You may have heard of Ethereum 2.0 on Twitter, Telegram or other platforms so here’s what’s really going on.
November has been a joyride for crypto. You know it’s really going down when you see words like ‘Moon’, ‘Lambo’, and ‘FOMO’ all over social media. Coins like XRP and Litecoin are pumping. But something else is happening. Ethereum is getting a new development!
Ethereum is normally awesome. Great currency, diverse platform for decentralised apps, and a cool team (its founder Vitalik Buterin has been described as the next Zuckerberg). But the network is slow and full of problems. Payment platforms like Visa and Mastercard make Ethereum look like something the Flintstones would use.
Ethereum 2.0 Was Born
Enough was enough! And a couple of developers decided to do something about the slow network. So the idea of Ethereum 2.0 was conceived. But there was just one problem. Ethereum normally uses a method known as Proof-of-work to record transactions. But we already know that this method can take as long as 10 minutes to work (side-eyeing Bitcoin ?). And ain’t nobody got time for that.
So to become faster, Ethereum will use a different method called proof-of-stake. This means that people can drop money as a stake that will allow them to confirm transactions on the network. Before now, the developers needed a minimum stake of 524,288 ETH (32 ETH from 16,384) to launch phase 0 of Ethereum 2.0. They’ve achieved this and the first phase of the update is set to go live on December 1st, 2020.
The Many Phases of Ethereum 2.0
Even though the updates sound straightforward, they’ll have to be rolled out in 4 phases: phase 0, phase 1, phase 1.5, and phase 2.
This phase lays the foundation for Ethereum to move from Proof-of-Work to Proof-of-Stake. The Ethereum developers will launch something called a beacon chain. Later, this chain will make sure that everyone can see the same copy of updated transactions on the blockchain. For now, it’s basically a registration system for people who are staking ETH.
Sounds easy enough but if you stake ETH to become one of the people who will confirm transactions on the blockchain, your nodes (system you use to confirm transactions) must be online 24/7. If not, you may lose the ETH you staked. So people are hacking the system by joining groups that have the capacity to stay online confirming transactions all day.
Update: The beacon chain of Ethereum 2.0 successfully went live on the 1st of December 2020.
After Phase 0 gets the ball rolling, Phase 1 will make sure that the new Ethereum blockchain is running properly. It will connect 64 chains known as ‘shards’ which will share the load of the Ethereum system.This phase will launch sometime in 2021.
In this phase, the currency Ethereum (1.0) will transition fully into the new Proof of Stake blockchain. There will no longer be Ethereum mining. Only people who stake ETH in phase 0 will be allowed to validate transactions. This will also come in 2021.
The new blockchain will function fully and support accounts, contracts, and communication seamlessly. After this phase, the transition to Ethereum 2.0 will be complete.
What this Means For You
Ethereum 2.0 may affect you in the following ways especially in the first days after the launch.
- The price of Ethereum may go up depending on how well phase 1 works. This is because there may be a scarcity of ETH.
- You may find it easier to process your Ethereum payments especially if you use DeFi apps.
- There may be an overload on the system shortly after, due to people testing the network with decentralised apps.
- There may be considerable growth in Ethereum over the next 2 years as the network speeds up and allows room for more app development.
- If you stake the required ETH for this development, you’ll be able to confirm ETH transactions and earn a block reward in future.