Ethereum 2.0 is the forthcoming largest upgrade the Ethereum network has ever undertaken.
The goal of the Ethereum project has always been to run unstoppable applications at scale. Today, most of its applications are ‘nearly’ unstoppable (some are still semi-centralized, therefore, stoppable).
However, these decentralized applications are not nearly at scale. The Ethereum network can currently handle only about 15 transactions per second (tps). That’s not nearly enough for a blockchain that is aimed to become the biggest decentralized operating system.
What’s Ethereum 2.0?
Ethereum 2.0, sometimes referred to as Eth2, is the forthcoming major upgrade of the Ethereum network in which the proof of stake chain and scaling mechanisms are to be deployed.
Initially, the proof of stake chain (Eth2) will work alongside the original proof of work chain (Eth1). As a result, Ethereum will have two blockchains.
It is a multi-year undertaking and will be rolled out in multiple phases, each with different additions to the system.
Why Ethereum 2.0?
The purpose of the Eth 2.0 upgrade is primarily to scale the network and make it more secure. Another benefit that will come in later phases is the multi-language support, which will enable non-blockchain developers to build on Ethereum.
Scalability is a major hurdle, not just for Ethereum, but nearly all sufficiently-decentralized blockchains. That’s because blockchains are designed to be immutable, not scalable.
Several other chains have made their own solutions, some of them claiming to have already scaled. However, most if not all of them had to trade off a portion of security or decentralization in order to scale.
Ethereum wants to do things differently. Like in Bitcoin, decentralization and security are very important to its founders and community.
Therefore, they’ve been working for several years to create this complex system that enables the network to scale without sacrificing security and decentralization.
As mentioned, the upgrade will be deployed in multiple phases. Each phase will offer new additions and functionality to the Ethereum blockchain.
Phase 0 (Beacon Chain)
Phase 0 is estimated to be released sometime between August and January 2021. Two central figures to the Ethereum network seem to disagree on the timeline.
While Drake believes the earliest practical release for Phase 0 would have to be on the third of January 2021, Vitalik disagrees. According to Vitalik, Eth 2.0 will be released regardless of how ‘ready’ it is since there won’t be any critical applications running on it until Phase 2.
Thankfully, most of the Ethereum developers are with Vitalik on this.
The first phase will see the deployment of the Beacon Chain (proof of stake chain). It will work alongside the old proof of work blockchain as a hybrid PoW/PoS chain.
One could say this will be the ‘testing phase’ of the proof of stake chain.
For the most part, users won’t be able to utilize the Beacon Chain much throughout the phase. It won’t be able to validate transactions, execute smart contracts, or run DApps.
Phase 1 (Shard Chain)
Phase 1 was supposed to be released in 2020 but due to the delays, it might take a while. According to the original roadmap, it will be released a year after Phase 0. If there are no more delays, we would likely see it rolled out in 2021.
This phase will see the initial rollout of Shard Chains, the promised scaling solution for the network. Initially, it will be a ‘test run’ instead of an immediate solution. By this time, the Beacon Chain would likely be more optimized and robust enough to monitor the execution of shards.
A shard is simply a partition of the network. The Ethereum blockchain will be divided into 64 shards that run parallel to each other and interoperate coherently.
Sharding will enable the Ethereum chain to produce 64 blocks at a time, which would ultimately scale it to 100,000 tps.
An important development in Phase 1 includes the merging of the PoW and PoS chain, which many refer as Phase 1.5. Technically, the PoW chain will be added as one of the 64 shard chains to prevent a break of continuity.
Although the data history of the original PoW chain will still exist, it won’t be necessary for validating transactions anymore.
Phase 2 (eWASM)
As of today, it would be difficult to determine an estimated release date for Phase 2. However, the original roadmap indicates that it should arrive a year or less after Phase 1 is rolled out.
This is the phase where the all essential functionalities of Ethereum 2.0 blend in. It other words, Ethereum 2.0 will be fully functional by this time.
This phase will introduce a new virtual machine called Ethereum-flavored Web Assembly (eWASM).
The current virtual machine called Ethereum Virtual Machine (EVM) only supports one language: Solidity. Unfortunately, Solidity is unheard of outside the crypto dev community, which limits the number of developers that could contribute.
eWASM, on the other hand, supports several programming languages allowing any developer in the world to participate in Ethereum’s development.
Phase 3 has no clear milestones as of yet. But we can expect that Eth 2.0 will need tons of incremental improvement and optimization. This is what it represents.
How Will Ethereum 2.0 Affect Price
In order to assess the impact of the Eth 2.0 on its currency’s market price, we need to look at three previous upgrades for reference.
As you can see, all three upgrades have varying degrees of impact on the price of ETH. The biggest pump in the coin’s history followed after the Byzantium upgrade. However, it wouldn’t be accurate to say that it’s responsible for ETH’s meteoric rise.
Ether and the rest of the market was already going parabolic before the great surge. However, Byzantium has likely helped since it brought the implementation of nine Ethereum Improvement Proposals (EIP) which enhanced Ethereum’s scalability, security, and privacy.
Furthermore, it set the stage for the widespread utility of Ethereum smart contract. After the upgrade, Ethereum transactions had exceeded Bitcoin’s for the first time.
Constantinople and Istanbul
The next two upgrades, however, were trivial in comparison. Constantinople was essentially a collection of maintenance and operations upgrades.
Istanbul had more significance since it brought more privacy and scaling capabilities to the network. But you can see that a smaller pump still followed after.
Historically speaking, the price seems to rise after every upgrade, albeit not instantly. And the next one is the biggest that is yet to come. Therefore, it is even more likely that Ethereum 2.0 will trigger a massive increase in ETH’s price.
Ether will probably shoot up. But we need to remember that the upgrade will come in multiple phases. And people are anticipating that.
With that considered, it would be more logical to think that Ether’s price could likely go parabolic for extended periods of time rather than bursting to new all-time highs in a matter of days.
Ethereum 2.0 Staking
Another highly exciting feature to come with Ethereum 2.0 is staking.
What is staking?
Staking is a process in which users lock up their coins in their wallets in order to participate in validating Ethereum transactions. In return, these users will earn block rewards.
Staking will likely be fully ready at scale sometime between Phase 1 and Phase 2.
How to stake in Ethereum?
The network imposes a threshold of 32 ETH in order to participate in the staking process. At the currency’s current value, this is worth more than $7,600. If you plan to participate, I recommend you start buying Ether up while its cheap.
We don’t truly know how much this will be worth by the time staking is ready.
Unlike mining, staking does not need specialized hardware. In fact, it could run smoothly on the average consumer desktop or laptop.
However, as a validator of the Ethereum network, stakers are required to keep their computers connected to the internet consistently. Otherwise, there will be minor penalties.
As for the rewards, it is expected to yield a 4-10% annualized return rate, according to Adam Cochran, a partner at Metacartel Ventures.
The crypto space has come so far in a little more than a decade of existence. But looking at the upcoming implementations of Ethereum 2.0, it wouldn’t be implausible to say that the best is yet to come.
It has been the most-awaited and discussed upgrade in the Ethereum community. After all, sharding will enable the network to scale to unprecedented levels while eWASM will bring access to Ethereum development outside of crypto.
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