For today’s topic, I am going to explore Ethereum (ETH) and the upcoming changes to it’s network that make up the Ethereum 2.0 upgrade. These changes are set to solve a number of issues that the Ethereum (ETH) network suffers from.
For the usual disclosure, I am not a financial advisor, I don’t even work in finance at all. My day job is as a telecommunications software engineer. Treat everything you read here as some educational resources and not financial advice.
Ethereum 2.0 is a group of significant changes that are coming to the Ethereum (ETH). These changes have long been in the works, some even being discussed as far back as before the network even launched, and should help solve a number of issues that Ethereum (ETH), and really blockchains in general, suffer from.
The major parts of this upgrade will bring Proof of Stake (PoS) consensus, sharding, docking, and the beacon chain. These all feed and build off each other to achieve the goals of increasing security, increasing transaction throughput, and making it more sustainable for the long term.
Currently, the Ethereum (ETH) network can handle about 15 transactions per second, which is not very many when you consider how many people are trying to get into Decentralized Finance (DeFi) and is one of the driving forces behind the high gas prices on the network. The goal is to get this up into the thousands of transactions per second.
The upgrades also aim to increase security and make the network more resilient to attack from such things as a 51% attack.
Proof of Stake (PoS)
The move to a Proof of Stake (PoS) system versus the old Proof of Work (PoW) system, is being done for a few reasons. One of the biggest is that it makes the network more sustainable in the long run, as it will not longer require the massive amounts of compute power needed for miners to maintain the blockchain.
Consensus will instead be done by the validators using a random choice model for who gets to build the next block. These validators will be incentivized by earning the block reward and miner tips for the blocks they produce. They will likewise be dissuaded from performing in bad faith, as there is a slashing mechanism in place that will burn a portion of a validators staked coins if they do so.
If would also be very hard to pull off a 51% attack in a Proof of Stake (PoS) system, as it would require a validator to hold 51% of the entire supply of staked Ethereum (ETH), which is a highly unlikely, and very expensive position to try to get into.
Sharding is a pretty standard thing in technology, and it refers to taking a single database and breaking it into smaller pieces, known as shards. This greatly increases the data throughput, as there are multiple instances of the database running, that can be accessed by different applications looking for the data that is in one shard, rather than needing to concentrate all the requests onto one database server.
For Ethereum (ETH), each of the shards would essentially operate as their own blockchain, with a planned 64 shards at launch. Most of these shards can only hold data, and not transactions. In fact, only one shard is able to actually handle transactions. The way that sharding is going to improve the scalability of the network, is because of all the off chain things occurring in layer 2 solutions, which only have to periodically get rolled up into transactions on the main blockchain. Now these will be able to run off a shard, and not have to take up transactions space to store their data.
There is a way to upgrade the shards to make them fully able to process transactions like the main chain, but that is not planned for the first stage of sharding, but it may be something that gets added later on if it is found that it is needed.
The current Ethereum (ETH) blockchain will become one of the shards, and will in fact become the shard that is able to process transactions.
The Beacon Chain
The next important piece of the upgrade is The Beacon Chain, which is responsible for helping to coordinate the Proof of Stake (PoS) system, but randomly assigning the validators to the shards. The randomness is very important, as it will help protect the network from bad actors, as it would help ensure that validators are unable to work together to take over a shard.
Docking is the final piece of the upgrade to Ethereum 2.0, in which the current blockchain will be cut over to being a shard of the new network. This will mark the end of Proof of Work (PoW) mining, and will fully bring online the Proof of Stake (PoS) consensus on the Ethereum (ETH) network.
It will also be the point the the full history and current state of the Ethereum (ETH) blockchain is migrated into the new system, making the smooth cutover for all the users from the old to the new system.
As you can see, the new upgrades coming to the Ethereum (ETH) network are going to be bringing some pretty significant changes to the way the network operates. This should bring about a new era of the network, both boosting the available throughput of the network, as well as bringing down the transaction cost.
As long as everything goes off smoothly, and works like everyone expects it to, this should bring a lot of the Decentralized Finance (DeFi) protocols that are currently out of reach of small time players, due to the very high transaction costs, more in line with what we are willing/able to pay.
When you also factor in the changes coming from EIP-1559, the future of Ethereum (ETH) is looking pretty bright these days, and good things should hopefully be coming later this year or early next year.
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Want some more content right now? Check out some of my previous posts:
Ethereum Fee Burn (EIP-1559)
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Originally Posted On My Website: https://ninjawingnut.xyz/2021/07/08/eth2/