Everywhere you look these days there is an 'Ethereum killer'. Sometimes it seems like the knights of protocol show up monthly in fully coded armor to slay the dragon of cyberspace called Ethereum. Those who believe that Ethereum's reign will come to an end Ethereum's high gas fees, low transactions per second, and tout the revolutionary qualities of the [insert X] blockchain protocol.
While it is certainly possible that the Ethereum future will not be the blockchain Preferred for creating decentralized applications (dapps), thousands of projects have already been built on the Ethereum blockchain. Bigger Uniswap from decentralized exchange to the largest NFT marketplace on OpenSea, the Ethereum community is growing at a rapid pace.
What many believe the Ethereum project will reach new heights is the long-awaited Ethereum Serenity update, also known as Ethereum 2.0. Scheduled for release in 2022, Ethereum fans are hopeful that it will succeed in alleviating all of Ethereum's current issues. The 2022 release date also has Ethereum aficionados worried that other blockchain projects will be caught up in the meantime.
Only time will tell whether Ethereum's pioneer advantage will continue its solid position as the world's second-best cryptocurrency (as measured by market capitalization). Until then, let's take a brief look at the promises of Ethereum 2.0.
In this article, we will discuss:
What is Ethereum 2.0?
Ethereum Serenity, or Ethereum 2.0, is not an alternative cryptocurrency. It's best to think of Ethereum 2.0 as an upgrade to the Ethereum network. This update attempts to address many key blockchain issues such as scalability, usability, and sustainability. While Ethereum reached unprecedented market valuation levels this year, popular projects like Cardano, Zilliqa, Solana, Algorand and others could threaten Ethereum's position as the second-largest cryptocurrency if it doesn't address many of its problems.
Not surprisingly, newer protocols boast higher transactions per second, better scaling solutions, and network rates that don't break the bank. Newer technology often has an advantage over older technology as years of development go into hardening blockchains, so updates are needed for older technology to keep up. Ethereum is no exception to this.
Usability
Ethereum, in its current unupdated state, has been hit with huge transaction fees, called gas fees. Gas fees are paid in order to provide the energy needed to validate and perform transactions on the Ethereum blockchain. These high rates happen when the network is busy processing tons of transactions. Even doing a simple transaction in decentralized applications can cost upwards of $200 on busy days. For whales who have millions of dollars in ETH to play in decentralized finance (DeFi) apps, this might seem like child's play. However, for the average person working 9-5, shelling out over $200 to transfer a cute NFT digital monster into a video game is not palatable.
This has made it increasingly difficult for the average user to participate in Ethereum apps, like negotiating encryption on Uniswap or buying a digital cat on CryptoKitties . Blockchain usability would take a hit, as the barrier to entry would be too high for the average person to use.
Scalability
Let's imagine that these gas rates are actually low enough that the average crypto user doesn't blink when making transactions, like $0,25 per transaction, instead of 80 times that amount with $200. Even with that, Ethereum can only process 15 transactions per second (tps) as of now. By comparison, Visa makes about 1.700 tps, more than a hundred times the unupdated version of Ethereum.
While Ethereum's transaction speed is three times higher than Bitcoin's 5 tps, if decentralized applications are going to be common then they must be at least close to the speed of traditional financial tools like Visa. It's hard to imagine that Ethereum is as scalable as traditional financial institutions when transaction speeds remain low.
It's true that using blockchain technology seems much faster than answering all those Know-Your-Customer questions and other banking hurdles. In encryption, just enter the wallet address and you will receive. Even Bitcoin, the oldest cryptocurrency, seems easy to connect without the hoops. Still, once scalability solutions emerge, there will be even more reasons to turn to the decentralized world for financial needs.
Sustainability
Proof-of-work consensus mechanisms have been attacked by the media as unsustainable because of their environmental impact, although it has been proven that cryptocurrencies do not have the large-scale environmental impact that vehicles claim. Still, anything that helps create a more sustainable and decentralized ecosystem will be welcomed by many. Proof-of-Stake provides this solution by running validation nodes instead of mining. Since a huge electrical input is required to mine blocks in the Test of Work, running validator nodes to validate the blocks will save tons of energy, making sustainability a reality.
Serenity, or Ethereum 2.0, if successful, will have the usability, scalability and sustainability to operate for users around the world. This will make DeFi apps like Aave and Compound easier to run. If decentralized finance tools need $100 to make a single transaction, few will believe in decentralized protocols as an alternative to conventional finance. Also, if that amount is needed to sell a piece of digital property or artwork, one would wonder about the widespread use of it all.
