In the form in which the cryptocurrency is presented at the moment, it does not provide adequate conditions for corporate clients. Therefore, Ether is at a crossroads. And the number of threats faced by competitors and the impatience of investors is simply amazing. But they found a way out - global network updates.
The need to launch a hard fork of the world's second most popular cryptocurrency has been brewing for a long time. The prerequisite for this was the active growth in the number of users. A threefold increase in the number of long positions is literally screaming about the need to start scaling. Simply put, a hard fork will become the next stage in the development of a currency in the context of computer systems. Due to this, it will be possible to increase the total number of processed operations and expand the blockchain network.
Phases of the Transition to Ethereum 2.0
It is assumed that the transition to Ether 2.0 will take place in 3 stages, which are the following:
- Zero phase: Beacon chain. Its launch was postponed for a long time because the procedure itself is rather complicated. The main task of the zero phase is to check how the Proof-of-Stake algorithm works. Therefore, this network can be considered to be a test network, although real Ethers will be used in it. There are many aspects of the new algorithm and it is very important that they function properly.
- Phase 1: Shards. Initially, a network with 64 shards will be deployed. And even at this stage, it will remain experimental. The main task here is to test the basic sharding model. During this stage, it is planned to simultaneously operate 65 mini-blockchains. One will be taken from the previous phase and 64 new ones will be added. There will be two-way communication between them.
- Phase 2: State execution. It is expected that at this stage, there will be significant economic activity on the network, not just staking and smart contracts. Shards will act as functions of Ether 1.0. So far, there is no specification for this stage. And according to analysts, it is necessary to carry out large-scale work for Ether 2.0 to become fully prepared for this phase.
Speed Increase
Ether 2.0 is the next stage in the development of the second most popular cryptocurrency. The hard fork is designed to speed up transactions. At the moment, the altcoin has an indicator of 15 transactions per second. For most users, this is too slow. In the future, this figure will reach 1000 transactions per second.
The second question is the throughput of the system itself. And this requires a different algorithm. Nowadays, this is Bitcoin's Proof-of-Work protocol. This mechanism makes it possible to make the confirmation of transactions with the help of PC's calculations only. And therefore with the miners, who use these computers. This algorithm is the biggest problem, which does not make it possible to increase network capabilities.
There is a plan to make the transition to Proof-of-Stake. Its essence is that the computing capabilities of a PC are not needed to confirm blocks. That is, the central figure will no longer be miners. Validators will take their place. These are holders who have at least 32 coins in their ETH wallet. This means that expensive equipment will not be needed to operate the system.
What Is Staking?
Since the main feature of Ethereum 2.0 is its work on the basis of the Proof-of-Stake algorithm, the process of its production, comparable to mining, will be called staking. It will also be able to generate income for the holders. Moreover, staking will have significant advantages over mining. First of all, these advantages are energy efficiency and lower inflation rates of Ether. This process is expected to be more secure and decentralized. But this will definitely be a novelty for Ether users.
To start staking on the Ethereum 2.0 network, you will need to launch the validator node and block 32 ETH on the deposit. This will open up the opportunity to take part in the creation of blocks. A validator who can vote for new blocks will be randomly determined from the general network. And others will have to agree with the results. This reflects the work of the consensus mechanism.
Staking will provide a reward. But so far, the rate of return is unknown. The annual yield is expected to be 1.5-1.8% depending on the volume of coins that are staking.
Several constraints are also planned to be used to help maintain the integrity and security of the network. For example, it is planned to introduce some kind of penalties for stimulating validators to stay online. They can also introduce a reduction process. In this case, will take part in the share of validators and push them out of the network. Its main purpose is to exclude the functioning of malicious validators.
To start staking, you need to have 32 Ether on your account. It is definitely pleasing that staking does not imply the presence of graphics cards. Therefore, you shouldn't worry about the huge electricity bills. The developers are confident that most laptops will be able to support validator slots. But to confirm the blocks, you will need to stay online all the time.
Perspectives of Ether 2.0
The things that Ether 2.0 will give to the cryptocurrency market are very important. More specifically, these things are the following:
- Substantial technical improvements.
- Development of the network.
- The new algorithm will provide scalability. And this will confidently strengthen the leading position of altcoin.
- Launching the upgrade will provide a significant advantage for new project development and faster transactions. Therefore, the platform will be able to consolidate the status of the most popular platform for launching new projects. What is very good for coin holders is that the commission is expected to decrease.
Perhaps, in the future, it will even allow Ether 2.0 or subsequent hard forks to compete with Bitcoin.
But there are also certain risks in this fairly natural development. Among the main ones are the following:
- There is a risk of losing their positions because EOS and Tron are very close competitors, on the basis of which 80% of gambling is deployed.
- There is a risk of a fall in the rate due to the need to constantly keep 32 coins in the wallet.
- If many holders request a refund of tokens, there is a high probability of losing part of the capital and even all the income that is taken from staking.
What Is Happening Today?
The developers' plans were very promising. As soon as they started talking about Ether 2.0, January 2020 was called the date of the zero launch. But the forecasts did not work. Then the start of the system was postponed many times because the number of unplanned bugs exceeded all expectations. It is possible that the launch will not take place before 2022.
Updating the network will help improve the efficiency of Ether by increasing the number of processed transactions and it will increase security. At the same time, the main properties of the cryptocurrency will remain. There is still no stable consensus.
The Ethereum community is considering several scenarios for the further development of the system after the release of the hard fork. It is most likely that Ether and Ether 2.0 will operate as separate blockchains with separate tokens, but the systems will be linked. The second version of Ether will be the Ether 2.0 shard.
Both developers and miners are somewhat worried because of several issues, which are the following:
- The transition from PoW to PoS is not perceived by everyone as really viable because miners are worried that their value is decreasing.
- The developer community, in turn, is concerned about the redistribution of existing Ether projects into a new chain.
Providers of wallets, exchanges, and cryptocurrency users also have certain worries. They are happy about the long-awaited scaling. But again, there is a risk of another Ethereum hard fork. And it can potentially create a third chain and hence the third token. This can lead to a split in the brand.
Probably, it is for this reason that the launch is delayed. It is necessary to take into account the interests of really all parties and not make it worse for anyone.