A lot is happening around Ethereum and the updated version Ethereum 2.0. This update aims to make Ethereum available on a bigger scale, more secure, and sustainable. This article will explain what the Ethereum update means and how this will affect Ethereum. But for starters, I’ll give a short explanation of what Ethereum is.
What is Ethereum?
Ethereum is more than just a form of payment. You can see it as a sort of marketplace that you can use for your games, apps, or financial services. Ethereum is a form of technology that makes it possible to send cryptocurrency to anyone you’d like, but for a small fee, of course. Everybody can use Ethereum. All you need is a wallet, and you have access to the digital money world.
The update: Ethereum 2.0
With this update, the Ethereum community is taking the first step towards making it powerful enough to help all of humanity. Ethereum 2.0 is not just one upgrade that will improve everything. It consists of several components that all have their own goals. They plan to publish the updates between 2020 and 2022. The three most significant points of improvement of this update are scalability, security, and sustainability.
At the moment, Ethereum has a very limited number of transactions that can be handled simultaneously. This is because of the decentralized blockchain that requires every node to verify every transaction. If you don’t know what a blockchain is, you can see it as a digital book recording every transaction. There is not just one book, but there are countless copies. This makes it very hard, well, you could say nearly impossible, for hackers to hack Ethereum. A decentralized blockchain means that it is not controlled by an individual but by a distributed network. To scale Ethereum, they need to do more transactions per second and add more nodes for security. Shard chains will achieve more transactions per second. This means the database will be split into smaller components. These components are easier to manage and will have a separate server. Because the load is being spread over several servers, there will be less congestion. This way, things will speed up!
One of the reasons that the security needs an upgrade is because of these shard chains. The Beacon Chain was introduced in the first phase of the upgrade. This Beacon will randomly choose and link validators to different shards. Validators are responsible for ordering transactions and creating new blocks. The Beacon will make it impossible for validators to work together and attack specific shards. Ethereum 2.0 will also switch to Proof of stake instead of Proof of work. With Proof of stake, the randomly chosen validators will stake 32 ETH. The stake is used to reward good behavior and to correct the bad. They will lose a part of their stake for small mistakes, but when they deliberately do something wrong, they can lose their entire stake. There is a weak spot. Because Proof of stake is relatively new, it is not as battle-tested as Proof of work. It does reduce the chances for a form of attack called the “51% Attack”. This attack is executed by multiple validators who ‘control’ 51% of the network, who can make changes to the network for their benefit. They could make changes like reversing transactions. That makes it possible to spend ETH twice. ETH 2.0 reduces the chance of this kind of attack because you need a lot of money to own 51%, and an attack like this will cause the value of Ethereum to drop. Why would you destroy the value of a cryptocurrency if you own 51%?
Ethereum hopes that there is more reason to keep the network healthy and secure than to attack it.
Ethereum needs to be greener! The previous method, “Proof of work,” where the validators are called miners, uses a lot of energy. The work the miners do is mining, and this requires a tremendous amount of computing power. Suppose Ethereum would scale and continue with this method. They would need more miners, and therefore use more computing power. To keep using that much electricity is not sustainable, so that’s another reason why Ethereum is changing to Proof of stake. This won’t be an immediate change. In the beginning, the shard system can’t handle everything at the same time. So, for the time being, the two systems will run in parallel until The Beacon Chain is up and running and ready to merge.
How will the Ethereum 2.0 update change the way it works?
There are no differences in the use of Ethereum as we know it now. The two will co-exist in the beginning, and when the merge happens, you won’t notice it as an ETH user. If you are an ETH user, you must’ve seen that the value of ETH more than doubled between the 17th of April ’21 and the 3rd of March ’21. This massive increase in value can have multiple reasons. One of the reasons is likely the update because it has a positive effect on the investors. As explained before, Ethereum will eventually switch to Proof of stake, which will stop mining. If you are a miner and you want to do similar work, you can start with staking. Staking means you set aside 32 ETH in a separate wallet, and you can receive interest over this amount. You are lending your ETH to the network to help validate transactions. In return, you are being rewarded with additional coins. You can consider this a form of passive income. You will continue your work as a validator by creating new blocks and being responsible for transactions. The mining won’t end until a couple of years, though.