Blockchain technology has revolutionized healthcare, agriculture, finance and trade sectors over the last decade. Moreover, if you are a fan of online casino gaming on leading-edge platforms like Vulkan Vegas, you already have an idea of how blockchain tech has transformed the iGaming scene.
With that in mind, you probably have a lot of questions about the upcoming Ethereum merge that’s expected to take place this summer to officially introduce the world to Ethereum 2.0. However, before we jump right into the technicalities, we’ll first start with some basics so that you can understand why the so-called marge is taking place in the first place.
What is the Ethereum Network Trying to Solve with the Merge?
Ethereum, the second largest cryptocurrency network after Bitcoin and home to decentralized apps and smart contracts, though incredible, has a few limitations in its current form. Ethereum 2.0, otherwise known as Serenity or ETH2, is the solution to Ethereum’s limitations, and it’s designed to enhance the network’s speed, efficiency and scalability to avoid bottlenecks and increase the number of transactions.
If you own ETH, don’t worry; Ethereum 2.0 is not a new product but rather an upgrade, and once the whole process is complete, you will never know the difference. And by the way, Ethereum developers even stopped using ETH1 and ETH2 to refer to Ethereum and Ethereum 2.0, respectively, to avoid confusing users as they plan to merge the two versions.
What’s the Difference Between Ethereum and Ethereum 2.0
The main structural differences between the older and the newer version of the Ether cryptocurrencies will be in the consensus mechanism, network capacity and beacon chain. Let’s dig deeper into what this will mean for the cryptocurrency network.
When it comes to the consensus mechanism, Ethereum will shift from the current proof-of-work (PoW) model to proof-of-stake (PoS) in Ethereum 2.0. Here’s a quick look at how the two differ:
- Proof of Work (PoW): With PoW, miners (a network of users) solve complex maths problems to verify new transactions using a machine’s processing power. That is, the first miner who solves the mathematical puzzle adds a new transaction to the blockchain, and in return, they are compensated using the network’s native crypto. This process is energy-intensive, and unfortunately, if a miner cannot solve the mathematical problem, then the processing power goes to waste.
- Proof of Stake (PoS): Validators will check ongoing transactions to ensure fraudulent transactions are not processed. To become a validator, a user will have to stake at least 32 ETH; however, if you hold less than the required Ethereum, you can pool funds with other users. Once an algorithm selects a validator, they add the next block to the blockchain depending on how much crypto they have staked.
Ethereum 2.0 plans to increase its capacity through a process known as sharding. Sharding is the process in which a database is split into smaller, more manageable pieces, thereby improving processing speeds without sacrificing decentralization and security.
In the PoW model, computers in the network or nodes have an entire copy of all transactions, which takes up a lot of space. However, with sharding, the Ethereum blockchain is split into 64 new shard chains, and nodes are assigned one unit instead of receiving the entire blockchain’s data.
As we have earlier discussed, Ethereum 2.0 is split into 64 shard chains, and in the PoS model, a validator is selected to add a new data block to the blockchain. So, what connects these shards and selects a validator? A Beacon Chain is the brain of this whole ecosystem and controls all 64 shards, allowing transactions across the network. Additionally, the Beacon Chain selects a validator and monitors their activity, and if they make any fraudulent transaction, it slashes the validator’s staked amount.
Ethereum 2.0 Phased Rollout
Ethereum 2.0 has been rolled out in phases since 2020 and is expected to go live in 2022. The said phases are as follows:
- Phase 0: In this phase, the Beacon Chain went live to manage the registry of validators and the implementation of the proof of stake consensus mechanism on the Ethereum network.
- Phase 1: Launch of the first 64 shard chains where Ethereum blockchain data storage and transactions will run. At this phase, the 64 shards did not support smart contracts.
- Phase 1.5: Here, Ethereum 1.0’s shard became an Ethereum 2.0 shard, and the validator would enter or exit the scheme at will.
- Phase 2: The 64 shard chains became fully functional and able to communicate with each other and support smart contract executions.
Ethereum 2.0 Impact
An upgrade of Ethereum to Ethereum 2.0 was necessary to achieve the following objectives:
When Ethereum 2.0 goes live, we anticipate a drop in transactional fees, which is something to look forward to for all Ethereum network users. Miners will receive less per transaction, but they should expect their cost per transaction to go down as PoS is energy efficient. Additionally, the number of transactions will increase, benefiting both the validator and the user.
The low costs and high speeds in the Ethereum network will enable other types of DeFi transactions. This will effectively give way to different types of security tokens and NFTs that made no economic sense previously on the Ethereum blockchain.
Additionally, in the Ethereum 2.0 network, users will come across complex and cheaper smart contracts that function via optimistic rollups and zero knowledge rollups. Through rollups, transaction data is bundled and available at a lower cost than blockchain-based transactions.
About 80% of all DeFi and 90% of NFTs in the ecosystem call Ethereum home. It means there is a lot of traffic and large transactions happening, and the number of users in the blockchain is increasing rapidly. Therefore, the blockchain needs to scale up to avoid delays. Currently, the network supports about 30 transactions per second. However, when Ethereum 2.0 finally is rolled out, we expect the number of transactions per second to go up to 100,000.
A New Dawn for Ethereum is Coming
Ethereum 2.0 is a long-overdue upgrade and is a step in the right direction for the blockchain ecosystem. It will level the playing field for users as they will directly have a say in the blockchain network after they stake ETH. Here’s to a more advanced and user-friendly future for the world’s second most celebrated cryptocurrency network!