What is Ethereum 2.0
ETH 2.0 is the long-awaited upgrade to the Ethereum network that promises, among other things, to improve the network’s scalability, speed, efficiency, and sustainability without sacrificing security and decentralization.
Ethereum 2 (ETH2) is an upgrade to the Ethereum network that aims to improve the network’s security and scalability. This upgrade involves a shift in Ethereum’s mining model (“Proof-of-Work”) to a staking model (“Proof-of-Stake”). The original mechanism used by blockchains is proof-of-work. PoW requires computers to compete against each other to process transactions and get rewards. This process is highly energy-intensive and also time-consuming.For this reason, some newer cryptocurrencies have opted to go another route — proof-of-stake. Ethereum’s upgrade to version 2.0 will have it transition to PoS to allow for far faster transactions and lower fees.
When Will Ethereum 2.0 Be Released?
The upgrade to Ethereum has been happening in phases. The first phase, “phase 0,” is already live. Phase 0 introduces the beacon chain. The beacon chain is essentially a new PoS blockchain that Ethereum’s current chain will eventually merge with. The beacon chain introduces PoS and sets Ethereum up for staking and shard chains and is sort of a testnet for the future PoS version of the ethereum.
The second phase, or “phase 1,” is called the merge. The merge represents the official switch to the PoS consensus model where the existing Ethereum network will merge with the beacon chain. Ethereum developers also refer to the merge as “the docking” and expect this to take place sometime in late 2021 or 2022. After the merge, Ethereum will be a PoS blockchain that allows Ethereum holders to stake their ether and earn rewards. It’s important to note that Ethereum holders do not need to do anything while Ethereum goes through this merge phase. This process will be automatic.
The third phase, “phase 2,” actually implements sharding so that Ethereum can scale and allow for a higher transaction capacity. Shard chains are expected to be enabled sometime in 2022 after the merge.
What’s the Difference Between Eth1 and Eth2?
The major difference is the “consensus mechanism” used (confirming a transaction). Ethereum uses proof of work (PoW) while Ethereum 2.0 will use proof of stake (PoS).
The Proof of Work PoW mechanism in its current form is a computationally and energy-intensive process, solving a complex mathematical puzzle currently used by Ethereum miners for validation of transactions. The fastest miner to solve the puzzle gets a reward. It is hoped that the PoW mechanism will foster innovation in the renewable energy sector.
In Proof of Stake, transactions are verified by the Validators instead of miners. PoS is more energy efficient than PoW because securing a blockchain by PoS uses much less computing power for block creation. The Ethereum Foundation estimates that ETH 2.0 Will Use 99.95% Less Energy than ETH 1.0.
ETH 2.0 Transactions Per Second Expectations
Even second-generation cryptocurrencies like Ethereum suffer from limitations in their throughput and scalability. The Bitcoin network can currently only process seven transactions per second and guarantees only 4.6, while ETH can handle between 15–45, this is a roadblock if the usage exceeds this which it occasionally does. The ETH 2.0 network will scale to a potential 100,000 transactions/sec; for comparison, VISA averages 1700 transactions/sec and claims it can do 24,000.
ETH 2.0’s lowered costs and higher speed will allow more types of Defi transactions to be possible and give opportunities to new and different kinds of Security Tokens, NFTs, and other Distributed Finance applications that did not make economic sense with ETH 1.0.