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Ethereum has a long and storied history, with many developments and incidents marking both positive changes and significant setbacks. The most significant change that occurred in mid-September 2022 is the move from proof of work (PoW) to proof of stake (PoS) model, which aims to improve the security and scalability of the block chain network. The process is complete and Ethereum has officially transitioned to a PoS model.

The changes fall under “Ethereum 2.0”, an umbrella term that describes Ethereum’s next evolution towards a more capable and accessible network. The upgrade also adds partitioningwhich allows transactions to be processed on smaller chains concurrently, accelerating the speed of transactions.

Key points to remember

  • Ethereum 2.0 is a major upgrade for the Ethereum network, moving the network to proof-of-stake (PoS) from the proof-of-work (PoW) model.
  • Ethereum 2.0 aims to improve the network scalabilityaccessibility and security.
  • It also adds sharding, a way to allow transactions to run in parallel across a number of smaller chains.

What is Ethereum 2.0?

Ethereum 2.0 is a general term used to cover several improvements to the Ethereum network, which address some of its most pressing technical hurdles. Ethereum 2.0, or ETH2, is an informal name – the Ethereum Foundation prefers to refer to Ethereum 2.0 as the consensus layer and ETH 1.0 as the execution layer.

Ethereum 2.0 has been in the making for several years and is not a one-time event. It started with the launch of the Beacon Chain in December 2020, which allowed the staking of Ether, the native token of the Ethereum network. The staking process involves holding tokens for a period of time to support crypto network security and validate blocks within the blockchain network. These investors receive rewards for this practice through a process called proof of stake (PoS).

In other words, Ethereum has moved from proof-of-work (PoW) to a proof-of-stake model or consensus mechanismwhere the latter aims to improve the security and scalability of the blockchain.

When is Ethereum 2.0 planned?

The second phase began earlier in 2022 with a series of “mergedwith testnets, culminating in a merger with the Ethereum mainnet scheduled for September 2022. These mergers are simply Beacon Chain integrations with various testnets. Ethereum is now officially working on a PoS model after fusion.

All of these latest changes relate to the consensus model of the network, but the Ethereum 2.0 upgrade will also involve the implementation of sharding, which tackles network scalability. Sharding follows mergers and is the final phase of the Ethereum 2.0 transition. This phase is expected to be completed by 2023.

Changes are planned after sharding; however, this is not the current immediate goal. Improving the Ethereum network is an ongoing process.

Why switch to Ethereum 2.0?

The Ethereum 2.0 upgrade is complicated and involved the best efforts and minds to see its execution. The reason for the huge push for this change is that the Ethereum network has been bogged down by a few technical limitations, namely scalability, accessibility, and security.

Improvements in these areas are essential for Ethereum to achieve broad adoption. Ethereum is the home of smart contracts decentralized applications (dApps), and these have applications in finance, real estate, supply chains, and governance, among others. But to have that impact, applications must be able to handle large-scale network interactions.

What changes will Ethereum 2.0 bring?

The Ethereum network has experienced bottlenecks, simply because of the very activity on it. For example, the gas costs, which are paid to miners for their work, sometimes reach extraordinarily high levels. It may improve after Ethereum 2.0, as the validators that stake Ether will be responsible for securing the network. These validators must lock 32 Ether as part of the market. While 32 Ether is still a high barrier to entry, there are other ways for those with smaller Ether holdings or those technically unaware to join.

Proof-of-stake is faster and greener than proof-of-work because it consumes much less power. PoS is expected to increase network scalability and reduce network power consumption by approximately 99.95%.

Currently, the network can handle around 25-30 transactions per second, but Ethereum 2.0 promises to handle 100,000 transactions per second.

This level of scalability will be achieved through the implementation of the partitioning technique. This change will see 64 “shard chains” used, which execute transactions in parallel. It is theoretically 64 times faster at recording transactions than the current Ethereum network.

With proof of stake and sharding, Ethereum has made the biggest moves in its history. It is not without reason that many market analysts and industry insiders are playing on the transition, as it will have a profound effect on the functioning of various niches, not the least of which is decentralized finance (DeFi).

How will Ethereum 2.0 change the world of decentralized finance (DeFi)?

There is no doubt that Ethereum 2.0 is the biggest change to date for the network. It paves the way for a future where Ethereum can comfortably run applications across a wide variety of verticals and makes it more accessible to the public. Ethereum 2.0 enables Ethereum to become a more widely used network globally across a wide range of verticals.

What is the future of Ether after Ethereum 2.0?

Ether’s price has improved with news of all the mergers on the testnets, but as with any development in the crypto market, it’s hard to make a completely accurate estimate of its impact on prices.

How much energy will Ethereum 2.0 save?

After switching from proof of work to proof of stake, energy consumption on the Ethereum network will be reduced by 99.95%. This indicates that staking is 2,000 times more efficient than traditional mining.

The essential

Ethereum 2.0 is a major upgrade for the Ethereum network, moving the network to proof-of-stake (PoS) from the proof-of-work (PoW) model and making the network more efficient. The Ethereum Foundation described the change as follows: “Imagine that Ethereum is a spaceship that is not quite ready for interstellar travel. With the Beacon chain, the community has built a new engine and a reinforced hull. After extensive testing, it’s almost time to hot-swap the new motor with the old one in mid-flight.”

This change could have broad implications for the crypto industry. In particular, this could put more pressure on Bitcoin to reduce its energy consumption. The White House recently released a statement indicating that it has its sights set on bitcoin for possible future regulation, stating that “bitcoin is estimated to account for 60% to 77% of total global crypto-asset electricity consumption. …There have been growing calls for PoW blockchains to adopt less energy-intensive consensus mechanisms.”

Invest in cryptocurrencies and other initial coin offerings (ICO) is highly risky and speculative, and this article is not a recommendation by Investopedia or the author to invest in cryptocurrencies or other ICOs. Because each individual’s situation is unique, a qualified professional should always be consulted before making any financial decision. Investopedia makes no representations or warranties as to the accuracy or timeliness of any information contained herein. As of the date of writing this article, the author does not own Ethereum.

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