Ethereum 2.0 Release and its Impact on the Crypto Industry
The year 2020 was fruitful for notable crypto events: Bitcoin halving, whole crypto market bull run, the rise of the DeFi sector and so long-awaited Ethereum 2.0 release. We’ve prepared Ethereum 1.0 essentials and explained what Ethereum 2.0 is going to surprise the crypto industry this year.
Ethereum 1.0 Main Problems
Launched in 2015, Ethereum blockchain was aimed to bring the new Internet era while revealing the potential of smart contracts. As we can see today, the co-founder Vitalik Buterin together with the Ethereum team had succeeded in ubiquitous implementation of smart contracts. Ethereum had become the core platform for decentralized application (dApp) deployment long before Justin Sun introduced TRON and Dan Larimer launched EOS. As of today, thousands of dApps are built upon Ethereum blockchain continuously enhancing its ecosystem.
However, the aforementioned EOS and TRON appeared to become Ethereum’s worthy adversaries or as they called ‘Ethereum killers’. They have brought new vision on smart contracts mass usage while introducing more scalable and fast decentralized environments to dApp developers.
In December 2018, the TRON platform surpassed Ethereum in dApp usage. Despite this fact, Justin Sun’s project could not remove Ethereum from the decentralized throne. Ethereum remains the king of smart contracts that today is rapidly conquering the market of decentralized finance (DeFi). And once Ethereum 2.0 will be released, no one can stop it.
Yet, let us start with problems that currently impede Ethereum 1.0. These are:
Lack of greater scalability
Low transaction speed
DApp developers along with dApp users stumble on one great issue – high gas fees. Why are gas fees so high in the Ethereum network? Just like Bitcoin, Ethereum uses a proof-of-work (PoW) consensus algorithm which requires heavy computational power to generate blocks and process transactions. Consequently, miners who maintain the proper work of the whole system need to be rewarded.
Moreover, in 2020 the DeFi market boosted the gas price up to the sky. Against the background of an increase in the gas limit (it grew to 12.5 million in July 2020), the number of daily transactions on the Ethereum network exceeded 1.26 million.
There is no fixed amount of gas that should be charged. In fact, it is up to you to specify the gas price. In their turn, miners can choose transactions they want to process. Hence, transactions with greater gas fee will be processed faster. An average gas price is about 20 Gwei or 0.00000002 ETH but it can increase drastically due to high network traffic.
Scalability is a pain point with most distributed ledgers. At its core, scalability is an ability of a system to handle and manage the increased demand of requests. Unfortunately, the current Ethereum network is not scalable at all. Remember when notorious Ethereum dApp, CryptoKitties, slowed down the whole blockchain in 2017? Back to that time, CryptoKitties gaming accounts took over 10% of network traffic on Ethereum blockchain which escalated into crazy gas fees and long transaction processing.
Ethereum processes 15 transactions per second (tps) – which is quite a bit. Just some numbers that reflect a transaction throughput situation in the world.
According to Visa, it can process over 65,000 transactions messages per second
Bitcoin can handle approximately 7 transactions per second
In 2020, EOS achieved 3,000 tps and 9,656 tps on the Jungle testnet
As they say, if you don’t know where to start, go back to the beginning. Rumors around Ethereum’s migration from PoW to PoS consensus algorithm emerged nearly three years ago. Since then, the network has been moving towards PoS transition. The idea of sharding had been discussed for three years straight and appeared to go live in the following Ethereum 2.0.
Ethereum 2.0 Roadmap
Just to get all the phases towards Ethereum 2.0 launch straight:
Frontier (the initial stage of the Ethereum network)
Homestead (the stage that we saw in 2018)
Metropolis. This stage consists of two substages Byzantium and Constantinople hard forks. We are currently at this stage.
Ethereum 2.0 or as it is also called, Serenity stage also consists of three subphases.
(i) Phase 0. Serenity introduces Ethereum Beacon Chain which will help the network to migrate from PoW to PoS.
(ii) Phase 1. Ethereum Sharding
(iii) Phase 2. eWasm (Ethereum Flavored WebAssembly) integration. eWASM will enable faster code execution and have to bring significant improvements to a development environment.
