Ethereum 2.0 recently become a hot topic of conversation among Cryptocurrency enthusiasts. From several reports that Ethereum 2.0 has advantages over Ethereum, in terms of scalability and other features.
The most popular crypto asset after bitcoin is Ethereum, which will be upgrading to Ethereum 2.0. This is a huge history for the world of cryptocurrency and blockchain, even the world of digital finance. It is likely that the Ethereum 2.0 transformation upgrade will begin in December 2020.
So what exactly is Ethereum 2.0 and how does it work? This article will guide you through some answers that will help you understand Ethereum 2.0.
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What is Ethereum 2.0?
Ethereum 2.0 or also known as Eth2 or “Serenity”, is an upgrade to the Ethereum blockchain. This upgrade aims to increase the speed, efficiency, and scalability of the Ethereum network so that it can process more transactions and reduce congestion.
Ethereum 1.0 supports around 30 transactions per second and there are frequent delays and crashes. With the upgrade to Ethereum 2.0, it is possible to make 100,000 transactions per second. This increase will be achieved through the application of fractional chains.
Ethereum 2.0 also takes security very seriously. Most proofs of stake networks have a small set of validators, which makes the system more centralized and decreases network security. Ethereum 2.0 requires a minimum of 16,384 validators, making it much more decentralized and therefore secure.
Three phases of launch
The full Ethereum 2.0 rollout will take place in three phases following the launch of Testnet, Topaz, Medalla, Spadina, and Zinken. The phases are 0, 1, and 2.
- Phase 0 is implementing a Beacon Chain which stores and maintains a validator registry and proof-of-stake (PoS) consensus mechanism for Ethereum 2.0. The original Ethereum PoW chain will go hand in hand with this so there is no lag in data continuity.
- Phase 1 will be launched in 2021, this phase implements the integration of proof of stake shard chains. It is expected to launch up to 64 shards. Next is a temporary update which will see the Ethereum main net officially becoming a shard and moving on to proof of stake (PoS).
- Phase 2, will make the shard fully functional and compatible with smart contracts. There will be additional Ether accounts and allow transfers and withdrawals, implement cross-fraction transfers, and contract calls. The launch schedule is estimated to be 2021-2022.
Sharding is the process of dividing the network into subsets of nodes. Each shard will process their own transactions and contracts, but can still communicate with the wider network of shards. Each shard validates independently, no more need to store data from other shards.
Why Ethereum 2.0
The reasons that support Ethereum 2.0 include Eth2 will produce many more Defi players because the Ethereum 2.0 network is able to accommodate more and more efficiently. So that it will solve problems that have been happening in Ethereum, for example scaling and expensive gas fees. Ethereum 2.0 will have a much larger capacity to accommodate the number of transactions in Defi applications.
Defi technology embedded in the Ethereum network is a new financial system that will solve conventional financial problems.
How does it work?
If the Ethereum 1.0 network uses Proof of Work involving miners when Ethereum 2.0 starts running. It will no longer use miners because it will use Proof of Stake. Proof of Stake is that it gives the user the right to a network token to earn rewards for validating blocks.
To be a validator on Ethereum 2.0, the user must have at least 32 Ether. Staking Ethereum can generate returns from 4.5% to 10.5%. The numbers will vary depending on the total amount of ETH you are betting. The greater the ETH used for staking, the greater the reward and vice versa.
The way staking works is that your Ether will be locked, then loaded, and then just waiting. However, the validator must run the validator node. Unlike mining, this does not need a special machine but can do with a regular computer or laptop. However, to do this staking Ether must be stored in a computer wallet that must be connected to the Internet for 24 hours, 7 days a week.
If you are not connected to the internet, the system will give you a penalty which will automatically reduce the amount of Ether you stake.
Ethereum 2.0 use a validator instead miner
Become a deposit validator in a smart contract with at least 32 ETH, and get an annual reward of 25 percent per year. Consensys says that in the early days of Ethereum 2.0. Validators were rewarded 50 percent per year. However, the greater the number of validators. The system will automatically reduce this annual reward and vice versa.
So, fundamentally, even though we haven’t entered Ethereum 2.0 yet. There are currently around 118,647 accounts/wallets with a balance of over 32 ETH. Under these conditions, the ecosystem is actually ready to enter the Ethereum 2.0 stage. Even far from the minimum requirement for the number of validators in one network.
Staking pools involve multiple parties gathering to participate in staking as the sole validator. And operate by pool operators, such as Binance, Crypto.com, and Kraken where the exchanges deposit user funds into a wallet which is then used for staking.
The advantage of a staking pool is that it will allow users to collect crypto and have a better chance of being selected as a validator and earning archiving prizes. The rewards will be spread across all pool participants, which will generally result in less individual profit.
Is Ethereum 2.0 a hard fork?
To update Ethereum do it with a hard fork, however, Ethereum 2.0 will not be a direct hard fork. This is due to structural differences.
Ethereum 2.0 uses Proof-of-Stake consensus instead of the current Proof-of-Work. And it uses a completely different sharded architecture to improve scalability.
This upgrade is implemented as a chain on its own, but with plans to eventually migrate to accounts and the Ethereum 1.0 contract expiring.
The details of this migration are still being discussed, but the current plan is to migrate Ethereum 1.0 to Ethereum 2.0 so that it is in one of the 64 fractional chains.
When will Ethereum 2.0 launch?
