What To Expect In Ethereum 2.0

Ethereum pioneered the concept of smart contracts and it remains the most popular smart contract blockchain platform. However, Ethereum is plagued with issues that have continuously discouraged users and even developers from utilizing the functionalities that it offers. Issues like scalability and high transaction fees have made developers seek alternatives. This has made the Ethereum team look for a solution, which is Ethereum 2.0 (Serenity or ETH 2.0). Ethereum 2.0 is the upgrade to the Ethereum blockchain that is currently in existence. The main goal of the upgrade is to improve the capacity of the blockchain to handle transactions while clamping down on the gas or transaction fees. For this to happen, Ethereum has to move on from its initial consensus mechanism, which is Proof of Work (PoW) to a -Proof of Stake (PoS) consensus mechanism.

The Consensus Mechanism Change To Proof-of-Stake

When blockchain technology was created, the Proof of Work was its initial consensus mechanism, and it required intense computing power for validators/miners to compete against each other to process transactions. Rewards were offered to the miners, nodes, or computers in the form of ETH.

For a PoW mechanism to work effectively, a large amount of energy is consumed, which has prompted environmental protection organizations to call for the reduction of the energy consumed. The time expended in this process is massive, which clamps down on its scalability.

Proof of Stake, on the other hand, tells a different tale, and this is currently adopted by many altcoins. Ethereum’s move from PoW to PoS in its ETH 2.0 upgrade will make it a lot faster and cheaper.

Unlike in PoW, where nodes have to compete with one another, PoS is a different ball game. PoS blockchains reach a consensus by the algorithm choosing a node to win a block of transactions, meaning that a large amount of computing power is not expended. Immediately the node is chosen, it creates the next block within the blockchain.

In PoW, miners have to purchase highly specialized high-tech computing hardware (such as a GPU or ASIC) to solve complex mathematical questions, and the first to solve them is rewarded. PoS blockchains, on the other hand, allow users to stake their tokens to earn rewards. Staking is a means of incorporating an additional level of protection into the blockchain.

The algorithm makes a choice based on some criteria like how much stake or coins it has, how long the coins have been in the stake pool, and so on.

Those that stake their coins in a stake pool are rewarded by the rewards earned when the algorithm chooses their stake pool to win a block of transactions. To ensure that the largest and oldest staking pool doesn’t win every time, many blockchains have incorporated a level of randomization in choosing the staking pool. Staking pools replace miners in PoS, meaning that a massive amount of computing power does not have to be spent before transactions are verified and a new block is created.

Can You Stake Your Ethereum At The Moment?

Though Ethereum 2.0 is not yet functional at the moment, there are still services that permit users to stake Ether on the testnet. It is important to note that staking your Ether before the coming of Ethereum 2.0 means that the Ether will be locked on the testnet until Ethereum 2.0 is launched, meaning that you can’t access the ETH.

For now, no one can place a finger on when Ethereum 2.0 will be released, and whatever ETH that is staked now will only be unlocked when ETH 2.0 is released. While the ETH holding is locked, it will earn rewards, but they can not be taken out of the stake pool.

Staking Ethereum is quite complicated and comes with some risks, and that is why it is advisable to stake on the testnet only if the user has the necessary technical know-how.

Those that want to use the easier method of staking Ethereum can opt for the exchange option. Some crypto exchanges (such as Binance, Coinbase, Kraken, and so on) allow ETH holders to stake their crypto. Using the exchange option comes with high fees, as many of these exchanges charge outrageous percentages like 15% of the rewards earned from the stake pool.

How Will ETH 2.0 Scale?

The capacity of ETH 2.0 will be scaled via sharding, which is a process utilized by some PoS blockchains to allow them to easily scale without worrying about security issues or sacrificing the concept of decentralization.

Sharding is the process of dividing the database into tinier pieces that are easy to manage. In a PoW chain, every node has the entire copy of the transactional history, which means massive amounts of space are consumed.

Sharding allows the blockchain to be divided into parallel sections, and different nodes work on different sections, meaning that the data they process are shared into different sections. Whilst the different shards can still share data (so that all nodes have an up-to-date ledger), the processing (or validating) of transactions will only be done by the nodes that belong to the relevant shard. To avoid the risk of corruption within a shard, nodes are randomly allocated to a shard, and they are regularly moved to different shards, also randomly. This sharding mechanism is one reason many PoS blockchains are fast and highly scalable, which are features that ETH 2.0 will offer.

What Does ETH 2.0 Mean For DeFi?

Ethereum is currently decentralized but it is slow and congested. If ETH 2.0 becomes a reality, it will improve the operation of the decentralized financial ecosystem. Users of DeFi protocols should no longer have to spend heavily on transaction fees.

With the current state of the Ethereum blockchain, only those that can dole out high transaction fees can enjoy the perks of the DeFi functionalities within the ecosystem. Swapping cryptos on Uniswap, for instance, is not cheap , as it costs up to $84 to carry out a transaction. The fee varies from time to time, but it is clear that lowering transaction costs will encourage greater DeFi adoption.

Transactions happening on the Ethereum blockchain can not exceed the benchmark of thirty transactions per second, but that will change with ETH 2.0. It is expected that in the new version of Ethereum, the chain will allow thousands of transactions to occur within a second.

Conclusion

If Ethereum 2.0 becomes a reality, every dApp built on it will scale effortlessly and enjoy other incredible features that are unseen at the moment. As of the time of writing this, there is no definite date for the launch of ETH 2.0.