The Merge: Ethereum 2.0
Ethereum's transition to Proof of Stake will improve the network's sustainability, security, and economical durability.
ETH 2.0 is coming
Ethereum is the world's second-largest digital currency and the most popular platform for decentralized applications (dApps). However, Ethereum is facing network congestion, an increasingly high threshold for running nodes, and energy loss caused by the Proof of Work (PoW) mechanism. To address all the issues associated with this technology, Ethereum is currently undergoing a transformation known as Ether 2.0 or Casper, with better scalability and security while ensuring decentralization to serve better existing and potential users while supporting sustainability.
What is the Merge process from ETH1.0 to ETH 2.0?
A fascinating step in realizing the Ethereum vision – more scalability, security, and sustainability.
The Merge represents the joining of the existing execution layer of Ethereum (the Mainnet we use today) with its new Proof-of-Stake (PoS) consensus layer, the Beacon Chain. It eliminates energy-intensive mining and secures the network using staked ETH. More specifically, the development phases of Ethereum are divided into four: Frontier, Homestead, Metropolis, and Serenity. The first three phases are completed by 2020, after which the development team of Ether has been focusing on completing the last phase. The last phase, Serenity, aims to switch Ethereum from the current Proof of Work (PoW) mechanism to a more energy-efficient Proof of Stake (PoS) mechanism.
How do PoS and Shard Chain work?
Proof of Stake (PoS) is an upgraded version of Proof of Work (PoW), which improves security and scalability, and is more energy efficient. Unlike PoW, which relies on miners and electricity, PoS relies on verifiers (virtual miners) and depositing ETH tokens to build new blocks. Shard Chain is splitting the entire Ethereum network into multiple portions called Shards. Each shard would contain its independent state, meaning a unique set of account balances and intelligent contracts. Sharding means dividing large chains (databases) into smaller and faster chains, thus making the whole system more scalable by splitting the state and history stored on the main chain into each shard. As a result, each shard is self-managed for its transaction history, and each shard can control its impact on transactions
Proof of Stake VS Proof of Work
Advantages of PoS
- The Proof-of-Stake does not need expensive hardware for processing.
- Transactions are faster and relatively inexpensive.
- Processing in the case of PoS does not use much energy.
- Stakes act as a financial motivator in the PoS model.
Disadvantages of PoS
- PoS models have not been implemented on an elaborate blockchain.
- Capturing control of the network is easy as it depends on capital.
- PoS misses out on many PoW benefits, such as mining rewards.
- Centralized threats like double-spending are executable.
- PoS has governance issues meaning users with more tokens can change the rules of the network.
Advantages of PoW
- Proof-of-Work was invented to stop double-spending attempts.
- It is one of the most secure consensus mechanisms.
- Cryptos based on PoW have more mining power and are more secure.
- Mining earns rewards in a typical PoW model.
- Proof of Work is random yet fair.
Disadvantages of PoW
- Mining requires compelling hardware.
- Not affordable for every market participant.
- Energy consumption due to high mining participation is off-the-charts.
- Single entities control the majority of mining pools.
What is the impact on the existing Ethereum network after the upgrade?
The current Ethereum upgrade will improve the leading Ethereum network's scalability, throughput, and security. Moreover, the Ethereum merger and upgrade will not erase any historical data, transaction records, or asset ownership from the existing PoW chain. After the upgrade, the original chain will continue to operate and improve until it is upgraded to a fragmented chain after the upgrade is completed.
Look the future in ETH2.0
Ethereum 2.0 is a necessary upgrade for the future. In its current state, users pay ridiculously high gas fees, experience lengthy transaction validation times, and consume considerable energy in the process. Ethereum's basic transactions are not the only factor affected by the network's lack of scalability. Ethereum's problems affect Non-Fungible Tokens (NFTs) and aspects of decentralized finance, such as lending and borrowing. For example, setting up and trading NFTs on Ethereum Network can cost hundreds of dollars in refueling fees due to network congestion.
With the launch of Ether 2.0, the network will immediately experience benefits in all areas. For example, thanks to the Sharding and Proof-of-Stake consensus algorithm, it will be cheaper to trade and cast NFTs on Ethereum Network. More specifically, Ether 2.0 will impact the world's understanding of the value of Ethereum. Ethereum could be a necessary asset if Ethereum 2.0 works as intended. Businesses and individuals everywhere may leverage Ethereum in their daily activities, building databases and applications in the Ethereum network.