The ETH 2.0 initiative was started in December of 2020 with the launch of the “beacon chain”.
The beacon chain is a different Ethereum network that would serve as the eventual proof of stake blockchain for Ethereum. The beacon chain stores and manages the registry of validators and coordinates “shard” chains – to be explained below. The next step of ETH 2.0 is known as the “merge”. Initially planned to be launched in 2021, but then moved to this year, the merge is when Ethereum’s current proof of work consensus mechanism will merge with the proof of stake beacon chain. This point will mark the end of the proof of work on Ethereum and the end of ETH mining.
What Will ETH 2.0 Bring?
There are a large number of benefits to ETH 2.0 including, but not limited to, the following:
There are compounding benefits of ETH 2.0 that we won’t get into here to avoid speculation, but we will touch on the immediate benefits. The first is the energy usage of the Ethereum network.
Proof of stake uses a fraction of the amount of electricity of a proof of work mechanism. In the case of Ethereum, it looks like a proof of stake model yields minimal drawbacks along with the benefit of low energy consumption.
The second benefit of ETH 2.0 is the long-anticipated scaling of the network. The merge itself won’t yield any scaling improvements. Instead, it won’t be until the launch of what is known as “sharding” that ETH will see improvements in processing.
Sharding refers to the implementation of “shard chains”. Each shard chain is its blockchain, and there will be a total of 64. Each shard chain adds to the Ethereum network’s capacity to store, and access data, but aren’t able to execute code.
Scaling with shard chains can be viewed as parallel processing functionality, but is not quite so given that shards cannot execute code. Yes, scaling on Ethereum will be very important given the high gas fees created by an overload on the existing network. However, we largely have sufficient scaling solutions in the form of Ethereum “layer 2” protocols. Layer 2s on Ethereum refers to the likes of Polygon, Arbitrum, Immutable, and more.
In the absence of Ethereum’s inherent scaling inefficiency, these layer 2s have been able to add versatility, and billions of dollars in valuation by extending Ethereum’s reach. Of course, the advent of sharding remains a much-needed efficiency upgrade to Ethereum’s foundation layer.
ETH 2.0 Timeline
Ethereum should have the trophy for the least punctual project. The pain of ETH’s high gas fees introduced the need for a difficult but necessary upgrade to the network. Since then, there have been a series of unmet deadlines for the Ethereum project. This opened the space for so-called “Ethereum killers” to compete with ETH.
As stated above, the merge has been rescheduled to take place this year. This seems clear, given that sharding is scheduled to launch in 2023, as stated on the Ethereum website. Following this timeline, we shouldn’t expect any impact on gas fees until next year, at the earliest. Given Ethereum’s track record of meeting deadlines, it’s an optimistic view that we will meet these two goals on time.
To help envision the future with ETH 2.0, Ethereum provides the following excerpt from their website, “Imagine Ethereum is a spaceship that isn’t quite ready for an interstellar voyage. With the Beacon Chain, the community has built a new engine and a hardened hull. When it’s time, the current ship will dock with this new system, merging into one ship, ready to put in some serious light-years, and take on the universe.”
The Era of ETH 2.0
ETH 2.0 promises an improved experience for those on the most active platform in crypto. Looking at the remarkable growth of ETH since the COVID-19 pandemic began, we can start to imagine what ETH 2.0 might bring. With scaling finally implemented, we should see a boost to all existing, and new projects on the platform. At the time of writing, ETH represents roughly 17% of the crypto market, with Ethereum layer 2s adding a few more percentage points to that number.
Crypto, as a whole, stands to benefit from ETH 2.0. We have many potential substitutes, but Ethereum remains where the bulk of the crypto application is taking place. For these early stages of the industry, we need to preserve crypto’s most direct use case as provided by ETH, namely, through decentralized finance (Defi). Bitcoin stands on its own, and many other promising projects exist, but Ethereum is where crypto is most concrete. At the current stage of altcoins, ETH 2.0 improves the foundation upon which the rest of crypto can expand.
2022 Should Be the Year
I have very little patience for the type of “over promise, under deliver” track record of Ethereum’s product rollouts. Of course, Ethereum has more than delivered, in terms of its contribution to crypto, but many are wary to trust its timeline.
That being said, progress is steadily being made, and threats of an “Ethereum killer” still seem far enough off. As it stands, it’s looking like this is the year we will see ETH 2.0, at long last.
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