ETH 2.0 Explained

What the majority then failed to realise was that despite being another additional crypto token in the space, Ethereum actually had some utility which Bitcoin didn’t.

Today with a market cap of over 200 billion dollars, ETH stands strong with many utilities to its name. Be it NFTs, transactions, domains etc. ETH has evolved into more of a utility based crypto in addition to being an investment token.

But just like every new genre of technology has its drawbacks Ethereum is no different. For starters, Ethereum is very slow. With a speed of only 12 to 25 TPS (transactions per second) functioning on Ethereum becomes a patience test.

Secondly the high gas fees. Gas fees are transaction fees or the fuel that a blockchain needs to ensure transactions go through. On the Ethereum network the gas fees are so high that at times they even exceed the principal amount! To put it in perspective it would be like paying $20 for a $10 pizza slice.

Lastly, the security. Even though Ethereum is highly secure it has had its fair share of hacks and with each major hack the price can be seen crashing down putting everyone’s portfolio in jeopardy. Apart from this Ethereum still follows the Proof of Work (PoW) mechanism which in itself has its own limitations (click here to check out our blog on Proof of Work)

Thus to tackle these situations Ethereum has come up with a systematic plan famously known as the Ethereum 2.0

Before going ahead, it needs to be made clear that Ethereum 2.0 is not going to be an entirely new token, rather it is more of planned multiphase rollout foreseeing the long term vision Vitalik Buterin and his team have for the network or simply an upgrade.

The limitations of Proof of Work (PoW) were anticipated well in advance which is why the team has been working on a different blockchain known as Beacon chain. This is an entirely different blockchain operating on the side making use of the Proof of Stake (PoS) mechanism. The chain will continue to run separately until the merger with the parent (ETH) chain happens.

The entire process from PoW to PoS aims to make the asset deflationary by nature. One of the ways to do so is via a burn mechanism where a part of gas fees gets burned.

Diving a little deep into the technical aspect of the merger, let’s understand how upgrades actually work.
Any upgrade on the blockchain is a joint effort by the developers, validators and the miners.
The developers do their thing, which is write heavy lines of code to upgrade the smart contract and publish it on a test network.
The validators and miners then download the upgrade which is when the change/upgrade actually gets implemented on the entire network.

In the case of Ethereum too there is a test run. The first run involved the Ropsten testnet where the team tested the first phase of the merge successfully.
The second phase is the Gorli testnet which will be followed by the Sepolia testnet.
The main purpose of these Test phases is to find and solve bugs to establish a stronger foundation.

Another important thing to note is that post merge the tokens will migrate to the new consensus mechanism automatically.
The decentralisation of Ethereum comes at the cost of speed and one of the major objectives of Eth 2.0 is to make the Ethereum network scalable, sustainable and more secure.
In view of the same the Ethereum Community Conference (EthCC) was held in the last week of July to put out to the world what’s coming.

The entire roadmap can be narrowed down to five major points:
1. The Merge
2. The Surge
3. The Verge
4. The Purge
5. The Splurge

Let’s have a look at each of them in detail.

The Merge

As mentioned before, Ethereum currently works on the Proof of Work mechanism. Post the merge it will shift completely to the Proof of Stake mechanism which will make the network better overall.

The Surge

This process involves sharding which is fundamentally a blockchain of blockchains. In sharding the processes are delegated to smaller groups which collectively improve the scalability of the blockchain network.

The Verge

The entire process is too technical to understand but in short it makes use of verkle trees (a technical commitment scheme newly introduced into the Ethereum network). These trees reduce the node size (a computer running Ethereum client software) and make room for storage optimization.

The Purge

Validation on the Ethereum network involves high consumption of space. The purge intends to delete history (not the kid you think) aka historical data which will in turn reduce the hard drive space that validators need.

The Splurge

Lastly, the final chapter involves nothing but minor changes. The previous four within themselves are massive upgrades which will require a few tweaks here and there. These will come into play via the splurge which will also help in running the network in a smoother fashion.

Significance of the Merge

In addition to better speed, more security and scalability, the entire Ethereum merge does have a lot more significance.

Firstly there will be a huge drop in Ethereum’s inflation rate. It is expected that the dip will be from an annual rate of 4.3% to just 0.43% (Take that inflation!).

Secondly, this move will bid goodbye to mining rewards (currently, 13000 Eth/day) and only staking rewards (1600 eth/day) will remain. Lastly there will be a huge dip in energy consumption, about 99.95% less! This will be due to the replacement of mining, a high energy consumption activity, with staking. Perhaps this also means there will be no more

Ethereum miners. However, within all these changes, one thing which won’t be changing is the gas fees. This is because the supply of blockspace will remain unchanged hence the fees too will remain unaffected but on the bright side Ethereum as a whole is only getting better!

Conclusion

The Ethereum 2.0 shift is going to be impactful on the entire crypto space. The fact that users now have the option of locking away their Eth until the launch of Eth 2.0 only goes to show how confident the team is about its development. Ethereum as a token has led the way for crypto utilities and post merge one can only hope the track becomes smoother and better.