETH2” assets.
Other than the name change, all aspects of the upgrade roadmap remain the same and in place, the developers said.
Will a name change and protocol change fix Ethereum’s problems?
Ethereum is popular but has struggled to keep up with network traffic in recent years. As with BTC, transaction fees have been prohibitive as miners struggle to handle demand. This left a lot of funds “stuck” in wallets (it would cost more than the full value of the transaction to send them anywhere) and high transaction volume DeFi apps were blocked.
There is also the question of whether ETH might even be classified as an illegal security by major regulators like the SEC at some point. This has recently impacted Ripple’s XRP network, which has fallen from its position as one of the most popular assets in the industry. Unlike Bitcoin, Ethereum started with a “pre-mine” of ETH assets split among its initial founders – and could see lead developer Buterin’s position defined as an “issuer”, leading to legal issues. Vitalik was also the main fundraiser during the pre-ICO road show which is well documented in videos all over the internet.
Then there is the proof of stake itself
“Proof of Stake”, or PoS, has become a buzzword in the blockchain world, but it has several problems. Apparently its backers are trying to position it as a more efficient and eco-friendly way to process and save blocks of data on a blockchain, it awards block confirmations (and the block reward/grant ) to those who “stake” some of their ETH assets. The more you bet, the better your chances of confirming the block and winning more ETH.
The concept has recently gained traction outside of the blockchain world, where just saying “excessive energy consumption” is enough to incite horror in the public in search of a more “sustainable” economy. This seems like an instant fix to all those mainstream media reports about BTC mining using more electricity than some countries, or about miners using power some countries need for more essential purposes.
PoS also makes scaling easier, its proponents say, by making processing faster, more “decentralized,” and less prone to the kind of network bottlenecks and high fees that have plagued Ethereum in recent years.
The power consumption claims have some merit. Yes, PoW can consume a lot of power. However, this is why it is necessary to process as much data as possible in transaction blocks (as BSV does) and to expand the usefulness of blockchain to secure much of the world’s information. Using all that energy to confirm a handful of payment transactions (around 4-5 per second, like BTC) is a waste. Using it to secure data on a better version of the internet is worth it. Since BSV has already proven that it can scale unlimitedly using proof-of-work confirmations, it becomes more power efficient the more data it processes. (If you want to know more about this, consult the report from major accounting firm MNP which found BSV to be the most energy-efficient blockchain compared to BTC and BCH.)
So what’s wrong with proof of stake? Many. For starters, when all you need to become a major transaction processor is a large amount of coins, the network itself becomes less reliable. Coins can be transferred between addresses instantly, borrowed temporarily, and/or hidden behind nicknames, DAOs, or other facades. This means that you can never know for sure who is confirming all these transactions or who is driving the policies behind the protocol rules.
Bitcoin creator Dr. Craig S. Wright said PoS was a bad way to attempt scaling, and called it both a “complete scam” and “purely a scam for mislead regulators into believing it is decentralized”. He compares this to the voting shares of a corporation that can be shuffled, pooled, and used to disguise who has the most votes:
“Proof of stake is just a way of trying to hide from the government. If there are 100 stocks and now sixty of those around the Ethereum foundation, you can have a variety of pseudo-companies all controlled as DAOs.
He explained, “For example, you have thirty companies with one share each. Ten companies with two shares each. A four-share company in two three-share companies. All of these are controlled by the same people you set them up as front companies acting as DAOs, and now, rather than having control of the network, you appear to be decentralized.
Ethereum may change terminology, plans, and timelines as it tries to find a scaling solution that actually works, but ultimately it still faces an uphill battle to regain developer trust. . Meanwhile, BSV continues to operate and evolve exactly as Satoshi Nakamoto intended when it launched (with no value or pre-mine) on a protocol that promises never to change – or let working applications flounder.
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