Ethereum is the world’s second most popular blockchain platform, smaller only than the world’s first cryptocurrency, Bitcoin. Ethereum came along as something that was always meant to be more than what its predecessor was. Bitcoin laid out the initial framework for all other cryptocurrencies to follow, coming with a few limitations that have been holding Ethereum back.
The proof-of-work consensus system used by Bitcoin and Ethereum is one such issue that limits the scalability of the blockchain network. Ethereum’s developers have been hard at work attempting to address the issue through Ethereum upgrades that would include multiple modifications. The most notable change would be converting the consensus protocol from the proof-of-work to the proof-of-stake algorithm.
Vitalik Buterin, one of the main developers of Bitcoin, created Ethereum. He saw the opportunity to use blockchain technology to create a platform that is not solely based on finance. Through a powerful blockchain platform, Vitalik sought to create an ecosystem that could harness the power of decentralization to create lending platforms, databases, governance systems, and much more.
The intent of creating Ethereum has been severely limited by its inability to validate more than a few hundred transactions in a reasonable timeframe. Besides being time-taking, it is expensive and energy-intensive.
Ethereum 2.0 is the upgrade Vitalik and the core ETH team outlined to make foundational changes to how the blockchain ecosystem works. The Ethereum upgrades have been years in the making, but its creators are hard at work trying to make it faster, more secure, and scalable than ever before.
What Is Ethereum 2.0?
Ethereum 2.0 is effectively a substantial change in the blockchain platform’s consensus mechanism. Instead of the traditional and energy-intensive proof-of-work algorithm, it will shift to a more economically viable, faster, and energy-efficient proof-of-stake validating protocol.
Proof-of-work was the original method used to validate transactions on the blockchain network, which saw crypto miners lend computing power to solve complex mathematical problems to validate new blocks of data for the blockchain network. Once a block of data is full, it is validated by miners and added to the decentralized ledger of transactions.
Each block of data must be proven to be unique to avoid double-spending and eliminate duplicate transactions. Computers use a lot of power to prove the uniqueness of the hexadecimal codes for each data block. Unfortunately, it is harmful to the environment (and it racks up quite an electricity bill for the miners).
Mining cryptocurrency is also an intense competition where hundreds of miners are competing to validate blocks of data. However, only the first miner to find the hexadecimal code gets rewarded and paid out in a share of newly-minted cryptocurrency. Miners with limited hardware cannot compete with mining pools and larger mining operations that operate specialized mining rigs.
Proof-of-stake addresses the issue by making it easier for everyone to validate transactions without using too much energy. PoS also requires validating transactions, but it requires having funds rather than heavy-duty, expensive, and energy-intensive hardware. PoS is more accessible, making it easier for more people to participate in the validation process.
The Shift To Ethereum 2.0
Ethereum’s transition into Ethereum 2.0 has been broken down into several phases that first launched on December 1, 2020. Called Phase 0, it was the launch of the Beacon Chain that allowed users to stake their Ethereum holdings to become validators. The Beacon Chain coexisted with the mainnet (primary Ethereum blockchain), but the Beacon Chain will eventually merge into the mainnet. The goal is to merge the mainnet into the Beacon Chain-controlled PoS algorithm.
Phase 1 launched in early 2022, wrapping up the merger between the mainnet and the Beacon Chain, shifting Ethereum to become a proof-of-stake network. From Phase 1 onwards, Ethereum’s entire decentralized ledger of transactions and smart contracts will be housed on the PoS network.
Phase 2 will be the introduction of the Ethereum WebAssembly (eWASM). Designed to make Ethereum more energy-efficient than it currently stands, the World Wide Web Consortium created eWASM. Ethereum currently uses an Ethereum Virtual Machine (EVM), responsible for running Ethereum as a global supercomputer.
The EVM stores all the code necessary to execute commands on the blockchain network, calculating transaction fees for each transaction and facilitating the wallet addresses for each of them. EVM has been much slower than initially anticipated due to the sheer number of transactions on the blockchain network occurring simultaneously. The EVM would be challenging to upgrade due to it being created in a specialized coding language called Solidity. eWASM was created to replace the EVM and make development more accessible.
eWASM speeds up the work done by Ethereum’s EVM and makes Ethereum development more accessible due to its compatibility with various traditional coding languages. Phase 2 of the Ethereum 2.0 upgrade was supposed to be implemented much earlier. Unfortunately, there have been many struggles in implementing the previous stages of the Ethereum 2.0 upgrade that would allow eWASM to come into effect.
Wrapping It Up
The long-term impact of Ethereum’s upgrade slated to finalize sometime in 2023 is left to speculation. The native cryptocurrency on the Ethereum blockchain network, Ether, is not necessarily meant as an asset with substantial value like Bitcoin. Instead, it is more associated with moving value from one place to another as a means of exchange than a store of value.
Expanding the Ethereum ecosystem with the upgrade will make room for more assets created on the blockchain network. Every new ERC-20 token follows the same rules on the blockchain network, ensuring that these are all interoperable assets that increase the utility of the broader ecosystem.
