How will the leading blockchain reassert its dominance?
A long-planned update for the Ethereum platform already launched on December 1st, 2020. Additionally, Ethereum developers plan to carry out the first Ethereum 2.0 hard fork this summer.
It’s safe to say that the leading blockchain has been under attack lately. Suitors ranging from Binance Smart Chain to the Polygon network are looking to dethrone Ethereum and take a slice of that all-important market share. Currently, Ethereum is not making it that difficult for rivals as the network has become a slave to its own success. Slow transaction times and high fees being the major issues in the community. But, Ethereum has long held an ace up its sleeve and it appears we are getting closer to the big reveal.
As such, it’s important to understand what the changes to Ethereum will do for the community and the network itself. Will it get faster, cheaper, more secure? Or is this just a small legacy code refresh? Here are five things that will change forever when Ethereum 2.0 comes online.
Perhaps the most important change of all. Ethereum will abandon its Proof-of-Work consensus mechanism in favor of a Proof-of-Stake system. One of the key reasons that early blockchain implementations suffered from performance issues was that they rely on a process known as proof-of-work to validate and record transactions. In such a system, computer nodes compete against each other to generate cryptographic hashes that satisfy a network-determined level of complexity. The problem with proof-of-work is that it’s inefficient by design and requires lots of computing power.
Under proof-of-stake, users put forward – or “stake” – coins as a form of down payment. In return, they gain the right to validate transactions on the network and earn more tokens. Each node must stake its own currency to participate meaning it would be too expensive to attack the network. Currently, over 12.75 billion dollars have been staked. While this represents a key change, it is just one of the factors that will play a role in making Ethereum cheaper and faster.
The process of dividing a blockchain into various blockchains is known as sharding. Ethereum 2.0 will use sharding to increase the number of transactions and validations. In the current setup of the Ethereum blockchain, all data that is added to the chain has to undergo verification by all participating nodes. That means that the processing speed of the entire system is limited by the speed of its slowest participant. This creates a bottleneck that increases transaction costs and decreases throughput.
By adding sharding Ethereum 2.0 can increase the efficiency of its resource usage massively. The new system will accomplish this by breaking data verification tasks up among sets of nodes and each will be responsible for verifying just the data it’s received. That allows the whole blockchain to make use of parallel processing, which could increase overall capacity. Combined with the mentioned switch to a proof-of-stake system, the new Ethereum blockchain should be faster and more efficient.
eWASM to Replace EVM
One of the key features of Ethereum’s viability as a smart contract platform is its implementation of what’s known as the Ethereum Virtual Machine (EVM). The EVM is an execution environment that runs on all network nodes that facilitates the use of smart contracts. Smart contracts on the EVM can run games, execute complex financial transactions, or even operate social networks. These are the backbone of Ethereum’s viability.
Although EVM is widely used, it remains largely misunderstood – even for people with a high degree of programming skill. To address this, Ethereum 2.0 will begin the use of web assembly language, in a system they’re calling eWASM. Making it possible to execute Ethereum app code right in today’s web browsers, which is a marked improvement over the EVM. Also, it will allow programmers to choose from several languages like Rust, C, and C++ to write code to run on the blockchain. It’s intended that the introduction of eWASM will increase the number of potential programmers in the ecosystem helping Ethereum to grow further and increase its offer.
Ethereum is currently secured by a decentralized group of miners. To use the platform, users pay a gas fee to miners. The fees are determined by the miners based on the energy/gas needed to finalize a transaction. They have the power to ignore or even make a transaction priority depending on the amount of gas fees you are paying. When demand is more than the network can deal with, fees increase and small transactions become very expensive. As was the case throughout the latest bull run where fees reached a whopping $50.
This is the current situation for Ethereum. Meaning that it can only process 15 transactions in the space of one second. The fees are exponentially high and many projects within the network don’t yield great returns because of this problem. This definitely has an effect on the scalability and sustainability of many developments taking place on the network. Hence why in 2021 we have seen several high-profile applications switch to the Polygon sidechain or BSC to give users what they want. Ethereum wants to increase the number of transactions it can handle per second to about 150,000. Ethereum 2.0 aims to help fulfill this ambition and also make the network more secure.
As mentioned, congestion of the network is one of the main reasons for the high gas fees of Ethereum. Sharding will increase the number of transactions the network can handle, reducing congestion of the network leading to a reduction in the transaction fees. Simply put, spreading the load will reduce the costs.
What will happen to ETH tokens?
One key question circling the community is – will Ethereum 2.0 be a brand-new coin, and what will happen to current ETH holdings? Simply put, Ethereum 2.0 is not new but an improved version of an existing coin. Changes to ETH 2.0 are yet to come, the team of developers promised to modify ETH 2.0 as well, but its launch was postponed to the subsequent upgrade phases. It will take, according to experts, up to 2 years to finalize all update processes and change ETH to ETH 2.0.
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds positions in ETH, BTC, ADA, NIOX, AGIX, SAFEMOON, SDAO, CAIT, CAKE, LINK, GRT, CRO, SHIBA INU, AND OCEAN.