January 21, 2023

Ethereum 2.0 – everything you need to know

The cryptocurrency that has been considered Bitcoin’s biggest rival for some time now, Ethereum, has recently undergone massive changes.

Known for its transactions per second speed, smart contract functionality, and open source nature, allowing other programmers to use it as a foundation or layer 1 platform to build upon, the value Ethereum provides over Bitcoin is not hard to identify.

However, change was needed, like most products and technology, especially in a space as innovative as the cryptocurrency sector.

That much-needed transformation came when “The Ethereum Merge” (or when Ethereum was upgraded to Ethereum 2.0) occurred. Some say this change was vital to the future success of Ethereum, and rightfully so.

Was it necessary

Yes – especially with the direction the industry has been heading over the past few years, which is more eco-conscious. 

Like Bitcoin, Ethereum relied on the once wildly popular Proof Of Work (PoW) consensus algorithm to confirm transactions and add new blocks to the network. This method, to most, is known and commonly referred to as mining. 

While the personal financial rewards for mining are undoubtedly appealing, unfortunately, due to the massive energy consumption it requires, it is not for the planet. 

Not to mention the drastic incline in demand and price of computer graphics cards and chips, PoW has caused a global effect. 

On top of this, while transactions were fast, they were not cheap. Unfortunately, the fuel-powering Ethereum transactions, called “gas,” had relatively high fees, even for minor transactions. This made simple transactions like sending and receiving unrealistic for users. It even limited those from using tools such as a powerful crypto trading bot as the transaction fees made scalping not as non-appealing as it quickly ate into profits.

Efficient, “green,” and cost-effective – just some of the features that make crypto more appealing than the traditional financial ways of the world, were not being fulfilled.

The change is here

The primary catalyst for the change was switching from PoW to Proof of Stake (PoS). The PoS consensus method replaced the need for miners with an energy-efficient medium called “staking.” 

Although much more technical, essentially, staking is the process of temporarily pledging a set amount of tokens (relative to the requirements of each project) to a node that, if chosen, will validate a transaction(s) and, in return, be rewarded with the fee’s which were charged to the participants of the transaction. 

This eliminates the need for mining software such as computer graphic cards and GPUs – and, most importantly, the energy (to a vast degree) used to fuel those tools. 

Although energy is still a factor in the equation, some reports show that switching to the PoS consensus has reduced Ethereum energy consumption by 99.95%.

The gas fees will also be reduced significantly, while the scalability (ability to increase transactions per second – TPS) will increase by incorporating sharding. Sharding is when a blockchain is split into mini-blockchains or shards that each process its transactions.

This removes congestion from the primary blockchain, ensuring quick, efficient, and uninterrupted transactions and overall flow.

Leading up to the Ethereum merge, the attention it received from supporters and nay-sayers was immense. Many figured it might not go as planned and, as a result, hurt the overall markets – but it didn’t.

The merge was successful, and everyone leveraging its platform nearly instantly enjoyed the benefits.

A massive win indeed, not just for Ethereum but the crypto space as a whole, since it proved to the outside world a few things: Crypto is revolutionary, the space is conscious and does care about things other than getting rich (the environment), and, crypto is indeed here to stay.