- June 18, 2020
- Posted by: Lara Tlass
- Category: Blog
The year 2020 has seen major events taking place in the blockchain and crypto world, starting with the bitcoin halving in mid-May. Tech giants like IBM, Microsoft, Oracle, and, many more started running services and testing blockchain. Even in the cryptocurrency space, banking giants and payment companies like Wells Fargo, JPMorgan, Square, Skrill all noticed the increase on the demand in crypto related services. The other major news that excites both developers and holders is the launch of long-anticipated Ethereum 2.0 which is expected to take place sometime in 2020 with no official date announced. We listed below some of the changes and updates which took place along with their benefits to both developers and token holders.
What is Ethereum 2.0?
Ethereum 2.0, also called Eth2 or ‘Serenity’, is the next upgrade to the Ethereum blockchain. During 2020, Ethereum 2.0 will be released in multiple phases starting “Phase 0”. Each phase will improve the performance and functionality of Ethereum in different ways. There are two primary improvements introduced by Ethereum 2.0 that do not exist in Ethereum 1.0: Proof of Stake and Shard Chains.
Currently, Ethereum 1.0 runs on a consensus mechanism known as Proof of Work (PoW). PoW relies on physical computing power (mining) and electricity (work) to build blocks on the blockchain. Proof of Stake (PoS) is an upgrade which enables improved security, scalability, and energy efficiency. Instead of relying on physical miners and electricity, PoS relies on validators (virtual miners) and deposits of ether. By eliminating mining which consumes a lot of electricity, Ethereum’s progressive decision to be environmentally conscious could attract the prior doubters to supporters of blockchain adaptation.
Shard Chains: Shard chains are a scalability mechanism which drastically improves the throughput of the Ethereum blockchain. Currently, having a single chain made up of consecutive blocks is incredibly secure and makes information easy to verify. However, requiring each full node to process and validate each transaction in consecutive blocks can affect the ability to process transactions quickly – especially in times of high mainnet activity. Shard chains are a mechanism through which the Ethereum blockchain is “split” – thus dividing the data processing responsibility among many nodes. This allows for transactions to be processed in parallel rather than consecutively. Each shard chain is like adding another lane to upgrade Ethereum from a single lane road to a multiple lane highway. More lanes and parallel processing lead to much higher productivity.
How will PoS work on Ethereum 2.0?
Staking on Ethereum 2.0 will be simple. There will be a minimum threshold of 32 Ethereum required to participate in staking, and validators (stakers) will need to be running a validator node, this doesn’t need to be specialised machine and could be done on a consumer-grade computer or laptop. However, validators will be expected to be online consistently or face minor penalties.
The rate of return for staking ETH is expected to be around 4%–10%. A program called “slashing” will apply to any validator acting maliciously toward the network by taking a portion of the validator’s stake.
The benefits of Ethereum 2.0
Ethereum has historically operated a proof-of-work consensus. However, one reason for moving to proof-of-stake is that it’s generally considered to be far more energy-efficient than proof-of-work as mentioned above. Ultimately, Ethereum’s support for staking is expected to attract wider network participation compared to mining in the older version.
Ethereum’s core developers are heavily in favour of decentralization, which points to another reason for moving to PoS. Over recent years, the mining of the largest cryptocurrencies, including BTC and ETH, has become heavily dependent on a small number of large mining pools due to the race for developing faster and more sophisticated mining hardware.
By contrast, anyone can operate as a PoS validator without needing specialist hardware. Therefore, the theory is that PoS blockchains stand a better chance of being more decentralized due to a lower barrier to entry. Ethereum 2.0 will also involve the implementation of sharding, which is a partitioning technique enabling faster throughput.
The major changes that Ethereum 2.0 brings will improve the functionality of all tokens built on the Ethereum Blockchain including iOWN Token, transactions on the tokens will be faster and execution costs less due to PoS and sharding mechanism. Eth 2.0 will be very scalable; scalability is arguably the most troublesome factor in the current Eth 1.0 network. Having +180k ERC20 tokens running on ETH requires gigantic resources. The 5 to 10-transaction-per-second speed is not capable of handling the growth. Not knowing that the Ethereum blockchain will be revolutionary in the early days, the team behind the upgrade is preparing a solid network that is scalable and can handle the vast growth while creating a perfect ecosystem for tokens. With sharding, Eth 2.0 could theoretically process hundreds of transactions per second, including lower transaction fees.
Ethereum has shared basic details of what to expect from the upgrade but no official date of implementation has been announced yet; though it is expected to fall in summer 2020. Keep an eye on a solid statement from co-founder and inventor Vitalik Buterin. To sum up, the main highlights everyone is excited about is the scalability, speed, lower fees, eco-friendly PoS consensus, and the staking reward of 4%-10%. This upgrade can bring global institutions and the masses to the utilization of the Ethereum network and ERC Tokens.
Certain information regarding Eth 2.0 on this blog has been cited from cointelegraph.com & consensys.net