⌛Why is everyone waiting for the Ethereum 2.0 update?

Since its launch, Ethereum has grown to become one of the most extensive networks in the blockchain industry, becoming the largest blockchain in terms of DeFi solutions, and the most popular blockchain for smart contracts. With a market capitalization of almost $216 billion, Ethereum is second only to Bitcoin.

The next stage of development is the transition to Ethereum 2.0, which will take place by the fall of this year.

Ethereum 2.0: Everything you need to know

The transition to Ethereum 2.0 will continue in stages. Before him, the network went through several phases:

Phase 0 started a chain of beacons on the network. The main task of this stage was to manage the register of validators that create blocks in the Ethereum 2.0 network. It also laid the parameters for all future phases.

Phase 1 was the implementation of segment chains and convolution. Segment chains allow transaction data to be divided into 64 blockchains on the Ethereum network. Spreading transaction data significantly increases network bandwidth. When multiple circuits are running simultaneously, the output can be spread to reduce the load on the network. Phase 0 and Phase 1 functions will not work until Phase 1.5 and Phase 2 are activated.

Phase 1.5 created a bridge between Ethereum 1.0 and Ethereum 2.0. The merging of two ecosystems is called “docking”. It will involve connecting the Ethereum 1.0 mainnet to the beacon chain, and then the Ethereum 1.0 blockchain will become one of the 64 shard chains implemented in Phase 1.

Once Ethereum 2.0 is docked, Phase 2 will begin. This will initiate interaction between segments and allow the development of native decentralized applications (dApps) on the network. Phase 2 will enable the network to process smart contracts and transactions. This will officially turn every segment chain in Ethereum into a fully functional network.

Ethereum 2.0, also known as Eth2, aims to increase the speed, efficiency and scalability of the Ethereum network so that it can handle more transactions.

In January 2022, the Ethereum Foundation announced that it would stop calling the update Ethereum 2.0. The rebranding is meant to show the fact that Ethereum 2.0 is a network update, not a new network. So now it’s called a “merger.” Eth1 is known as the “execution layer” where the smart contracts reside, and Eth2 is called the “consensus layer” because it ensures that the devices that contribute to the network operate according to its rules.

Ethereum’s leading authorities, including co-founder Vitalik Buterin and Preston Van Loon, stress that the network upgrade event will end in August when the Beacon chain (Ethereum’s parallel blockchain that serves as proof-of-stake — PoS) merges with Ethereum’s main chain. This is one of the most important updates in blockchain history.

The main reasons for the update

One of the main reasons for the upgrade is scalability. The current Ethereum network can only support about 30 transactions per second; this leads to delays. Ethereum 2.0 promises up to 100,000 transfers per second. This increase will be achieved through the implementation of chains of segments.

The current Ethereum setup has a blockchain consisting of a single chain with consecutive blocks. It is safe, but very slow and inefficient. With the introduction of shard chains, this blockchain will be distributed, allowing transactions to be processed in parallel chains rather than sequentially. This will significantly speed up the network and make it easier to scale.

Ethereum 2.0 will be more secure. Most PoS networks have a small team of validators, which makes the system more centralized and reduces network security. Ethereum 2.0 requires at least 16,384 validators, making it much more decentralized and therefore more secure.

The difference between Ethereum and Ethereum 2.0

The multi-stage update aims to address the Ethereum network’s scalability and security issues through several changes to the network’s infrastructure. In particular, the transition from proof-of-work to a proof-of-stake model.

• Proof -of-work (PoW) is the principle of protection of systems against misuse of services. It describes a system that requires a significant but feasible effort to prevent unreasonable or malicious use of computing power, such as sending spam messages or launching denial-of-service attacks.
• Proof -of-stake (PoS) is a protection method in cryptocurrencies, based on the need to prove the storage of a certain amount of funds in an account.

