Choosing which blockchain to develop on is a big, long-term decision for your business. That’s why it’s important to understand what the future of your prospective blockchain looks like. If you’re currently developing blockchain or NFT projects on Ethereum, or considering it, there are some promising developments for the leading smart-contract blockchain.
Ethereum is currently working on the development and release of Ethereum 2.0, which started in August 2021 when EIP-1559 went live on the Ethereum blockchain. The ongoing upgrade is touted to become the most significant improvement to the Ethereum blockchain. Following a stellar performance in 2021, the Ethereum network currently boasts over 120 million ETH coins in circulation and a market capitalization of $366 billion.
The awaited Ethereum 2.0 release, referred to by Ethereum as the consensus layer, will make the Ethereum blockchain “more scalable, more secure, and more sustainable.” The upgrade will address challenges like congestion, scalability, and high fees – which should all be major concerns for businesses building on Ethereum. The final phase of the sequential overhaul, which will shift from the proof-of-work (POW) consensus mechanism to the proof-of-stake (POS), will launch sometime in 2023 and introduce exciting capabilities.
Let’s take a look at what ETH2.0 will look like, the problems it will address, and the expected timeline for new updates.
ETH 2.0, also known as Serenity or Eth2, is a multi-phased upgrade of the Ethereum ecosystem that will see the world’s second-largest blockchain shift from the energy-hungry proof-of-work (POW) consensus to the greener, energy-efficient proof-of-stake mechanism (POS).
The upgrade will improve the speed, efficiency, and scalability of the Ethereum network to enable it to execute more transactions and remove logjams and tailbacks. Ethereum 1.0, which hosts smart contracts and network rules, is now the “execution layer.”
In contrast, ETH 2.0, which aims to realign devices contributing to the network to existing rules, becomes the “consensus layer.” To avoid confusion, the Ethereum foundation rebranded Ethereum 2.0 to simply the “consensus layer” to reflect the fact that it is not a new network but an upgrade.
The Ethereum blockchain has been extremely successful since it was launched in 2015 and is popular with developers of DApps, DeFi applications, and minting NFTs. The extraordinary growth caused structural challenges that limited the network’s scalability. Among the most prominent ones were:
The Ethereum consensus layer is being executed in three distinct phases – the beacon change, the merge, and shard chains – implemented in parallel since they have specific dependencies that define the consensus layer (ETH 2.0) release date.
The first upgrade that launched on 1st December 2020, introduced the Ethereum staking process of validation. It is a significant feature in the network’s move from Proof-of-Stake to Proof-of-Work mechanism. As the name suggests, the beacon chain operates on a separate blockchain.
The next phase of the upgrade should happen sometime in 2022. It is expected to unite the Beacon Chain and the Mainnet.
The last phase of the update will facilitate enhancing the scaling of the Ethereum platform. Shard chains will spread over 64 new chains instead of executing all operations in one blockchain.
There are two main differences between Ethereum 1.0 – which will be known as the execution layer – and Ethereum 2.0 – the consensus layer:
Ethereum 1.0 currently uses the proof-of-work consensus mechanism where miners rely on high-end GPUs and ASICS, which comes with a downside of high electricity consumption to validate transactions and add new blocks to the Ethereum blockchain. With the release of the consensus layer, Ethereum will use a proof-of-stake consensus mechanism with some advantages over POW. Validators only have to stake a certain amount of ETH to validate transactions and add new blocks to the network meaning fewer resources and less electricity consumption without any machinery.
The second difference, sharding, built into the consensus layer, will enhance scalability leading to faster transactions. It will distribute complex data among many nodes that will process them in parallel instead of consecutively. The result will be an increased throughput on the Ethereum network.
Ethereum co-founder Vitalik Buterin promised investors and traders lots of good changes when he outlined the consensus layer “endgame”. Some of the positive results to expect after the launch include:
The POW consensus mechanism that Eth 1.0 uses to maintain the Ethereum blockchain means that many mining activities that consume a lot of electricity take place on the network. The POS algorithm of the consensus layer will make the blockchain 99.9% more energy-efficient as it doesn’t involve mining, meaning less energy will be required to maintain the Ethereum blockchain. That will give Ethereum an advantage over other cryptocurrencies that still use the POW algorithm.
The new POS algorithm will make it difficult to compromise the Ethereum blockchain. Trying to execute an attack on the network will become futile. Since all network validators have a traceable address, any potential attacker will be identified easily and quickly forked away from the network before executing their plan.
Sharding will reduce technical barriers and enable users with little technological know-how to become validators and help secure the network. The network will have more validators as more ordinary people begin to operate the Ethereum blockchain using their devices. More validators on the platform will translate to more decentralization and increased demand for the Ether coin.
The Ethereum platform currently performs up to 30 transactions per second. But with sharding, the developers have promised a speed of up to 100,000 transactions per second since more transactions will be performed simultaneously.
Anyone familiar with the Ethereum network knows how irritating huge gas fees have been in the recent past. The high transaction speed will reduce operational costs and lower gas fees. These will work together to inspire more DeFi transactions on the Ethereum blockchain. The Ethereum foundation plans to fully execute the consensus layer by 2023 but it’s already happening in different phases. If you’re unsure of how these changes will affect your organization’s blockchain strategy, reach out with any questions. Gigster’s team of experienced blockchain developers can help guide your next project.