What is Ethereum 2.0 & London Hardfork: Everything you Need to Know

Snapshot:

• What is Ethereum 2. o and why do we need it?
• Difference between ETH 1.0 and ETH 2.0
• What is London Hard Fork?

Ethereum has pulled its socks up and is ready with an upgrade that can revolutionize the way we see Ethereum today. The new ethereum upgrades will radically bring about a change in the manner the blockchain network is used and secured. With numerous upgrades over the past few years since its inception, what does Ethereum 2.0 and London Hard fork have in store for the blockchain protocol? These two upgrades intend to improve the scalability and usability of the ethereum blockchain.

Ethereum underwent its 11th  upgrade on the 4th of August 2021 which was called the “London Hardfork”. This improvement consists of a total of five EIPs (Ethereum improvement proposals) that intend to optimize the functioning of the blockchain network. 

But before we deep dive into what is London hard fork and Ethereum 2.0, let us understand Ethereum 1.0 and its underlying issues. 

History of Ethereum: What is Ethereum 1.0? 

Vitalik Buterin, the co-founder of Bitcoin Magazine and a programmer in 2013 described the idea of Ethereum blockchain in a white paper for the first time. The argument that Vitalik proposed is that blockchain technology has much more use-cases than finance. He mentioned the requirement of a scripting language for the development of various applications which could attach real-world entities such as stocks and properties to the blockchain. 

Ethereum blockchain was then launched in 2014 with smart contracts where decentralized applications (dApps)  could be built expanding the use-cases of blockchain from P2P (peer-to-peer) money transfer to a much-advanced technology that possessed the potential to become the backbone for any platforms to come.

However, numerous issues were later figured out and thus, there was a need for up-gradation. 

Issues with Ethereum 1.0

Scalability

The Ethereum network before up-gradation could handle 30 transactions every second which was insufficient to handle all the users across the globe. 

High miner gas fee

The high demand for ethereum has raised the miner gas fees (transaction fees) to an unprecedented amount. 

Proof-of-Work (PoW)

Ethereum 1.0 followed the proof-of-work consensus that required a lot of energy. The current up-gradation has replaced it with PoS( proof-of-stake) consensus. The proof-of-work mechanism requires a lot of energy for mining since it solves complex mathematical algorithms to perform the validation of the transactions. This mechanism was used to create new cryptocurrency blocks on the network. 

Security

The proof-of-work (PoW) model was also vulnerable in the case of security. The PoW can protect the blockchain network from getting hacked only if there was a presence of a large number of nodes. The smaller blockchains are pretty vulnerable to attacks and the ability of the hacker to gain over the computational power of the network was quite high. Therefore, there was a severe need for improvements. 

What is Ethereum 2.0? Why do we need ETH2.0?

Ethereum 2.0 is an upgrade that the ethereum network has been waiting for, for a long time. It resolves all the above-mentioned issues encountered by Ethereum 1.0. The greater scalability leads to quicker transactions with better security and lower miner gas fees. The best part about ETH 2.0 is that it uses the proof-of-stake (PoS) consensus algorithm. 

What is proof-of-stake consensus? Well, the PoS algorithm unlike the PoW mechanism does not require a lot of computational energy to ensure the security of the blockchain protocol. Rather, it is based on the enormous amount of wealth that is staked by locking up a certain amount of cryptocurrency coins as collateral in the network itself. This not only minimizes the amount of energy required but also pulls down the security attacks to a great extent. 

ETH 2.0 has another upgrade to itself which is shrading. Shrading makes the network more secure as well as scalable. Sharadding improves the overall efficiency of the blockchain network as it splits the entire network into multiple blockchains to ensure the simultaneous transactions which otherwise occur consecutively. This enhances the processing power as the workload is divided among different validators.

Since Ethereum 2.0 brings about a switch in mechanism from proof-of-work to proof-of-stake, it means that validators will be assigned certain rules to perform and shall be paid instead of ethereum miners who used to compete for the block reward. It is extremely important to understand the economics of staking to maintain the hygiene of the network. 

To embrace the new upgrades of Ethereum, CoinDCX announced its ETH-backed token, Liqueth (LQTH) a few months back. The LQTH tokens are generated in a 1:1 ratio of the ETH staked on CoinDCX. LQTH is an ERC-20 token that just not supports the validation activity on the Ethereum blockchain network but can also be staked. Find Liqueth interesting? Here is a complete Litepaper on Liqueth by CoinDCX. 

