What is Ethereum 2.0?

If the Crypto world has equated the whole ecosystem with any crypto tokens, it is the two top coins, Bitcoin and Ethereum. Following the introduction of Bitcoin to the world, developers tried to test the blockchain waters and come up with newer projects. The first of its kind was Ethereum, commonly referred to as the first altcoin. However, due to lack of concept notes and exposure, Ethereum lacked in certain segments. For example, scalability and amount of power consumption. This has been a concern for the growing ETH community from the very beginning. To step up their games and give various altcoins referred to as ‘Ethereum Killer’ a hard competition, ETH developers set up a solution to be carried out in various phases. 

Post the steps, Ethereum will be referred to as Ethereum 2.0.

Read More: How to Buy Ethereum (ETH) in India

Key Updates on Ethereum Merge till Date

The Ethereum Merge has been set to roll out in various phases. However, the 10th Shadow Fork in July helped the ETH developers announce an expected date for the crypto community to experience the newly transitioned Ethereum Blockchain, namely ETH 2.0! Here is a small recap of all the steps that have led to the penultimate stage of the merge!

• The Beacon Chain Update: This ETH update, Phase 0, which took place in 2020, will be taking care of implementing the Proof of Stake consensus mechanism. The update is also set to manage the registry of validators, who will begin attesting blocks into existence on Ethereum 2.0.
• Implementation of Shard Chains: This update was a part of Phase 1, which was implemented to cater to the scalability issue of the ETH blockchain.
• The Merge: Though part of Phase 1, the merge is often described as Phase 1.5 of the 3 Phases disclosed by the developers. The merge in itself was segmented into three phases, with three testnets set in place, for a smooth transition of the consensus mechanism of the Ethereum Blockchain. These testnets are; Ropsten, Sepolia and Goerli. 

What is Ethereum 2.0?

The Ethereum 2.0 is the new version of the Ethereum crypto asset known to the world. The 2.0 is the indication of Ethereum’s transition from its current underlying Proof of Work consensus mechanism to the Proof of Stake consensus mechanism. This shift in Ethereum’s underlying consensus mechanism to provide solutions to the restrictions of a Proof of Work blockchain has existed since its genesis. 

What is Proof of Stake?

A proof-of-stake (PoS) is essentially a type of consensus mechanism that is used to verify new transactions happening over the blockchain network. Since blockchain lack any centralized authority governing the system – PoS is one of the methods used to ensure that every data saved on the network is valid.

The only place PoS differs from PoW is in PoS, there is a mechanism that chooses which participants on the network get to handle this task – which has a lucrative benefit to it too. Those who get chosen to complete the transaction – get rewarded with a newly mined crypto if they accurately validate the new data and don’t cheat the system. The Proof of Work consensus mechanism works in a similar way with one slight difference – the code doesn’t choose a particular participant to validate the data, rather whoever is able to quickly solve a complex mathematical complication is gets the benefit of validating the data.

Additional Read: 

Ethereum vs Ethereum 2.0: Major Differences

One of the most significant differences between Ethereum 2.0 from Ethereum is the consensus mechanism these two will have. While Ethereum was previously using the Proof of Work mechanism, the upgraded Ethereum 2.0 will be using the Proof of Stake mechanism.

The second most important difference is the new aspect sharding in ETH2. The Ethereum network as we knew it has grown exponentially in recent years, and to reduce pressure on the blockchain and nodes, Ethereum 2.0 will introduce 64 additional chains via sharding. 

Due to the change in the fundamentals, ETH2.0 will be using very less energy as compared to what Ethereum miners used to use up. 

Using the Merge, with its three testnets, the Ethereum developers have tested out various precautionary steps to ensure that the scalability issue of Ethereum is catered to. Following the completion of the merge, ETH will see a rise in its scalability; an issue that has been persistent since the beginning of the Ethereum blockchain. 

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To understand it in a nutshell:

Eth1 → execution layer

Eth2 → consensus layer

Execution layer + consensus layer = Ethereum

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Here’s how Ethereum’s transition to proof of stake will work

To understand how the new Proof of Stake consensus mechanism will work for the upgraded Ethereum blockchain, we should first take a look at where the fundamental differences lie between Proof of Work and Proof of Stake. 

