Ethereum 2.0, Explained

Blockchain technology has proven itself to be a revolutionary concept for the global market. It has made a significant impact on many sectors including banking, fintech, agriculture, and healthcare. It has driven the idea of cryptocurrency, making it a safe and secure place. In simple words, a cryptocurrency is a digital form of money. In January 2010, over 2000 cryptocurrencies were birthed. Since then, Ethereum has taken the crypto market by storm and is known to be the second-largest cryptocurrency in the world, only behind Bitcoin.

The system that is utilized by crypto is completely decentralized, this makes it very easy to build smart contracts and DApps. This article will discuss everything that one should know about Ethereum, it will function as a handbook for those who want to get started with crypto trading.

What is Ethereum 2.0?

Ethereum 2.0 is an improved version of the old Ethereum blockchain. This version has advanced and better features. It has improved its scalability, possesses faster efficiency, and quicker speed. All these advancements make it possible for it to handle more transactions at a time.

The pseudo name that has been given to Ethereum 2.0 is ETH2 or Serenity. Serenity has shown better results in terms of structure, working, and design if it is contrasted with its older version. The two most prominent changes that are introduced in this version are ‘proof-of-stake’ and ‘sharding’.

Why does it happen?

The change from Ethereum to ETH2 was made to make it a better and more sustainable place for monetary work. One of the biggest changes was scalability. With the older version, it was only able to support 30 transactions in one second. This issue made the platform pretty slow and congested. However, this is not the case with ETH2. This version is capable of processing 100,000 transactions per second, which shows the level of upgradation that occurred. This can be done with the help of shard chains.

Proof-of-work vs. proof-of-stake: why change the consensus algorithm?

Another major change that was brought into ETH2 is the consensus algorithm that they use. The older version uses proof-of-work, whereas, the Serenity makes use of the proof-of-stake algorithm.

In proof-of-stake, there is no need to rely upon the miners to offer their computing power, PoS must allow voting privileges to the owners. From its name itself, it can be noticed that the users need to "stake" to vote upon the authenticity of the transactions that are coming in. The validators in proof-of-stake are considered to be honest since they have a bigger motive of ensuring that their holdings are secured.

What are shard chains?

Sharding is a process where one blockchain is divided into multiple blockchains which are then referred to as shards. The benefit of shards is that it makes the platform much faster and efficient. The reason why it makes it better is that the workload is not piled up on one validator now. Multiple validators are responsible for their shard. To prevent any sort of risk from manipulation, shards are often shuffled amongst the validators every day.

Three phases of Ethereum 2.0

The most vital part of Ethereum 2.0 are the validators. This is because they are the ones who are responsible for ensuring the maintenance and working of the platform. Each validator is assigned two keys – a signing key as well as a withdrawal key. The function of a signing key is to carry out tasks for the blockchain.

Validators have three major duties:

  1. To give proposals on the addition of blocks to the beacon chain (also known as the shard chain)
  2. For the attestation of the beacon and the shard chain
  3. For the reporting of wrongful behavior done by other validators

The listed points are the main reasons why the signing key must be present at all times. The function of the withdrawal key is to perform on the funds. Hence, it does not have to be available at all times. Although, security should be present because all the funds are being controlled by it. To become a validator, all that needs to be done is to lock up 32 ETH in the beacon chain. Validators are not on their own. Usually, they work in groups which consist of 128 members to be precise. They are the ones who vote. These votes further have different types.

  • LMD GHOST votes: these votes are set for the blockchain, mostly for the latest block on which the validators agreed on.
  • Casper FFG votes: these act as checkpoints in the current epoch.

What are Ethereum 2.0 perspectives?

It was noticed that the older version needed improvements. They saw that it required the capability to manage more transactions at a time. They did this without expanding the size of the nodes. What are nodes? They play as an imperative element that holds the responsibility of storing and running the blockchain. The reason why they did not want to increase its size was that it was an impractical idea. It could only be useful to those who own expensive and advanced computers.

With the advancement made by adding shards, the collective load of the network is divided and distributed into 64 chains. This will help in making the room run smoothly, and not make it congested every now and then. Now, more transactions can be processed at a time without needing to deal with the slow speed.

Will it affect Ethereum price?

The shift from proof-of-work to proof-of-stake will cause multiple changes in Ethereum. These changes do not just include the speed and the structure of the platform, but also include non-technical things such as price. This upgrade will surely have a positive impact on the price and value in the next couple of months or maybe even years. Serenity will experience an increment in its demand for transactions because of the upgrades made in them – more speed, less price, and more utility.

Conclusion

There is no doubt that Ethereum 2.0 has become the most famous and widely known currency across the world. There are thousands of projects that have been developed with Ethereum. With the advancements and upgrades, ETH2 will gain more attention from not only the investors or traders but also from the public sector.