There has been a lot of talk about Ethereum 2.0 (or you might know it as Eth2 or Serenity) recently and how things are progressing towards the continued deployment of this new thing. However, there’s a lot of questions concerning Ethereum 2.0 and what it actually means and what it means to the original Ethereum.
Well, to put it as simply as possible, Ethereum 2.0 is the next generation of Ethereum, a major upgrade to the Ethereum blockchain network. So if you’re half as excited as we are about Ethereum 2.0, dive right in with us!
The main difference between Ethereum and Ethereum 2.0 is changing the way it’s mined. In the original Ethereum, it was a proof-of-work system whereby people would use computer hardware to solve complex problems and get rewarded for it. Ethereum 2.0 flips the current system and uses a proof-of-stake type of mining.
The proof-of-stake concept states that a person can mine or ‘validate’ block transactions according to how many coins they hold. This means that the more coins owned by a miner, the more mining power they have. This type of ‘mining’ will reduce the energy required to run Ethereum as well as increase its resilience to attacks.
Now most of the tech savvy readers might think, isn’t Ethereum 2.0 just another fork for Ethereum. The answer, No. In fact Ethereum 2.0 is a whole new blockchain technology created in a way that allows both Ethereum and Ethereum 2.0 to work simultaneously.
The aim of Ethereum 2.0 is to increase the speed, efficiency and scalability of the original Ethereum network, allowing it to address the problems of bottlenecks and to increase the number of transactions.
Another big difference between the original Ethereum and Ethereum 2.0 is the introduction of sharding. Let us break it down for you. This is a type of scaling mechanism that splits a blockchain network into multiple pieces called ‘shards.’ This allows the blockchain to process and validate multiple blocks of transactions instead of approving one block at a time.
Some might be afraid of manipulation in this regard, well, Eth2 periodically moves validators from one shard to another. Additionally, Ethereum uses the world famous beacon chain to coordinate its blocks and manage the communication between the shards.
This would result in an average network throughput of 100,000 transactions per second. This also provides a double feature of security, since increasing the number of nodes that process data on a network, the more secure that network would be.
So what does that mean to the future of Ethereum 2.0? To put matter into perspective, Ethereum is the largest general purpose blockchain in today’s market since its launch in 2015. Ethereum 2.0 is such a big project, the upgrade will be rolling out in 3 phases. Phase 0, 1, and 2.
Phase 0 was launched back in December 2020 with the implementation of the Beacon Chain. It stores the registry of validators and deploys the proof of work consensus mechanism.
Phase 1 is anticipated to launch in 2021, though the exact month is still not known, and the shard chains will be integrated. 64 shards are expected to launch.
The Ethereum 1.0 chain will become a shard of Eth2 in Step 1.5, and transfers will be enabled, resulting in Eth2 resembling a “perpetual debt- and equity-like bond” and a floating rate, as validators can now freely enter and exit the scheme.
In Phase 2, the shards will become fully functional and compatible with smart contracts. It is scheduled to launch in 2021/22. It will be an upgraded version with added features.
Of course, as with each new thing that comes out, there are risks that are associated with it. So if you’re an ETH holder that’s interested in Ethereum 2.0, there would be some key risks that you’d be facing.
- One-way Beacon Chain transfers and locked funds until Phase 1.5 (which doesn’t have a confirmed timeline so far).
- The client app bugs (the software one runs as a validator) can be slashed.
- Shutdown of the service provider prior to Step 1.5.
With that said, Crypto enthusiasts have been waiting for this moment for years, and in 2021, we are that much closer to the final launch of Eth2. However, is it worth the wait? Well, experts are saying that a network that can support up to 100,000 transactions per second would create a boom in the entire crypto market.
After finding out that blockchain networks are much faster and cheaper than banks, more and more people will start to join the revolution. Some are even saying that this new network will do what Bitcoin did when it first launched.
(Note: The above thought piece covers the wider VA industry, and may not be an activity that Arabian Bourse Limited (ABX) is looking to be licensed to undertake.
ABX has received in-principle approval from Financial Services Regulatory Authority of Abu Dhabi Global Market (ADGM) and is currently in the process of obtaining an FSP. ABX aims to be the first of its kind fully regulated, virtual asset MTF and custodian in the region focused on institutional and retail investors.)