If you’re part of the crypto community and keeping an eye on recent developments in the ecosystem, you must have stumbled upon the buzz of Ethereum 2.0. The Eth 2.0 aKa Serenity upgrade has been long due, and it still might take another 2-3 years to get deployed. So, what is it about, and how is it going to change the Ethereum or crypto space in general? Let’s find out.
Ethereum – The World Computer
To understand what’s new with Ethereum 2.0, we need to first understand the current state of Ethereum. Even though it was Bitcoin that lit the torch of a truly digital currency powered by blockchain technology.
Ethereum, built upon the same technology, took it to the next level by leveraging distributed computing through the means of smart contracts. These smart contracts, in essence, paved the path for creating and deploying trade, transactions, or contracts in a truly trustless and permissionless manner. Thus, opening a new gate for innovation and the rise of DeFi.
However, with the massive rise in the number of applications powered by Ethereum blockchain came network congestion issues and which subsequently led to high transaction fees. Earlier this year, in February, the average transaction fees on the Ethereum network touched the ceiling (approx $38 per transaction) as it set a record.
Hence, it established the fact that the network is in immediate need for improved speed, throughput, and scalability solutions. That’s why Ethereum 2.0.
Eth 2.0 is said to fix its current shortcomings, thereby reducing all forms of congestion and the high variable costs on the Ethereum network. So, how does Ethereum 2.0 aim to tackle the scalability problem while keeping the network secure? Well, the answer to this question lies in two major pivots, that are:
- Proof of Stake (PoS) over Proof of Work (PoW)
- The Concept of Sharding
Let’s understand these two characteristics one by one.
Proof of Stake (PoS) over Proof of Work (PoW)
The current state of Ethereum network similar to the Bitcoin blockchain uses something called a proof of work (PoW) consensus algorithm. In the proof of work (PoW) mechanism, all participating nodes of the network validate new transactions by solving a complex cryptographic problem to reach consensus among other participants.
In PoW mechanism, all the participating nodes are called miners as they mine rewards in the form of transaction fee and newly minted coins.
However, proof of work mechanism comes with its own shortcomings such as consuming enormous amounts of electricity, low transaction throughput, prone to 51% attacks, etc.
Hence, the need for a new consensus mechanism emerged to address the given problems. There comes the proof of stake.
Therefore, Ethereum 2.0 will switch to Proof of stake consensus mechanism. Proof of stake consensus mechanism was first introduced on BitcoinTalk forum by a user named QuantumMechanic. This new consensus mechanism paves the way for all the participating nodes to agree to a common state of the network without running the race to solve a complex cryptographic puzzle.
In the proof of stake (PoS) mechanism, the participating nodes are instead called validators. To participate in Ethereum 2.0 PoS and become a validator, each participant needs to deposit 32 Ether (Ethereum’s native token) as a stake. The given stake acts as a safety deposit and allows the nodes to earn the rewards (in the form transactions fee) by validating new blocks on the network.
Now, let’s get into sharding.
The Concept of Sharding
Another major bid to improve the current state of Ethereum’s network and tackle the scalability issues, Ethereum 2.0 will opt for a technique called sharding. Currently, every single block of transactions need to be verified by all participating nodes to reach a consensus. Thus causing a bottleneck in the network which shows in the transaction throughput and high gas fees. As of now, Ethereum blockchain can only process up to 15 transactions per second.
Sharding technique, on the other hand, aims to improve the network’s efficiency by leveraging parallel processing. Basically, sharding is a database technique of partitioning a large database into smaller and faster databases.
Thus allowing network participants to validate and store data in different partitions of the network called shards, rather than on a single chain. Furthermore, the validators are also shuffled across different shards to keep them from joining forces and manipulating the network status. With Ethereum 2.0, all these shards will communicate to other shards via the main chain that will be called the Beacon Chain.
By leveraging these two characteristics, Ethereum 2.0 will be able to increase the efficiency of the network and its overall performance. Hopefully, Ethereum 2.0 will be able to address all of the current shortcomings and will turn out to be much faster and efficient than its predecessor.