The Ethereum blockchain has had an eventful nine years since it started running in 2015. Over the years, the blockchain grew, achieving strides that many thought impossible. While this growth changed the blockchain landscape, it also came with challenges, and Ethereum 2.0 is set to overcome them.
Ethereum 2.0 is the chapter of Ethereum. It involves specific improvements that will be made to the Ethereum blockchain to benefit those using it. The Ethereum roadmap has outlined the changes that will be introduced to the network to improve speeds and trim Ethereum gas fees.
The Ethereum blockchain gets regular updates to improve features through Ethereum Improvement Proposals (EIPs). If you have heard about concepts such as the Ethereum Merge, Beacon Chain, or the Dencun upgrade, you already have some insight into Ethereum 2.0.
This article scours through the efforts made by Ethereum developers to improve the efficiency of the blockchain. The article targets those new to Ethereum who plan to invest in its native token, Ether (ETH), or build on the blockchain.
What Is Ethereum 2.0?
When Ethereum co-founder Vitalik Buterin published the blockchain’s whitepaper in 2013, he said the spur came from Bitcoin. However, this was not in admiration. Instead, Buterin believed Bitcoin was not a sufficient blockchain in its state.
Ethereum introduced broader utility to Ethereum, but the growing usage of the network presented new challenges.
Since the blockchain’s launch, the Ethereum Foundation (a non-profit organization supporting the Ethereum system) has improved scalability. To achieve this, developers have, over the years, been working towards realizing Ethereum 2.0.
Ethereum 2.0 is also known as “Serenity” or “Eth2.” It describes an upgrade to the Ethereum blockchain. The upgrade aims to improve the Ethereum network’s speed while improving efficiency and scalability.
The Ethereum 2.0 upgrade seeks to transform the largest smart contract platform in the world. This transformation has been happening gradually, and more EIPs are still being rolled out, each patching an issue prevalent with the network.
Addressing Issues With Ethereum 1.0
Ethereum 1.0 is the original version of the blockchain, also known as the “execution layer.” Ethereum 2.0 does not mean that a new network is being rolled out. Instead, it is just an upgrade of the original network, known as the “consensus layer.”
After the Ethereum blockchain was created, a new revolution was made in the blockchain industry. It allowed games, finance platforms, social platforms, and non-fungible tokens (NFTs) to be created on the network. However, as more DApps launched on Ethereum, the scalability problem crept up.
In the whitepaper, Buterin describes Ethereum as a global supercomputer. However, in the subsequent years, the blockchain struggled to validate transactions. This invalidated the reason behind the creation of Ethereum, which was to transform how blockchain technology works.
One of the main issues with Ethereum was the high gas fees. Sometimes, gas fees on the Ethereum network can increase to historically high levels, making it hard for people to use and build on the network.
Additionally, the network often suffers congestion. A significant increase in transactions on the network can result in some being stuck for an unreasonable time, making it inefficient.
The Ethereum network’s challenges might make its adoption challenging for institutional investors or those interested in building upon it. It also makes it nearly impossible for Ethereum to compete against scalable networks like Solana and Avalanche.
Ethereum 2.0 addresses these issues that are prevalent in Ethereum. The platform seeks to create a blockchain network that is fast and cost-effective for users. It intends to deliver a solution that will give it a leading position in the market.
Understanding Ethereum 2.0
To understand Ethereum 2.0, we need to look at the significant upgrades done so far to boost Ethereum’s scalability.
Beacon Chain
Ethereum 2.0 involves upgrading the Ethereum network in multiple phases. The first phase started in December 2020 after the first upgrade, known as the Beacon Chain, was rolled out.
Beacon Chain was the first step towards the transition of Ethereum from proof-of-work (PoW) to proof-of-stake (PoS). The Beacon Chain upgrade, a Phase 0 towards the realization of Ethereum 2.0, brought native staking to the Ethereum blockchain, which was crucial for the shift to a PoS consensus mechanism.