In Proof of Work consensus, miners use processing power from computers to solve complex mathematical puzzles. In doing so, they help verify new transactions taking place for a block to be created. The first miner who is able to solve a puzzle adds a new transaction to the record of all transactions taking place; which in turn make up the blockchain. The miners, for their effort, are then rewarded with the blockchain’s native crypto token. Due to the usage of the processing power, this whole process of verifying the transactions can be hugely energy-intensive. In case the processing power used by miners were not able to solve the puzzle, the energy used then goes to waste.

In the case of the Proof of Stake consensus, instead of relying on miners, individual users can stake the blockchain’s native crypto token and become validators. Validators for any blockchain are similar to miners. The similarity lies in the fact that they also perform a similar activity; i.e. to verify transactions and ensure the network is not processing any fraudulent transactions. The validators for any blockchain are selected based on how much crypto they have staked, and how long they have been staking the tokens for. When there are enough attestations, a block can be added to the blockchain. Validators are then rewarded for the successful block proposition. This process is known as “forging” or “minting.”

Additional Read: Proof of Work vs Proof of Stake

Similar to how the Proof of Work consensus works, Ethereum’s blockchain had miners who solved puzzles for a block to get created into the blockchain. With the merge, the transition of Ethereum to Ethereum 2.0 will work somewhat similarly. The transition to Proof of Stake will introduce validators for the Ethereum network. The validators will be chosen based on the amount of ETH they have been staking and thus that is how the blockchain will be working once the merge is set to complete by September 2022. 

Why is Ethereum moving to proof of stake?

Since the onset of the Ethereum network, the ETH community has been concerned about the scalability that the network provided, along with the power consumption. These concerns have been looked at by the Ethereum developers ever since. The solution to this was transitioning the blockchain to Proof of Stake consensus mechanism. However, to implement this, the developers had to set up a three-phase process. The last phase of which is the ongoing Merge, where the three testnets are set in place for a smooth transition of the Ethereum mainnet. 

Ethereum 2.0 Release Date

The Ethereum 2.0 release date has been speculated to be within 2023. The initial announcement of the ETH2.0 update was a 2019 release. However, Ethereum 2.0 has undergone several delays during its development period. The next step in the transition process is the merge, which according to the latest update is set to be completed by September 19, 2022. This event will merge the mainnet with Ethereum 2.0’s Beacon Chain, which will enable full staking. After this, Ethereum shard chains are set to launch in 2023, increasing the blockchain capacity.

ETH Holders and Staking on Ethereum 2.0

With the transition of Ethereum to the Proof of Stake consensus mechanism, the network will now have validators managing the blocks on the blockchain. As mentioned above, these validators will be chosen based on the ETH they hold and the amount of ETH they have been staking. The holders of ETH tokens, who are interested only in holding, trading, or using their ETH tokens on DApps do not have any need to actively do anything to prepare for Ethereum 2.0. For individuals who are interested in staking their ETH tokens, in order to become a full validator on Ethereum 2.0, they must stake 32 ETH by depositing the funds into the official deposit contract that has been developed by the Ethereum Foundation. Within the ETH2.0 ecosystem, staking is treated as the process by which validators commit ETH to the Ethereum 2.0 blockchain. In doing so they are able to propose and attest new blocks into existence. 

Additional Read: Ethereum Price Prediction 2025

HOW WILL THE ETHEREUM 2.0 AFFECT YOUR CRYPTO INVESTMENTS?

Common misconceptions about Ethereum 2.0/The Merge

The change in the ETH blockchain, from Proof of Work to a Proof of Stake consensus mechanism, is in its penultimate phase. With so many upgrades and the steps within those upgrades making the headlines since 2020, the crypto community is often asking the most probable questions: Will ETH change? Is ETH 2.0 a completely new coin? And so on…

Here are the top 3 misconceptions regarding the ETH2.0, corrected.

• The Merge will NOT create a ‘new’ ETH: One of the biggest misconceptions regarding the ETH merge is that Ethereum will have a “new” token following the completion of the merge. Ethereum’s native crypto token, Ether (ETH), will remain the same.

• The Merge will NOT reduce the Gas Fees: The merge is only catering toward ETH’s transition from its previous Proof of Work consensus mechanism to a Proof of Stake consensus mechanism.

• The Merge does not have a set date: The ETH developers have recently claimed that the last testnet of the merge is likely to lead the whole merge phase to an end by September 2022. However, if there are any unforeseen developmental delays, the date and the month might change.