Ethereum 2.0 is here. What it means and what will happen to your Ethereum

The ethereum 2.0, also known as Eth2 or serenity, is a major upgrade on the ethereum blockchain that had been hinted for several years, and now it’s finally here. The upgrade is set to make ethereum more secure, scalable and sustainable, but the major topic on Eth2 is the switch from Pow (proof of work) to PoS (proof of stake). 

Why is PoS better than PoW?

Validating transactions on the ethereum 1.0 blockchain was done in a decentralized way, the same way it’s done on bitcoin. This consensus mechanism is known as proof of work. The mechanism requires miners to use computer hardware processing power to solve extremely complex mathematical puzzles to validate new transactions. The miners are rewarded with cryptocurrencies for every validation they complete. Whilst this process works fine it, however, requires a lot of computational power and energy. This is a problem which the proof of stake system is set to solve.

Proof of stake does not need as much power to validate transactions.  Rather than having miners who were required to solve mathematical puzzles, the new consensus mechanism on the ethereum network will use validators to propose new blocks on the ethereum blockchain. The right to propose validations of a new block then requires a stake of ethereum. A validator is required to have a stake of at least 32 ETH. 

The validators will be selected to propose a new block based on the amount of ethereum that has been staked and how long it has been held for. Other validators will then attest to seeing a block. Once there are enough attestations to the validator’s claims, he’s then rewarded with ethereum. This process is called minting or forging.

Is PoW available on the ethereum blockchain now?

Eth2 is still in Phase 0. This is the first stage of the launch accompanied by the beacon chain launch. This beacon chain is ethereum 2.0’s proof of stake blockchain. Validating the validators is a simpler way to look at this first stage. All validators will be verified along with their stake of ETH.Phase 1 of Eth2 will come in 2021. In this phase, we’ll see the integration of the PoS consensus mechanism. 

Other phases of Eth2 and the implementation of shard chains.

Phases 1.5 and 2 are the stages where the real beauty of Eth2 will be seen. Slated for 2021/2022, this stage will reveal the scalability level of Eth2 as a major improvement over ethereum 1.0.

The Ethereum 1.0 network can only support roughly 30 transactions in one second, which causes congestion on the network.  Eth2 will, however, support over 3,000 times this number. Capable of supporting over 100,000 transactions in one second, trading the currency will see fewer delays. This remarkable increase will be achieved through something called shard chains. 

Sharding is a multi-phase upgrade to improve ethereum’s scalability and capacity. Shard chains spread the network’s load across 64 new chains. Ethereum 1.0 blockchain had a single chain of blocks. This made it secure but at a cost. It was slow and inefficient. With sharding, that one chain is now split into 64. This is why it supports a lot more transactions than the current single-chain block.

How is Eth2 more secure? 

Ethereum’s co-founder, Vitalik Buterin, claimed that running an attack on the ethereum network will be more costly when it moves to proof of stake consensus mechanism. Vitalik said this in October 2019 in his keynote at Devon 5. Whilst Vitalik might be right, the proof of stake consensus mechanism makes for a more centralized system open to more security breaches. Jelurida’s co-founder, Lior Yaffe, however, pointed out that security audits of Eth2 are being carried out by blockchain security firms.

A research team set up by the Ethereum foundation, will constantly research cybersecurity problems on ethereum 2.0. In a tweet, the ethereum co-founder pointed out that an attack on the new proof of stake is a myth after a scenario emerged that an attack on 51% of the proof of stake could be fatal for Eth2. A total of the 524,888 ETH staked which equates to 32 ETH per validator only needs 51% of it attacked to bring Eth2 to its knees according to claims.

The co-founder has however dismissed such a scenario calling it a “myth”. He says attackers will either get slashed or soft-forked away which will cause them to lose their coins, making an attack on the new PoS very costly.

ETH holders are to do nothing about their ETH, as nothing will happen to it. The price of ETH might, however, see a price surge as the market optimism about the new upgrade could push prices higher. Subsequent stages of the launch will see more implementations of the upgrade. The upgrades which propose a faster and more secure ethereum network will therefore be put to practical use.

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