Beacon Chain launched as a separate network from the Ethereum mainnet. The Beacon Chain acted as a proof-of-stake ledger on Ethereum. It allows users to stake Ethereum on the network.
The Merge
In September 2022, Beacon Chain merged with Ethereum through a process known as The Merge. The Merge was phase 1/1.5, officially switching Ethereum to a PoS consensus algorithm. The network got rid of miners, who were replaced by validators to oversee the verification of transactions on the network.
The PoW consensus algorithm that Ethereum previously used was the original method implemented by Bitcoin. Under this model, miners lend computing power to validate blocks by solving complex algorithms. The PoS Consensus has often been associated with high energy consumption and failure to be environmentally friendly.
The PoS consensus solves many problems native to a PoW consensus. This consensus mandates that users validate transactions. Anyone can become a validator by staking Ether into the network—the more Ether a validator stakes, the more rewards they earn for participating.
The PoS consensus offers more network accessibility and better scalability. Many users are validating on the network, which promotes security and decentralization. After Ethereum switched to PoS, its power consumption was reduced by over 99%.
The final stage towards realizing Ethereum 2.0 is Phase 2, which is currently underway. This phase will see the Ethereum blockchain support fully formed shards. Shard chains will work alongside smart contracts to give DApp developers a chance to integrate with Ethereum 2.0 seamlessly.
Dencun Upgrade
One of the latest upgrades to happen in the Ethereum ecosystem towards realizing Ethereum 2.0 was the Dencun upgrade. The upgrade rolled out in March, and its goal was to improve the scalability of Ethereum and reduce the transaction fees in layer two solutions.
The upgrade also sought to address the issue of burgeoning Ethereum gas fees. The Ethereum network has often faced a problem with rising costs, rendering the network nearly impossible to use. Layer-two solutions provided by Ethereum boost scalability by processing transactions off-chain.
Ethereum developers believe those creating DApps will switch to these networks by empowering layer two networks and taking the load off the Ethereum mainnet.
The Dencun upgrade also introduced proto-danksharding. This process seeks to benefit layer two networks like Arbitrum, Optimism, and Polygon by making transactions on these networks significantly cheaper.
After the Dencun upgrade, the next step on the Ethereum roadmap towards realizing Ethereum 2.0 is the Pectra upgrade. The specifics of this upgrade have yet to be clearly outlined. However, the process seeks to simplify block verification to improve scalability and create a more friendly Ethereum ecosystem.
Benefits And Implications Of Ethereum 2.0
The efforts of Ethereum developers to realize Ethereum 2.0 are driven by a need to improve users’ experience on the network. Moreover, as competition in the blockchain industry grows, Ethereum wants to maintain its position as the king of DApps.
So, how will Ethereum 2.0 benefit the Ethereum ecosystem?
Scalability
The first benefit of Ethereum 2.0 is that it will bring scalability to Ethereum. As more DApps come into the blockchain sphere, there is a growing demand for a network that can process more transactions at significantly high speeds.
Ethereum 2.0 will increase network speeds and eliminate the classical issue of slow speeds on Ethereum. With improved scalability, Ethereum will remain a preferred decentralized finance (DeFi) and gaming hub.
Security
Ethereum’s switch to a PoS consensus improved security on the network. The PoW consensus, which Ethereum previously used, is vulnerable to attacks by malicious actors. Moreover, the consensus is expensive as miners compete to solve complex mathematical problems.
Ethereum 2.0 adopts a PoS consensus that is more secure. Through PoS, anyone can become a validator, bringing more users to the network and, hence, more security. The process also boosts decentralization on the blockchain.
Sustainability
The PoS consensus model also makes Ethereum more environmentally sustainable. The original PoW framework required miners to access high computing power to solve mathematical problems and secure the blockchain. This is no longer the case with PoS.
After The Merge, Ethereum’s energy consumption was reduced by over 99%. As Ethereum becomes more sustainable, it is bound to attract interest from institutions.
