The long-awaited upgrade of the Ethereum network has been implemented. Ethereum’s scalability update, known as ‘the Merge’ was implemented in September last year. The objective of this update was to finally solve prevalent issues like network congestion and high gas fees. The most significant change after the update was the shift from proof-of-work to proof-of-stake consensus. This article will explain how Ethereum 2.0 works.
How does Ethereum 2.0 differ from Ethereum?
The change in the consensus mechanism is the main difference after the upgrade. Ethereum used the same consensus system popularized by bitcoin, proof-of-work.
The proof-of-work consensus mechanism is a process in which miners use powerful computers to solve complex cryptographic puzzles. The first user to solve the puzzle earns the chance to verify and add a block to the blockchain. This process ensures all blockchain transactions are legitimate. Miners are rewarded with ETH to compensate for their effort, energy, and time.
After the upgrade, the consensus mechanism shifted to the proof-of-stake (PoS) system. Currently, many popular blockchains use the proof-of-stake system for its speed and efficiency. Unlike the proof-of-work system, PoS does not require powerful hardware. Instead, users stake their crypto tokens as collateral in the PoS system. A validator is randomly selected to verify and add blocks to the blockchain. Your chances of being selected as a validator depend on how many crypto tokens you stake.
Why is Ethereum moving from mining to staking?
The proof-of-stake system has two main advantages: speed and energy efficiency.
Bitcoin is known to use enormous amounts of electricity. Bitcoin mining is estimated to consume as much electricity as entire countries. This issue led to scepticism amongst investors and users over how effective crypto would be with its high energy needs.
The proof-of-stake system solves this issue by eliminating the need for heavy computations. Users do not need to invest in heavy hardware to participate in staking. Instead, they need to lock at least 32 ETH to qualify as a validator. This system is much more sustainable and reduces the carbon footprint of the Ethereum network by almost 99.95%.
Verifying blocks in a proof-of-work system can be time-consuming since solving cryptographic puzzles is hard to compute. The PoS system simplifies the path to consensus, thus speeding up the process.
What happens to Ethereum after Ethereum 2.0?
The first steps towards Eth 2.0 began in December 2020. This is when the Ethereum project started running on two parallel blockchains, the Ethereum Mainnet and the Beacon Chain. The Mainnet was the legacy blockchain using the proof-of-work system, while the Beacon chain used PoS. The Merge took place in September 2022 and combined these two blockchains into a single system.
The Merge is only a part of Ethereum 2.0; the developers also aim to introduce sharding. Sharding is a process through which Ethereum operations will spread out over more than 64 chains. This process makes it easier to run a node as each computer stores lesser data to function.
The Ethereum network has planned several phases of improvement, such as merge, surge, verge, purge, and splurge. The current upgrade is still in the merge stage, and there is a lot more development to come.
How will Ethereum 2.0 work?
Shard chains will help improve the scalability of Ethereum 2.0. At the moment, Ethereum can only process 30 transactions per second. This speed is not sufficient for the enormous traffic that flows through the Ethereum network. Shard chains will help increase the processing speed to an astounding 100,000 transactions per second.
Ethereum requires a minimum of 16,384 validators to verify transactions, making it more secure. This feature will also ensure decentralization and prevent the blockchain network from being compromised.
How could Ethereum 2.0 affect Ethereum’s price?
Eth’s price is bound to go up after the full implementation of Ethereum 2.0 and integration with shard chains. Scalability will bring more users and more transactions to the blockchain. The increase in demand for ETH tokens will drive up their price.
So does the upgrade to Ethereum 2.0 create a new crypto coin? The answer is no; nothing will change for the Ethereum token. Eth 2.0 is the same token on an updated blockchain.
Final Thoughts
The upgrade to Ethereum 2.0 was much needed for the future of this network. The old network could not keep up with the rapid rise in the number of users. But the upgrade alone is not enough; further, development is necessary for ETH to reach its full potential. There needs to be constant innovation in the Ethereum network for it to emerge as the dominant crypto project in the industry.
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FAQs on Ethereum 2.0
What is Ethereum 2.0?
Ethereum’s latest upgrade is known as Ethereum 2.0. The blockchain transitioned from a proof-of-work to a proof-of-stake consensus mechanism after the upgrade.
Is Ethereum 2.0 a new coin?
Ethereum 2.0 is not a new token, and nothing will change with the ETH token. It is the same token on an upgraded blockchain.
What does the future of Ethereum look like?
The Merge is only the start of Ethereum’s future roadmap. The next upgrades are Surge, Verge, Purge, and Splurge. The objective of these upgrades is to make the Ethereum blockchain more efficient and scalable.
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