One of the most popular blockchains, Ethereum, is currently going through massive updates to improve security, expand decentralization, boost the network’s energy efficiency, reduce the impact on the environment, and more. The new upgrade – commonly known as Eth2 or “Serenity” – will make a better distinction between layer clients (Eth1) and consensus layer clients (Eth2).
This upgrade is big news in the world of cryptocurrency since it’ll affect Ethereum’s token, Ether (ETH), which currently has the second-biggest crypto market cap of more than $489 billion. And the new and revolutionary technology behind is bound to make a significant impact on other large cryptocurrencies as well. Let’s see what this upgrade really entails and how things will change afterward.
The two main issues this update will address are slow transaction times and the network’s currently huge environmental footprint. The upgrade aims to improve the network’s energy efficiency and speed and thus make it more scalable.
The Ethereum 1.0 network can handle about 10 to 30 transactions per second. To put that number into perspective – Visa can process 1,700 transactions per second. To become adopted globally and by millions of users, Ethereum needs to step up its game. The estimates for Ethereum 2.0 are that the new and improved network will be able to process nearly 100,000 transactions per second by using proof of stake (PoS) and shard chains.
The current Etherum network uses the proof of work (PoW) model, an energy-intensive system. It relies on miners’ computer processing strength to confirm new transactions by solving complex mathematical operations. In return for their efforts, miners are rewarded with new ETH.
Proof of stake aims to be more energy-efficient by employing validators instead of miners and eliminating the consensus algorithm’s energy-demanding computer processing. A validator is a user who, in exchange for staking 32 ETH (or less, if they join a staking pool), is allowed to check and confirm transactions and add new blocks to the Ethereum chain. By doing this, validators ensure that the network is working properly and that there’s no double-spending. As a reward, they get new ETH, but if they fail to validate transactions, go offline, or perform malicious actions, they’ll lose their staked ETH.
Sharding is a process of splitting the blockchain into smaller chains. This move will allow transactions to be processed in parallel chains – 64 of them, to be precise – which will be significantly more efficient since validators will no longer have to store the data of the entire Ethereum network on their computers. Instead, they’ll only need the data of the shard they’re validating.
But how is the upgrade going? When will it be launched?
It’s important to acknowledge the highly complex nature of the upcoming update. That is the reason the Ethereum network upgrade will be rolled out in phases. Phase 0 went live in December 2020, with the activation of the Beacon Chain. The Beacon Chain allows for the introduction of PoS.
The Merge, or Phase 1, is the next phase that will combine Ethereum’s Mainnet with the Beacon Chain. It is expected that the merge will happen in 2022. The third phase, or Phase 1.5, is the implementation of shard chains, which will help with the Ethereum network’s expansion.
On October 27, 2021, Altair was the first Beacon Chain network upgrade to be launched. It’s one of the minor upgrades, not the Merge everyone is expecting. It’s expected to bring a rise in slashing severity, support for light clients, clean-ups to validator rewards, and pre-validator inactivity leak accounting.
It means that light clients will be able to sync up with the Ethereum chain effortlessly, thus reducing data and computation costs. It will also introduce a bit field format for improved and less complex storing actions.
Lastly, the Altair upgrade will also modify penalty parameters for inactivity leaks and slashing. These parts of the Altair upgrade are setting the ground for the Merge.
Based on what we currently know about the Ethereum 2.0 upgrade, we can expect it to make significant ripples in the crypto community when all its phases go live. If all goes well, with the network’s expansion, there will be an improvement in usage, leading to higher demand and higher price of ETH. Participating in the Ethereum 2.0 project will also be more accessible to the global population as transaction fees will go down and the network output will increase.