Whenever there’s a conversation about cryptocurrency, Bitcoin always dominates the headlines. Be it the value, use, or acceptance in the payment system, there isn’t a close competitor to Bitcoin. However, the limitations of Bitcoin trading are making the cryptocurrency and the technology behind it obsolete.
As Bitcoin technology suffers from quite a few limitations, a variety of alternative technologies within the blockchain have risen up to solve some of its problems in recent years. However, they have only managed to capture a tiny portion of the total market. But things might not be the same with the launch of Ethereum 2.0.
Ethereum is a major competitor to Bitcoin and is the second-largest cryptocurrency in terms of market capitalization. As of 2021, the market share of Bitcoin and Ethereum make up more than 50% of the total cryptocurrency market. However, although Ethereum is a bit more advanced than Bitcoin, it also suffers a few technological issues. It’s where Ethereum 2.0 comes in.
The developers behind Ethereum hope to fix current technological issues in the blockchain with a new and much-hyped upgrade and hope to revolutionize the crypto industry. Will it be a real thing? Let’s find out! But before understanding ETH2, let’s recognize the limitations of the Bitcoin blockchain.
Limitations of Bitcoin blockchain compared to Ethereum
With growing global attention and transaction, the bitcoin blockchain built more than a decade ago seems a bit outdated as there are real-world issues. Some limitations of the Bitcoin blockchain are as follows:
- Transaction speed: The bitcoin network isn’t very efficient when it comes to transactions. It can only handle 7 transactions per second. It is slow even by the crypto transaction standards. If we look at traditional currency transaction speed, Visa handles 24,000 transactions every second. It definitely affects people looking to benefit from its value since they have to wait for long whenever there’s a high amount of transactions. Network congestion has led to higher fees, sometimes more than the cost of a wire transfer.
- Lack of privacy: One of the biggest problems of Bitcoin is privacy. Anyone can download the bitcoin ledger and scrutinize the transaction of the person they wish to, once they identify the owner of the wallet. Identifying a wallet’s owner isn’t very hard as bitcoin wallets are tied to hash addresses.
- Obsolete technology: Bitcoin’s outdated technology only allows basic programming. It prevents bitcoin from being used in more advanced systems like smart contracts. This is important because it can limit the ability of participation in new platforms and investment opportunities.
What is Ethereum 2.0
Set to revolutionize the way it performs, Ethereum 2.0, in simple words, is an upgrade to the existing Ethereum network. Currently, the Ethereum network faces many problems. Some of the major issues include heavy energy consumption during mining, low transaction capacity, and inefficiency. The upgrade aims to remove the current issues Ethereum is facing and establish it as a fast and sustainable cryptocurrency network that allows the highest number of transactions.
Ethereum 2.0 launch date
Ethereum developers are planning to upgrade current network in several phases before they finally launch Ethereum 2.0 as it’s a complex technological upgrade that’s transforming the whole network. Here are the details:
- As the first step toward transforming the current network, the first upgrade was introduced on December 1, 2020. It’s known as the “Beacon Chain.”
- In the second phase, the network is planning to introduce “the merge” in the first quarter of 2022. Similar to its name, the main role of the merge will be merging the Beacon Chain into the Ethereum network.
- In the third and final phase, Ethereum will launch “Shard chains.” Scalability has been one of the major problems of the Ethereum network as the current infrastructure limits its ability in various fields. The good news is, the Shard chains will play a major role to scale the network. The network has been running its operations on a single blockchain. To make the process efficient and fast, shard chains will distribute the operations across 64 new chains. Additionally, with shard chains, running an Ethereum node on hardware will be much easier because there will be fewer data to be stored.
The Ethereum foundation expects to make a final upgrade by 2023.
Ethereum 2.0 vs Ethereum
Right now, the current infrastructure allows only thirty transactions in a second on the Ethereum network. It is definitely better than what the bitcoin network offers, but nowhere near the benchmark of global currency transactions. Ethereum 2.0 will support a whopping 100,000 transactions.
The current Ethereum network is built on a single chain. Though it’s secure, it’s not quite efficient. Shard chains will split up the blockchain on Ethereum 2.0. This will help handle transactions in different chains, speeding up the network. It can also be scaled effortlessly.