Difference between ETH 1.0 and ETH 2.0

What is London Hard Fork? 

The London Hard Fork is a set of five EIPs (Ethereum improvement proposals). Each proposal aims to improve the existing ETH network.

EIP -1559 

This EIP aims to make the transactions across the ETH network more efficient with the use of a hybrid system of base fees. It also aims to evenly incentivize the ethereum miners during the time of low and high congestion. Ethereum 1.0 used the variable first-price model which shall be replaced by a better and more deterministic base fee model. EIP-1559 arrived as a part of the London Hard Fork. This upgrade was to overhaul the Ethereum network’s maligned fee structure. Transaction fees will be more predictable with EIP-1559 along with reducing delay in transaction confirmations. 

EIP – 3198 

It aims at improving the user experience and benefits concerning smart contracts. Read about Smart contracts in detail. 

EIP -3529

It offsets the block size variance of EIP-1559 along with reducing the refunds on the ETH network.

EIP -3541

Makes deployment of new smart contracts possible.

EIP  3554

This upgrade has not been rolled out yet. It is expected to come into function by the end of 2021. It is expected to increase the difficulty of mining Ethereum to unmanageable levels. 

Ethereum 2.0 was launched in a phase-wise manner where Beacon Chain was launched in Phase 0. The primary focus in this phase was to activate the PoS system of the network. Phase 1 saw the beginning of Shrading which means partitioning of the database into multiple machines. The Ethereum blockchain was split into several blockchain networks. This was meant to enhance the scalability of Ethereum 2.0. The next phase was 1.5 which saw a merger between the proof-of-work mechanism with the proof-of-stake chain through a bridge enabled between the two blockchain environments. 

In phase 2, the emphasis was laid on smart contract execution and cross-shard communication. Last but not least, Phase 3 saw the incorporation of other features that could be added to Ethereum 2.0. The first half-year of the launch of Beacon Chain saw 4.6 million stakings of ETH. 

Crowd Sentiment towards ETH upgrades

The London Hard Fork upgrade was quite a talk of the crypto town before its launch. The five EIPs focused on combating the issues faced by Ethereum 1.0 indeed created a buzz around the crypto community. Experts believe that a boost in asset liquidity might occur due to the locking of ETH in Ethereum 2.0. The competition in lending and borrowing decentralized finance applications is to see increased competition from Coinbase, Binance, and other service providers. 

Experts believe that users hiring crypto companies to manage their responsibilities as validators might increase. This is because a user by himself can earn up to 20% APR on the launch of Ethereum 2.0 and on the other hand he/she can earn up to 15% APR if the user wishes to leverage the staking services from crypto companies such as Binance and Coinbase. 

Next steps of ETH

The Ethereum roadmap has considerably changed after the evolution of the beacon chain. The new changes have made the Ethereum blockchain more scalable and sustainable. 

The withdrawals from the validator’s accounts are soon to be enabled as the merger has already taken place. A hackathon, called the Rayonism Hackathon will be run to see the viability of the new upgrade. It is expected to be delivered by the first quarter of 2022. 

Summing it Up! 

The Ethereum upgrade was the most anticipated update in the history of blockchain. For most of the developers, the biggest hurdle in the launch of Ethereum 2.0 was the launch of the Beacon chain. 

However, the successful launch after so many delays was warmly accepted by the Ethereum network users and validators. The PoS mechanism has indeed opened up new pathways for Ethereum to develop more decentralized applications (dApps)  and reduce the threats it generally faces. The scalability and security of the upgraded Ethereum network have indeed come as a boon for the network when its counterparts are soaring the crypto sky. 

The switch from PoW to PoS has never taken place for any blockchain as big as the Ethereum network. Experts believe that the London hard Fork has more to offer than perceived. The question remains if the promises made by this upgrade will be realized to their maximum extent. 

That was all that you needed to know about the London Hard Fork of Ethereum. Stay updated with everything happening around the crypto world with CoinDCX. Start your crypto journey today with India’s safest and easiest investment app, CoinDCX. Still, confused about a few terms from the blockchain industry? Deep dive with DCXLearn, a complete and free blockchain, and cryptocurrency course.