Meet the Game Changer – Ethereum 2.0
January 14, 2021
Early on in this month, the long-awaited release of Ethereum 2.0 came to reality, along with the announcement of the updated roadmap from the founder, Vitalik Buterin. Such updates brought along clarification of the current progress and the outlook of its features. However, before we dive into what is new, let us take a quick recap on the World’s Computer.
About the World’s Computer
Ethereum is an open-source, decentralized platform with smart contract features by which Ether (ETH) is the cryptocurrency of the platform launched in the summer of 2015. Ethereum is the second-highest market cap network with over US$ 40 billion in value after Bitcoin and is the most actively used blockchain in the world. Ethereum was created to expand the use cases of blockchain and cryptocurrency to incorporate all aspects of decentralized applications (dApps) from permissionless financial services to become a backbone in restructuring institutions and enterprises. Just as cryptocurrency vows to make money and payment accessible to anyone and evrywhere – decentralized finance (DeFi) takes a step further and evolves to become an open alternative to every financial service we are currently using today. This application is available and accessible to anyone with a smartphone and internet connection. To put simply, Ethereum is a world computer without a power button to shut down.
Back in the early bitcoin days, the doors opened wider and more assets became available for purchase on blockchains. People start to want to have multiple assets on a blockchain. This is where Ethereum played an important role in solving this roadblock with smart contracts and had set a strong foundation for any developers to utilize the platform. Five years later, the successes of the foundation gave rise to many use-cases including that of DeFi. The platform now has the highest amount of capital investment, numbers of companies being built on the platform, more and more people working on it – in short; it has evolved to become the largest ecosystem. In many ways it is safe to say that Ethereum leadership becomes a self-fulfilling prophecy and will take the next computer science breakthrough to challenge this position.
Difference between Ethereum 1.0 and Ethereum 2.0 – Proof-of-Work (PoW) vs Proof-of-Stake (PoS)
Ethereum 1.0 uses a consensus called Proof-of-work (PoW) which verifies completion of the requirements or work done. It is the original consensus algorithm in a Blockchain network. This means that the PoW depends on some blockchain participants (Ethereum Mining) to secure the network by solving mathematical puzzles and receiving a reward for their work. However, Ethereum 2.0 is changing its consensus to Proof-of-stake (PoS). This is a big game-changer to the landscape as PoS operates whereby some participants (validators) will secure the network by betting on which block is the next valid block – in this consensus, those that secure the correct bet get rewarded. Those that got it wrong get penalized. This makes PoS more energy efficient as using heavy computation is no longer required to solve the puzzles! With PoS comes with many benefits in terms of security and scalability as well.
Energy Saving, Economies of Scale, and Scalability
PoS will indeed save more energy. However, the fact that miners will become the validator of transactions such as crypto staking with the rights to verify the transactions as well as assess the amount of money and duration of how long an asset holder holds their assets for could give them a significant foothold and unfair advantage in the market with such power and knowledge which could hint a step backward into the centralized system. Episode 2 of Current Waves featuring the Founder and CEO of Atato, Mr. Guillaume Le Saint, and our CEO, Mr. Akalarp Yimwilai argues this point. It is far-fetched to say that staking will centralize the network despite the issue with PoW that the larger the mining farm, the higher the return due to economies of scale. On the contrary, with PoS, there are little economies of scale such that the cost of staking will be the same whether you are staking 50 ETH or 50,000 ETH. Additionally, the current estimates for Ethereum 2.0 are that the public network will allow between 1,000 and 5,000 TPS compared to that of Ethereum 1.0, which can support 30 TPS. Having said that, it will take several years as it is highly likely that by that point, people will have already been using layer 2 solution such as rollups to address scalability issues.
Limitations on The Internet of All Blockchains
Despite being seen as the ‘internet of all blockchains’ as the base layer on which layer 2 solutions and sidechains anchor, there are foreseeable limitations to the network. As there are hundreds of blockchains already in production by which some are public and some are private, we will likely see an explosion in the number of blockchains used worldwide in the next 5 years. With this comes the problem of exchanging information and value across the chains. With its strong focus on decentralization, Ethereum plays an important role as the ‘internet of all blockchains’, a shared public infrastructure that is highly secured and resilient. Just as we have never had a global internet shutdown, neither will Ethereum.
Other approaches can be used for this, too. Oracles, a third-party system that can relay messages into a blockchain such as Band Protocol and Chain link can be used. In fact, networking protocols such as Polkadot and Cosmos can also be built so that blockchain can natively communicate. Shards can also be created – turning the Ethereum virtual computer into many minicomputers. Yet, in order for this to work, we have to give it time.
Ethereum Price Predictions
The big question for Ethereum holders is that – how will these developments impact the price of Ethereum? Despite the increase in awareness and the already started mass adoption, Mr. Guillaume believes the price is still driven by speculation. However, if we take a look at the fundamentals – it is clear that the number of transactions and daily gas used are in the green with network usage of over 90% since May.
Considering that Ethereum is the world’s infrastructure for securely exchanging information and assets, staying up to date with Ethereum news on its progress and development is crucial and valuable to laying the groundwork for our future both as individuals and as corporates. Yet, there is a long road ahead for us. For the blockchain vision to become a reality, most of our business, governance, and public administration laws are bound to evolve.
Without a doubt, Ethereum has evolved into a fundamental pillar for many fast-moving innovative technologies such as smart ledger and dApps. Summing up the year with the main movement of social distancing had moved many processes online. This sped up the digitalization of our activities in our everyday lives, which includes payments. This spearheaded the development of blockchain and smart contracts – particularly, the decentralized aspects of it. Thus, the release of the roadmap for Ethereum 2.0 got us all excited for the near future of the blockchain community, and we have a lot to look forward to starting the new year of 2021. Ethereum has set the stage for massive development as institutional money will continue to flow into the ecosystem to support its growth, especially with the continuance thrive in DeFi and the rise of non-fungible tokens (NFT).