Ethereum 2.0 — What It Means For The Ethereum Blockchain?
The Ethereum blockchain is currently facing a lot of challenges, from High gas fees that are unaffordable to most cryptocurrency investors to Environmental challenges due to energy usage and Network congestion issues.
With the Ethereum blockchain currently processing just Fifteen transactions per second, despite it being the number one blockchain for smart contracts and decentralized applications (DApps) in the cryptocurrency space.
This Article Contains
- What Is Ethereum 2.0?
- What Major Challenges Will Ethereum 2.0 Solve?
- Major Differences Between Ethereum 2.0 And Ethereum 1.0.
- What Will Happen To The Ethereum Coins Investors Currently Have?
- Ethereum 2.0 Release Date.
- Will ETH 2.0 Increase The Price Of Ethereum Coin?
With the launch of Ethereum 2.0, the Ethereum blockchain will solve issues relating to scalability, high transaction fees, security and also improve all other segments of the Network.
What Is Ethereum 2.0?
Ethereum 2.0 also known as “Serenity” is an upgrade of the Ethereum blockchain from the Proof of Work consensus mechanism to the Proof of Stake consensus mechanism.
Serenity will improve the Ethereum blockchain's Transaction speed, scalability, security and smart contracts.
The upgrade will also ensure that the Ethereum blockchain is more Environmentally friendly by eliminating its reliance on computational power when it upgrades from Proof of Work consensus to Proof of Stake consensus.
Serenity (ETH 2.0) will not just be a mere upgrade, it will mark the end of the current Ethereum network with changes made at the backend to ensure the Ethereum blockchain is more efficient and has better decentralized applications (DApps) and DeFi platforms.
What Major Challenges Will Serenity (Ethereum 2.0) Solve?
As the main reason for Serenity is to address the issues that the Ethereum blockchain has been facing since its launch in 2015, here are the main issues that ETH 2.0 will address once it's launched.
- High Gas Fees: Ethereum is the leading blockchain for smart contracts and DApps, this factor means that it's the first choice for Cryptocurrency investors, developers and DeFi Institutions.
However, the high demand on the Ethereum blockchain has also resulted in a spike in the cost of executing transactions on the network.
To address this, The Sharding phase of Ethereum 2.0 will eliminate network congestion and improve scalability (Network congestion and scalability issues are the primary causes of the high Gas Fees).
As the Ethereum blockchain will move from its current capacity of 15 transactions per second to 100000 transactions per second. Resulting in a significant reduction in the cost of executing transactions.
Thereby leading to faster transactions without having to spend a huge amount on Gas fees.
- Scalability/Network Congestion: The Ethereum blockchain currently processes transactions at a TPS rate of about 15 transactions per second. This isn't good enough compared to the Solana blockchain that can process up to 65000/Second coupled with the fact that Ethereum is the number one smart contract and DeFi network and therefore gets the most attention.
With the implementation of Shard Chains, ETH 2.0 will boost the capacity of the Ethereum blockchain from 15 transactions per second to 100000 transactions per second.
The creation of 64 new shard chains with the launch of Ethereum 2.0 will spread operations on the Ethereum blockchain across all 64 shard chains instead of one blockchain.
- Environmental Challenges: Bitcoin and Ethereum blockchain's use of the Proof of Work consensus mechanism, has been heavily criticized overtime due to its energy-intensive nature. According to Digiconomist, Bitcoin and Ethereum currently use more electricity than Italy, Saudi Arabia and Mexico.
ETH 2.0 will execute Ethereum's transition from Proof of Work consensus mechanism to a Proof of Stake consensus mechanism.
This will result in more than a 99% reduction in the energy consumed by the Ethereum blockchain making the Ethereum blockchain more Environmentally friendly.
Related: Blockchain Consensus Mechanisms— Proof of Work vs Proof of Stake
Major Differences Between Ethereum 1.0 And Ethereum 2.0
With the change to Serenity on the Ethereum blockchain, there will be significant changes in terms of security, scalability, smart contracts, DApps and DeFi.
Here are the major differences between ETH 2.0 & ETH 1.0.
- Proof of Work Consensus vs Proof of Stake Consensus
ETH 1.0 used Proof of Work as the consensus algorithm on the Ethereum blockchain. PoW isn't Environmentally friendly in nature as it is energy-intensive due to the Electricity needed for the computational power to mine Ethereum coins and validate transactions.
Proof of Stake will be the consensus mechanism once ETH 2.0 is fully released which will reduce the need for Electricity drastically as achieving consensus in a Proof of Stake protocol doesn't rely on computational power.
- Mining vs Staking
To earn new Ethereum coins and solve Ethereum blocks in ETH 1.0, Miners had to set up mining rigs and buy mining equipments so they could mine Ethereum coins.
This means that getting new Ethereum coins, comes with the financial burden of ensuring the smooth running of the mining rigs and replacing the equipments once the need arises.
On the other hand, the release of ETH 2.0 means that there's no need to buy mining equipments for the mining of Ethereum coins and solving blocks.
All users have to do to be selected as validators is to Stake their Ethereum coins and earn new Ethereum coins in return for each block they solve on the Ethereum blockchain. Thereby eliminating the need for mining Ethereum coins.
What Will Happen To The Ethereum Coins Investors Currently Have?
Nothing will change, there will be no Ethereum V2 tokens launched on exchanges or any new native currency of the Ethereum blockchain.
You don't have to do anything to the current Ethereum coins you currently have in your wallet. The changes to the Ethereum network will actually be done at the backend.
Ethereum 2.0 Release Date
ETH 2.0 will be fully launched in 2023 though some phases are currently being rolled out but Serenity will fully launch in 2023.
Will ETH 2.0 Increase The Price Of Ethereum Coin?
A significant reduction in the cost of transactions and improvements in terms of scalability and security should create demand for the use of Ethereum blockchain and its native currency which should affect the price of Ethereum.
However the effect that ETH 2.0 will have on the value of Ethereum coin remains to be seen as nothing is established yet.
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