Citing a report from Cointelegraph and news. bitcoin, the launch of Ethereum 2.0 phase 0 will be around December 1, 2020. Meanwhile, Ethereum inventor Vitalik Buterin has sent 3,200 ETH to the genesis phase deposit contract to start staking after the upgrade.
The deposit contract has a minimum required stake of 524,288 ETH, or $ 230 million. Cointelegraph reporting that the plan to launch on December 1 will be carried out if the minimum threshold has been reached seven days before the due date.
Looking at the historical balance deposit contract data from the picture above, it has reached around $ 360 billion, so the minimum threshold is still around 10%.
Deposit contracts seem to be decreasing lately so the shortfall will still take time. To become a Staker Ethereum 2.0 requires a special foundation using at least 32 ETH. The rewards earned from staking still take time to implement Phase 1 and Phase 2, which may take years before they can make a withdrawal. These conditions can deter investors because shareholders will face uncertain lockdowns that take several years.
As of November 10, 2020, the “Eth2 Deposit Contract” has just recorded around 50,689 ETH from 1,699 transactions. Each transaction is 32 ETH, the minimum requirement as a validator node. 20 November 2020, the number of contract deposits increased by 108,800 ETH.
On 17 November 2020, Vitalik Buterin and a number of Ethereum Foundation members commented on the future of the network and the highly anticipated Ethereum 2.0 launch.
Buterin said for a merger, less than a year is unrealistic. Even if the implementation of complete integration fails by February 2021, he recommends waiting until November 2021 or so to assure the public that the PoS system is safe.
Will Ethereum 2.0 be faster?
Ethereum 2.0 presents a scaling solution that greatly increases the number of transactions per second. It will also switch the blockchain to a different consensus algorithm known as proof of stake that previously used Proof of Work.
In a question and answer session in a Reddit forum, one of the founders of Ethereum, Vitalik Buterin answered questions related to Ethereum 2.0 in a discussion on the topic Ask Me Anything or abbreviated as AMA. Buterin said he expects a noticeable network upgrade sooner rather than later.
Will Ethereum 2.0 affect Ethereum?
The upgrade to the Ethereum 2.0 blockchain with the Proof of Stake (PoS) model brings additional benefits to its users. It is a Staking model where users receive passive income from validating transactions by saving 32 ETH to become a validator node or join the staking pool.
Binance CEO Changpeng Zhao said that staking will stabilize the price of crypto assets. Also, network transactions are cheaper and faster with lower gas costs.
Praneeth Srikanti, Head of Investment at ConsenSys Ventures, added that PoS will increase the demand for ETH. Because users get staking rewards and also use ETH in the Defi (decentralized finance) application.
This staking model carries risks, including repercussions for miners still running on the Ethereum 1.0 network. This transition will make ETH miners lose the opportunity to earn ETH through their mining machines, so they will either quit or looking at other crypto assets.
There is also a risk for Stakers who deposit funds on the Ethereum network because not all users understand the intricacies of staking, which may be complicated.
The complicated staking model can result in theft of private keys and errors during the transfer process. In addition, the transition from Ethereum 1.0 to 2.0 presents a lock-up risk, whereby the Ether stored in the new PoS chain cannot be cashed out in the event of a sudden drop in price.
The good news, according to Eliezer Ndinga of 21Shares, is that crypto exchanges and other custodial services can help with this transition process. Third-party staking services can also be a solution, but user funds can be accessed by these third parties.
Decentralized applications (DApp) built on Ethereum will remain operational and do not undergo changes until they are manually updated to version 2.0. But there is a threat that the update to version 2.0 technically fails due to a network split or a security hack.
SKALE developer Konstantin Kladko said there were weaknesses in implementing Ethereum 2.0 staking. Because there might not be enough funds to start the network. There is no method for transfer back to version 1.0, so the validator could lose 50 percent of the money.
Validator nodes using third-party servers may also be a target for hackers. The CTO of the Bitfinex exchange Paolo Ardoino projects that this will be tempting for hackers.
OKEx CEO Jay Hao added that it may still be many years before Ethereum 1.0 is fully integrated into 2.0. Because the transition between these two very different versions of the blockchain could lead to vulnerabilities, making them vulnerable to attack.
Will Ethereum 2.0 increase the price?
In general, the increase in prices is influenced by market players consisting of buyers and sellers. That reflects demand and supply. However, to carry out selling or buying action. Sometimes players will pay attention to various factors to see the advantages and disadvantages.
The upgrade to Ethereum 2.0 is expected to have a better impact as some of the problems in Ethereum 1.0 were resolved when migrating to Ethereum 2.0.
With the Eth 2.0 upgrade, some investors believe it will lead to new highs in the future. However, it will see how the function will work properly because if there is a conflict that causes the system to fail. It will also impact the Ethereum price. A process that takes at least two years may be too long for some people to reduce their interest.
ETHUSD at press time at $ 544.57 is indeed still much lower than early 2018 with an all-time high of $ 1594.
However, the unique demand mechanism after the upgrade allows the price to increase gradually. Like as Bitcoin after the hard fork has increased its tantalizing value.
Ethereum 2.0 offers better capabilities, but it takes a long time to prepare for the migration from Ethereum 1.0 to 2.0.
For those of you, crypto traders will certainly follow news development. Because it is said to be able to double price boosting as a result of providing higher profits.
Defi application developers will benefit from these improvements and improve application quality. However, Ethereum 2.0 is a very complex model so it might lead to quite difficult adaptations for Defi developers.
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