Proof-of-Stake (PoS) Transition
Serenity is going to use the Proof-of-Stake algorithm (you may also know it as ‘Casper’). Such a global transition will benefit both regular users and dApp developers that have to pay much less fees. In fact, there will be no gas fees at all, as PoS does not require mining. No miners – no mining reward – no high fees. There is also no need to purchase expensive mining rigs. As a result, you save a fortune on computational power costs and electricity bills.
To discover a block, miners must spend too much computational power.
No need for powerful mining rigs. The block creator is chosen by an algorithm (according to validator stake).
The first miner who happens to discover a block gets a reward.
With staking ETH and becoming a validator, you will be rewarded with additional ETH through a network wide interest rate as well as receive a portion of network transaction fees.
A 51% attack is possible if a miner’s computer is more powerful than the computers of other network participants.
A 51% attack is possible if a validator controls 51% of all ETH on the network.
Instead of miners, there are validators that produce blocks and maintain the network. To become one, you have to stake a minimum of 32 ETH. In short terms, validators have to follow certain procedures in order to produce blocks. They should lock up some ETH and vote on the next block. The weight of a vote depends on the size of a stake. Once the block is verified and added to the blockchain, validators are rewarded with additional ETH coins.
Beacon chain is aimed to be a supervisor of a whole Ethereum 2.0 network. It is going to coordinate the smooth transition from PoW to PoS, assign validators and attest to their work. Beacon chain will also be responsible for proper shard communication and virtual machine.
According to Eth 2.0 advisor and researcher, Ben Edgington:“There are a number of aspects to this: managing validators and their stakes; nominating the chosen block proposer for each shard at each step; organizing validators into committees to vote on the proposed blocks; applying the consensus rules; applying rewards and penalties to validators; and, being an anchor point on which the shards register their states to facilitate cross-shard transactions.”
Sharding is finally going to bring scalability, high transaction speed and throughput to Ethereum. Essentially, sharding is a scaling solution aimed to split the network into 64 shards. Each shard will be able to process transactions simultaneously and concurrently to other shards. Obviously, all shards are tied to the main Ethereum chain so that they form a Merkle Tree. Yet, each shard acts like a separate blockchain.
Sharding allows each shard to store transactions. And as it is cryptographically secure, these transactions can be returned back to the main chain at any time. Ethereum account will be assigned to each shard. The thing is, each Ethereum account can transact with other accounts of the same shard. The idea of cross-shard communication can be released in the next phases.
Vitalik Buterin explains sharding in simple terms: Imagine that Ethereum has been split into thousands of islands. Each island can do its own thing. Each of the islands has its own unique features and everyone belonging on that island, i.e., the accounts, can interact with each other and they can freely indulge in all its features. If they want to contact other islands, they will have to use some sort of protocol.
Ethereum 2.0 Release
The final and essential question here is: when will Ethereum 2.0 be released? During the recent Ask Me Anything (AMA) Reddit session with Vitalik Buterin and Ethereum 2.0 developing team, Justin Drake said the team would hope to launch Eth2 phase 0 by July 30, 2020 right to the Ethereum’s 1.0 5th anniversary. Buterin noted that “A lot of optimization is currently underway with Phase 0, which we will continue to refine over the next few months.”
Later, the Ethereum Foundation developers have officially confirmed the launch of the ETH2 deposit contract, and also named the date of the creation of the genesis block.
According to the v1.0.0 specifications of the second version of the protocol, the genesis block will be launched on December 1 at 12:00 UTC. This date was originally set for January 3, 2021.
The deposit contract allows you to send ETH from the existing network to ETH2, confirming the powers of the stakers.
The minimum threshold for participating in Ethereum 2.0 staking is 32 ETH. The condition for the launch of the main Ethereum 2.0 network is the participation of 16 384 validators, who by the set date must have contributed a total of 524 288 ETH.
Upcoming improvements are going to upgrade not only Ethereum but also the whole blockchain industry: the decentralized finance (DeFi) sector, the gaming industry, blockchain development sector and many others. Needless to say, all these upgrades require time and human resources but it seems that Ethereum is doing great. And just like with smart contracts, Ethereum is going to revolutionize the crypto industry once again.