Cryptocurrency enthusiasts all over the world have shown increasing excitement for Ethereum 2.0. This release marks a crucial milestone for the Ethereum ecosystem. Several crucial changes are introduced as a result.
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No Change of Coins
Contrary to what some people may think, there is no change where the native currency of Ethereum is concerned. All of the ETH in circulation today will work with Ethereum 2.0. Users are not required to take any action during the upgrade process unless communicated otherwise.
Ethereum 2.0 Is A Long-Term Plan
The Ethereum project, currently second – at $69.4 billion – in market capitalization behind Bitcoin, has noted strong growth and success since its inception. Initially, the project was funded with the help of a token sale, raising $16 million in August of 2014. A lot has changed since then across the board. Since day one, it became clear the developers, including Vitalik Buterin, had a long-term plan in place to keep advancing this ecosystem.
One of the crucial upgrades that were announced years ahead of its launch is Ethereum 2.0. It represents a very big overhaul of the ecosystem and its technology. A lot of existing functionality and features will receive a big upgrade to make this ecosystem more accessible by users and developers.
Furthermore, the launch of Ethereum 2.0 marks an important step along the way for decentralized applications, or Dapps. Over the years, numerous projects have been built on top of Ethereum’s blockchain. This includes NFT art, various tokens, and even an entire decentralized finance ecosystem.
More Usage, More Congestion
Unfortunately, the expanded use of Ethereum’s ecosystem and its resources has created significant scalability concerns. There isn’t enough processing power on the network to handle all transactions and data updates. As a result, the cost of executing network actions – referred to as the gas fee – tends to spiral out of control regularly.
This is not a new issue, as the ICO craze of 2017 resulted in a similar bottlenecked experience. Fast forward to the DeFi craze of 2020, and the same problems emerge once again. It is one of the main reasons why the transition to Ethereum 2.0 will prove crucial for Ethereum, as well as any project that is using its technology.
What Is Changing Exactly?
The upgrade to Ethereum 2.0 consists of many intricate components. It is crucial to note this upgrade process will not complete overnight. Instead, several phases need to be completed to unlock the full scope and potential of what this upgrade brings to the table.
The core focus of this upgrade lies in improving network scalability. Not only will this allow for more transactions to be processed per second, but it should also help to keep the network fees on a manageable level. This will be achieved through multiple enhancements addressing speed and efficiency concerns.
Secondly, Ethereum 2.0 will transition from a point-of-work blockchain – similar to Bitcoin – to a network that relies on proof-of-stake. Both models have their advantages, but a proof-of-stake model is far less energy-intensive. Anyone around the world can help secure the Ethereum 2.0 network through staking. To do so, they will need to lock 32 ETH in their wallet and remain connected to the internet at all times.
To address the overall scalability of the network, Ethereum 2.0 will make use of “sharding”. Every shard represents its own blockchain, but it doesn’t store the full data of the main chain. Instead, every shard focuses on specific subsets of the network, allowing for work to be executed in parallel and in a more cost-effective manner.
Ensuring all of the individual shards remain in sync requires another new addition to the Ethereum ecosystem. Known as the beacon chain, the consensus among all shard chains running in parallel will be achieved while still providing decentralization and security. The beacon chain acts as its own blockchain, capable of sharing information between shards.
Ethereum 2.0 Is Rolling out in Phases
It will take some time until all of the upgrades provided by Ethereum 2.0 will be active on the network. Instead of rolling out the update in one go, the team opted for a phase-based approach. This helps users and service providers adapt to the changes over time, without disrupting the day-to-day activity.
The first phase, known as Phase 0, is dedicated to the release of the aforementioned beacon chain. To launch this new chain, the Ethereum 2.0 deposit smart contract had to meet a threshold of 524,288 ETH being deposited by November 24, 2020.
If that deadline was not met, the activation of Phase 0 would be delayed by a week, or multiple weeks until the required amount was reached.
By early November 24, the required amount was reached, and the Phase 0 launch effectively kicked off on December 1, 2020
Keeping in mind how Phase 0 is only the beginning, there is still ample work to be done. In Phase 0, there are no shard chains, but it does provide staking support for those looking to run a validator node. Running such a node requires a deposit of 32 ETH, as mentioned earlier.
Enthusiasts who contribute their funds during this process will not be able to withdraw it until phase 1 launches. That process can take a few months, or several years, depending on the overall shape of the network in the future.
Phase 1 and Phase 1.5
Speaking of Phase 1 – as well as Phase 1.5 – this is the time when shard chains will be introduced. That is a big change, as validator nodes will be able to create network blocks through proof-of-stake from that point forward. During Phase 1.5, the shard chains are introduced to Ethereum’s main blockchain. This also signals the end of Proof-of-Work for miners.
Last but not least, there will be a Phase 2. When it launches, the old Ethereum will fully cease to be, and the Ethereum 2.0 chain and its features will take over. This will also serve as a big test for the shard chains, as they will gain compatibility with smart contracts, dApps, and DeFi.
It is evident that Ethereum 2.0 is a very big deal to everyone who is passionate about Ethereum today. All of the changes will have a big impact on the network. Considering how it may take years for the full functionality to become accessible, the coming months will prove crucial. Any setback suffered along the way can delay the next phase indefinitely.