Ever heard of Ethereum 🤷? Well, welcome to the upgrade! Ethereum 2.0 is a brand-new variation of the Ethereum blockchain built on a “proof of stake” system. If you’re wondering what the heck that means, you’re in the right place. In this article, we’ll cover the answer to the question, “What is Ethereum 2.0?” and show you how you (and your wallet) can benefit.
The Problem with Proof-of-Work: The Current System
If you’re familiar with Ethereum 1.0, you might know that it currently works on a pretty standard proof of work model. Ethereum miners complete complex mathematical functions 🔣 known as hashes using powerful computers around the world. This blockchain network system, excellent for decentralization and privacy protection, has several big problems.
Monetary Cost of Mining
Under the proof-of-work system, miners solved intricate computational problems to include blocks on the blockchain. This came at great personal cost 👌; even the equipment price is significant.
As the number of miners rises 📈, the earnings of private miners lower 📉, which means there’s less incentive for miners to participate in blockchain projects. To make matters worse, Ethereum 1.0 throttles how much information miners and users can process at once. If a number of purchases pending on the network don’t fit into an offered block, they have to wait for a brand-new block to be included in the network.
Perhaps most famously, proof-of-work systems have a huge energy consumption problem. They need an ever-increasing, and energy-intensive quantity of power 💪 to validate Ethereum purchases before recording them using PoW blockchain technology.
Doubters of Bitcoin, Ethereum, and also various other proof-of-work cryptocurrencies that work on a decentralized exchange normally cite the large power expenses 💸 of mining. Recently, people and businesses have started considering this in their financial investments along with social and governance (ESG) requirements. One Forbes study discovered that a cryptocurrency financial investment that adversely affected the atmosphere was likely to repel investors.
ETH, Ethereum’s native cryptocurrency, presently has a yearly power intake about equivalent to Finland! This creates a carbon impact equivalent to Switzerland. And ETH is the second-largest cryptocurrency; Bitcoin’s carbon footprint👣 is even worse. Yikes!
What Is Ethereum 2.0? The Proof-of-Stake System
Proof-of-stake networks (PoS networks – yes, ha ha 😂), like Ethereum 2.0’s network, aren’t as labor-intensive as those normally used by the cryptocurrency industry. They lower the quantity of computational jobs required to maintain security for blocks and deals that maintain the blockchain.
How does proof-of-stake change blockchain programming like this 🤔? Well, it adjusts the way remote computers verify blocks. The proof-of-stake system relies on validators rather than miners. Rather than mining new coins, validators stake ETH they already own on the network to preserve it. In the Ethereum 2.0 upgrade, validators have to stake 32 ETH to participate.
The system chooses validators arbitrarily to “mine,” or confirm 👍, a block of blockchain transactions. This system randomizes the blockchain ecosystem as opposed to making use of a competition-based system like proof-of-work. More than one validator works on each block, and when enough validators confirm the block, it is settled by the Ethereum 2.0 system.
The Merits of Proof-of-Stake: The New System
You can probably see that the above system of proof-of-stake blockchains transactions involves a lot less work and computer power. This means proof-of-stake networks are much more eco-friendly 🌱 and energy-efficient than those currently used by most popular cryptocurrencies. Once updated, the entire network is estimated to lower its carbon impact by up to 99.95%. This resolves one of the significant objections to cryptocurrency exchanges.
The network upgrades to a proof-of-stake system will significantly alter the way things are done in Ethereum 2.0. This major upgrade will dramatically modify all the issues covered above. It will improve the scalability ⚖️ of block creation, lessen the carbon footprint of the crypto market, and lower the equipment demand for mining. One of the objectives of the upcoming upgrade is also to provide significant returns for private miners so they want to work in the Ethereum blockchain ecosystem.
What Is Ethereum 2.0 Going to Do to My ETH?
Are you a current ETH investor? Don’t worry ✋! The Ethereum site states that existing ETH owners don’t have to take any specific action or make any blockchain transactions leading up to the change. You can continue to participate in the cryptocurrency during the leadup without fear of losing your investment because of Ethereum 2.0; your holdings stay the same as though there was no upgrade.
What Is Ethereum 2.0 Going to Do to the Crypto Industry?
We won’t know for sure, but it seems like switching to a more eco-friendly 🍃 system that’s more lucrative for miners can only be good for crypto. A cryptocurrency system with less of a carbon footprint 👣 would quell many of cryptocurrency’s naysayers, perhaps driving current prices up.
Interested in a deep dive into decentralized finance, proof-of-stake models, the Ethereum Alliance, and more 🤩? Be sure to sign up for the Ian Corzine Web3 newsletter!