User-Friendliness
Ethereum 2.0 also focuses on improving user-friendliness. The improvements on the network seek to create a simple user interface and better documentation to benefit those building on the network or simply using it to process transactions.
Potential Challenges With Ethereum 2.0
While apparent benefits are coming from these upgrades on the Ethereum blockchain, challenges also exist. These challenges include:
Complexity
The upgrades leading to Ethereum 2.0 are complex, with the developers working frantically to ensure they are implemented without bugs. Any upgrade comprises multiple components, and ensuring they all work in sync is challenging.
In 2023, as the Shappela upgrade neared, which allowed users to start unstacking staked Ether, the Ethereum Foundation doubled its bug bounty to $500,000.
The bounty is used to incentivize white hats that detect and address vulnerabilities. While Ethereum 2.0 is more secure than the original Ethereum network that relied on a PoW consensus, developers remain concerned about the possibility of hacking attacks, which are prevalent in the cryptocurrency industry.
Decentralization
The other issue that needs to be addressed is decentralization. Ethereum switched from PoW to ensure that a few miners do not have the upper hand in block validation because they have higher computing power. However, PoS also has its challenges with decentralization.
Validators earn rewards depending on how much Ether they have staked on the network. Therefore, a small number of validators with the highest staked Ether could control a large share of the network’s stake.
Data from Dune Analytics also shows there are over one million Ethereum validators. Some community members believe this is too much and could result in failed transactions instead of promoting decentralization.
What Is The Future Of Ethereum 2.0?
Ethereum 2.0 has a bright future and potential in the blockchain industry. The upgrades on the network will make it more secure, scalable, and decentralized. It could make the network a hub for developers and those using decentralized applications.
Ethereum 2.0 will potentially help Ethereum achieve the following:
- Popularity
As Ethereum becomes more scalable, secure, and decentralized, it is bound to become more popular with developers. It could also continue dominating the market and overpower competition from Solana and other blockchains.
- Net positive for Ether
As Ethereum becomes more used by developers, it will create more demand for the native currency used to pay gas fees on the network. High demand will translate into a price increase for ETH.
Below is a chart of Ethereum’s price growth since The Merge:
- Interoperability
The blockchain industry is becoming more interconnected as users seek applications they can use across multiple chains. Ethereum 2.0 is focusing on interoperability, making blockchain transactions easier and seamless.
- Decentralization
Ethereum could become more decentralized as validators participate in the consensus mechanism. Decentralization makes Ethereum less vulnerable to attacks.
In Summary
Ethereum 2.0 seeks to make the blockchain more secure, scalable, and decentralized. Over the years, Ethereum developers have rolled out multiple upgrades to improve the status of the blockchain and make it easy for creators to build on the network.
The foremost step towards realizing Ethereum 2.0 happened with The Merge. This process switched Ethereum from a proof-of-stake to a proof-of-work consensus. It made the network more efficient and sustainable.
Subsequent upgrades, including the recent Dencun upgrade, aim to improve network speed and throughput. Ethereum seeks to emerge as a super blockchain and a DApp hub through these upgrades.
FAQs
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What is Ethereum 2.0?
Ethereum 2.0 is a term used to refer to improvements on the Ethereum blockchain. Its developers are constantly upgrading the network to make it more secure, scalable, and decentralized, resulting in an improved network known as Ethereum 2.0.
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Does Ethereum 2.0 reduce gas fees?
Ethereum 2.0 addresses multiple challenges prevalent to Ethereum, including high gas fees. It brings efficiency to the network by improving speeds to prevent congestion. This will consequently prevent an unreasonable increase in costs.
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Is Ethereum 2.0 better than Ethereum 1.0?
Ethereum 2.0 is superior to Ethereum 1.0. It is more scalable, secure, and decentralized. It is also more competitive in the blockchain industry as more developers build on it.
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Will Ethereum 2.0 affect Ether’s price?
Ethereum 2.0 is bound to attract many developers looking to build on the network. As Ethereum gas fees are paid in ETH, the more people use the network, the more the demand for ETH will increase, and so will the price.