Ethereum currently uses proof-of-work as a consensus mechanism. It needs miners and powerful computers to manage and secure transactions. Ethereum 2.0 on the other hand, will use a proof-of-stake to validate and secure the network.
Let’s examine each of the upgrades and why they are important.
The proof of stake
Proof-of-work is an agonizing process where miners (who validate cryptocurrency transactions and record them in distributed ledgers) solve complex mathematical problems to identify and record new transactions. This process consumes a huge amount of energy.
The proof of stake, on the contrary, uses validators to verify transactions. The best thing about this process is that normal users can become validators. Moreover, validating with this process doesn’t require powerful hardware and a big amount of energy. This process is called “forging” or “minting.” It is quite similar to mining but much more effective and efficient as even people with no technical background can participate in securing the network.
With proof-of-stake, the network won’t need high-tech computers to run and manage it. The other advantage is that this process is far more energy-efficient than Proof-of-work.
Sharding
Sharding is a notion that isn’t limited to the Eth2 upgrade. Splitting a database into many instances, each having a piece of the entire data set, is a popular procedure in computer science. Each occurrence would be referred to as a “shard.”
In Ethereum 2.0, each “shard” is an individual chain, and there will be 64 of them initially. Shards will allow the spreading of the network’s load, addressing the Ethereum network’s scalability issues.
Furthermore, each Ethereum node will only be responsible for one of the shards. This means storing a tiny chunk of data and making it easier to run a node without hardware. Making nodes more user-friendly should result in more network participants, which means more decentralization and security.
The beacon chain
The beacon chain is the main component of Ethereum 2.0. It looks after the whole network and the processes that take place in the network. It scans, validates, and rolls out earnings to the validators and also identifies and blocks suspicious activities.
Docking
With Docking, the current Ethereum chain will become one of the shards in the Ethereum 2.0 Proof-of-stake system. This process will ensure the full transition of ETH2 to the new proof of Stake model, ending Proof of work.
Docking will allow smart contracts to run on the Proof Of Stake infrastructure. Furthermore, it will provide a complete history of Ethereum as well as its current condition, enabling a smooth transition for all ETH holders and users.
How will Ethereum 2.0 be different
The current Ethereum network will move to the next level with these upgrades. Experts suggest it will not only be able to compete with traditional currency infrastructure but also help revolutionize the way we see crypto trade. Here are a few things Ethereum 2.0 promises:
Energy-efficiency
Since the current network relies on the proof-of-work mechanism to maintain the Ethereum blockchain, it requires more mining activities and a lot of energy. Extreme energy consumption has been a major talking point of the crypto industry recently as climate activists blame the industry for disrupting the environment. However, with a proof-of-stake mechanism, Ethereum 2.0 will no longer require mining. Ethereum 2.0 will require less energy to be maintained.
Improved security
Although cryptocurrency transactions are known to be extremely secure, the proof-of-stake mechanism will ensure better security on Ethereum 2.0 network. Ethereum 2.0 requires tens of thousands of validators. This feature ensures greater decentralization. Improved decentralization means more security in blockchain technology as compromising data would be almost impossible or extremely expensive.
More decentralization
Sharding will allow people with no technical knowledge participate on the Ethereum network. It will encourage more people to become validators. More validators mean more decentralization and democratization.
Improved speed
Transaction speed has been one of the major issues of Ethereum as of today. With sharding, Ethereum 2.0 will not rely on a single chain as it does now. Ethereum 2.0 will process 100,000 global transactions per second. It will not only give it a great advantage over other crypto platforms but also provide a competitive edge over traditional currency transaction infrastructure.
Reduced transaction cost
Transaction expenses will decrease when speed improves. Developers who have been worrying about the large gas fees on the Ethereum platform will be happy to hear this. Because of the higher speed and cheaper transaction fees, we should hope to see more Defi transactions on the Ethereum network.
While it will take some time before Ethereum 2.0 launches, the technology and efficiency it promises are quite interesting. With all these revolutionary features, there should be no doubt that Ethereum 2.0 keeps the ability to revolutionize the whole crypto industry.