What is Ethereum 2.0 and when is it coming?

What is Ethereum 2.0 and when is it coming?

If you are looking for a major catalyst that could drive up the price of Ether (ETH 1.13% ), the native cryptocurrency of the Ethereum network, look no further than Ethereum 2.0. Ethereum 2.0 is a set of upgrades currently underway to the Ethereum blockchain that would make the network more scalable, secure, and sustainable. These upgrades have actually been in development since 2014 and represent a major transition for the world’s second most popular cryptocurrency. Let’s see what Ethereum 2.0 is and when updates can go live.

The problem with the current network

For those who are completely new to the world of cryptocurrencies and blockchain, Ethereum is a decentralized network powered by digital ledger blockchain technology that can be used to make digital payments. It differs from Bitcoin ( BTC 0.99% ) in this code can be built and programmed on the Ethereum blockchain network to create smart contracts and decentralized applications that run constantly, and cannot be manipulated or controlled by a third party.

Ethereum 2.0 upgrades will attempt to significantly improve this network. As Ether and Ethereum grew in popularity, the network became increasingly clogged with transactions. Currently, it can handle 15-45 transactions per second, which sounds impressive, but is nowhere near enough to handle all Ethereum users around the world. High demand also drives up transaction fees.

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A big initiative of Ethereum 2.0 is to make the network more scalable so that it can handle all activity on the network. Currently, Ethereum, like many other blockchain networks, is powered by nodes, which are any device connected to the blockchain, including servers, computers, and cell phones. The nodes are interconnected and constantly exchange data to keep the network up to date. But the nodes on the Ethereum network are currently experiencing too much volume, and the programmers working on the upgrade determined that it would be impractical to expand the nodes.

Introducing Ethereum 2.0

To alleviate some of the pressure, the developers are turning to a concept called sharding which will create 64 new chains on the Ethereum network to further distribute the volume. This will essentially take the massive amount of data currently stored on Ethereum nodes and break it up into smaller pools that will be stored on more databases, easing the strain on the current system and allowing for more transactions per second. The partitioning part of the process is very important and will also make the network more secure and durable. Sharding will eventually allow ordinary users to use Ethereum on a personal device, increasing network participants and making the Ethereum blockchain more decentralized as there will be more users. The more users there are and the more nodes there are, the more complex it will become for hackers to take over a large part of the network.

With more network participants, Ethereum 2.0 also plans to move away from energy-intensive token mining to a process called staking. Much of cryptocurrency has always been a concept called mining, in which people trying to obtain new tokens use powerful computers to solve complex mathematical equations very quickly. As the demand for crypto increased, miners had to use an incredible amount of computing power and therefore energy to manufacture new tokens. Sharding will help eliminate mining. Instead, Ethereum will turn to staking, a process in which Ether owners store a number of tokens in a crypto wallet on their own personal device, then use those tokens to validate and forge new Ether tokens. The transition to Ethereum 2.0 could make the network almost 100% more energy efficient.

Finally, once all these upgrades are in place, Ethereum will be able to perform a large deployment of smart contract execution. Smart contracts are programmed, automated contracts that cannot be changed retroactively and work without the need to be executed by some sort of third party. For example, a smart contract could be set up to execute a lease between a landlord and a tenant, where a contract is signed and then the tenant’s money is automatically paid to the landlord each month, without the usual frictions in these relationships.

Where is the process?

While it has been in research and development since 2014, Ethereum 2.0 has actually made progress. In December 2020, the Beacon chain went live, which introduced the concept of staking. However, the Beacon chain can’t really be used until the other parts of the transition come online – hence its name “phase 0” of the plan.

The next phase will be to merge the Beacon chain into the current Ethereum blockchain network, known as the mainnet. When that happens, Ethereum token mining will officially end and staking will become the primary means of creating new tokens. This is supposed to happen in 2021, but may not happen until 2022. When that happens, the Beacon Channel will have full functionality.

The final part of the transition, which is expected to be rolled out in phases, is the addition of shard chains to give the Ethereum network more capacity to handle all the demand and increase transactions per second. This is expected to happen sometime in 2022, although it is currently unclear when. The launch of Beacon Chain was a major milestone, and Ethereum developers seem motivated and on track to complete the full transition, but it’s been a long road and there’s still a lot of uncertainty about when.

Will it be worth the wait?

If executed correctly, Ethereum 2.0 could be a complete game-changer. This will create a network that could potentially process 100,000 transactions per second. It will also create a much more sustainable network without the energy-intensive mining and introduce smart contracts around the world, increasing the real utility of Ethereum. Additionally, Ethereum co-founder Vitalik Buterin said that the issuance of new tokens is expected to be significantly reduced under Ethereum 2.0, which could increase demand. Considering all these factors, Ethereum 2.0 should be worth the wait.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.