With blockchains like Ethereum, there is a need to verify transactions in a decentralized manner. Ethereum, like other cryptocurrencies, currently uses a proof-of-work consensus mechanism. In this system, miners use the machine’s computing power to solve complex mathematical puzzles and verify new transactions. The first miner to solve the puzzle adds a new transaction to the record of all transactions that make up the blockchain. They are then rewarded with the network’s native cryptocurrency. However, this process can be very energy intensive.

Proof of stake means that instead of relying on miners, individual users can stake the network’s native cryptocurrency and become validators.

Cryptocurrency staking is a process used to verify cryptocurrency transactions, which involves obligations to maintain the blockchain network and confirm transfers. It also allows participants or validators to earn passive income from their assets.

Validators are similar to miners in that they verify transactions and ensure that the network does not process fraudulent transfers. These validators are chosen based on how many cryptocurrencies they staked and how long it took.

Other validators can confirm that they have seen the block. When there are enough attestations, a block can be added to the blockchain. Validators are then rewarded for a successful block proposal. This process is known as “minting”.

The main advantage of PoS is that it is much more energy efficient than PoW because it separates the energy-intensive computer processing from the consensus algorithm. It also means you don’t need a lot of computing power to secure the blockchain.

Will the merger affect the price of Ethereum?

Merger is a step between mining and staking. It will reduce ETH output by about 90%. Less ETH in circulation means less supply and more demand, which should push the coin’s price up. According to CoinMarketCap, 1 ETH is worth $1,500 today. The most bullish of Ethereum bulls believes the merger could push the asset price back above the all-time high of $4,891 set in November 2021.

A bull in the stock market is a player who buys low assets and waits for them to rise. The bulls impose their rules of the game on the rest of the players, but as soon as assets begin to fall, the bulls sell securities and take a wait-and-see position.

According to the most popular theory, the bull on the stock exchange got its name because of a trick that a real live bull does in the wild. He lifts his victim on the horns in a bottom-up motion. The same story is happening on the stock market – bulls make a lot of purchases, heat up the market and give it an impetus for growth. This is a bull trend or a bull market.

They also predict a decrease in transaction fees and an increase in network bandwidth to provide development opportunities for stakers.

What influenced the implementation of the merger?

In June 2020, Buterin noted that Ethereum 2.0 would need to rely on current scaling methods, such as ZK hashing, for at least two years before implementing shard chains – the division of the blockchain network into individual segments. Each shard contains a unique set of smart contracts and account balances.

In August 2021, the Ethereum London hard fork and Ethereum Improvement Proposal 1559 (EIP-1559) were deployed, which changed the way the network’s transaction fees work. EIP-1559 revealed that users transferring to the network are paying base fees that are being burned instead of going to Ethereum miners, reducing the supply of ETH and putting deflationary pressure on the Ethereum network.

The London hard fork has become something of a trial run for the next phase of Ethereum 2.0, and Vitaly Buterin expressed confidence in what will come next. Buterin said that the successful launch of the London hard fork proves that the Ethereum ecosystem is “capable of making significant changes” and that it “definitely makes it more confident to merge.”

Are there reasons for concern?

The chances of successful completion of the merger are high, but there are also certain risks. On May 25, 2022, the Beacon chain underwent a so-called “block reorganization” event, which resulted in the blockchain forking into seven consecutive blocks. This situation has not happened in many years, so it caused a certain crisis of confidence, since the emergence of several competing Ethereum chains after a merger would turn into a disaster.

Kraken CEO Jesse Powell says he’s not worried about the numerous delays associated with the merger process, because success is more important than speed when it comes to something of this scale. However, further delays will lead to accusations that the Ethereum community is not up to the task, and it will mean that the gas price issues that are a major obstacle to widespread adoption of cryptocurrencies may never be fixed. Ethereum’s inability to move beyond an energy-intensive proof-of-work (PoW) system will be a battleground for environmentalists and politicians opposed to the development of the crypto industry.

Success will bring renewed faith in Web3’s future, but further delays or poor execution will cause prices to collapse and a nasty new cryptozyme.