Hopefully, Ethereum 2.0 will solve all of these concerns and allow its extensive user base around the world to continue operating smoothly.
Ethereum 2.0 Solutions
Ethereum 2.0 is said to have next-generation blockchain solutions to these problems. Scalability will be resolved using an alternative consensus mechanism, or a way in which computers on a network can be in agreement. If computers around the world are going to use Ethereum, they need a way to work together. The current consensus engine for Ethereum is Proof of Work, which uses mining to validate blocks or sets of data. Often they come with some problems that the Participation Test tries to solve.
How does the participation test work?
Instead of mining, which requires vast electrical input, Stake Proof uses so-called validator nodes to protect the network. Validator nodes are alternatives to mining, in which users configure a node for a single ETH. These nodes, or computers that process the network, will be randomly chosen to create blocks. Blocks are the cryptographic files in which data is recorded, a digital ledger in encryption.
In traditional mining, you need incredible resources to effectively mine blocks for Ethereum and other legacy cryptocurrencies. In this way, it strongly favors those with resources. By staking ETH and running validation nodes, all you need is a decent computer with a good CPU or GPU, not a mining platform costing thousands of dollars. Validator nodes, in turn, have the same chance as a person with a regular rig mining a block and a company with vast resources and multiple nodes. It won't be like mining, where more computational power will result in a much greater chance of blocks being mined. Each validator node will have the same chance to receive the same block rewards. While a company may have a hundred validator nodes, each of those nodes has the same chance of rewards as a normal person's computer node. This is because the rewards are random. The company will have a greater chance of rewards just because it has a hundred of them, not because its equipment is more powerful.
The threat of a 51% attack, or an attack that takes over the network, seems more possible, however there is not much incentive to do this as it would devalue the network. Imagine that you use a few hundred billion dollars to gain the majority share and control the entire Ethereum. You would likely lose hundreds and hundreds of millions, maybe even a billion, if you controlled the network and made millions of users around the world trust it less.
At first hand, it appears that the Participation Test is a general improvement on the Work Test. This is not a certainty, however, as the protocol is still in its infancy, which is the main criticism of Proof of Bet. Time will tell if it really will usurp the Proof of Work forever.
The Beacon Chain
The Beacon Chain is how the future Ethereum network will be coordinated and it will be the one that will introduce the Proof of Participation into the network. It will set up the strings of fragments that speed up transactions and make the network larger. The Beacon chain is the foundation of a more 'safe, sustainable and scalable Ethereum.' He will manage the old Ethereum, the main network, in the proof of bet system.
The Beacon Chain is 'Phase 0', so truly the building block of Ethereum 2.0.
The Merge
This is where the main Ethereum network will merge with Proof-of-Stake using the Beacon chain to create a possibly better Ethereum. At the moment, Proof-of-Work still protects the Ethereum network, working in parallel with Proof-of-Stake. The Merge, which sounds like the beginning of an epic movie, is when they will be fully interconnected. Mining will cease as a way to protect the network. And according to Ethereum, this will lead to 'infinite fragment chains' and 'infinite scalability' for Ethereum.
Fragment Chains
Over 64 chains, the fragment chains will expand the network load and provide 'infinite scalability' after merging, keeping node requirements low. Sharding, in computer science parlance, is a way of 'splitting a database horizontally'. In Ethereum, this will make the load more manageable for a network, increasing the amount of transactions per second and reducing network congestion on these new chains, 'or chunks'. Projected transactions per second (tps) will be 100.000 tps, compared to Ethereum's 10-15 transactions per second now. This is known as Shard Chain Version 1: Data Availability. Shard Chain Version 2: Code execution will give shards many more features, such as intelligent contract execution and account management.
Final reflections
Ethereum is the biggest platform for creating decentralized apps. Once deployed, DeFi applications like Aave and Compound will be easier to run. If decentralized finance tools need $100 to make a single transaction, few will believe in decentralized protocols as an alternative to conventional financing. Also, if that amount is needed to sell a piece of digital property or artwork, one would wonder about the widespread use of all of this. Ethereum Serenity will try to cure these problems.
With all the funding and intelligence being put into its continued development, as well as its army of fans and developers, Ethereum will likely remain in blockchain relevance for years, if not decades, to come. Ethereum Serenity, or Ethereum 2.0, will be testing to see if Ethereum will continue its domain of use over other protocols. Only time will tell if an 'Ethereum slayer' will finally kill the mystical beast or if Ethereum remains the main network of decentralized applications.