(Newswire.net — May 6, 2022) — If you’re involved in the world of crypto trading, you’ve undoubtedly heard about the upcoming “merge” of Ethereum and Ethereum 2.0. What is it really, and what does it mean for Ethereum users?
What to know about the impending Ethereum merge
The merge, also known as the Eth2 upgrade, is a combination of several different technological upgrades to improve the performance and efficiency of the Ethereum blockchain. It is expected to alleviate the congestion issues that have plagued Ethereum over the last few years while simultaneously reducing transaction fees and creating a more equitable system for all users.
The new version of Ethereum, called Proof-of-Stake (PoS), will starkly change the current Proof-of-Work (PoW) system. PoS will allow any user with 32 ETH tokens to become a validator on the network. Users who choose to do so will be rewarded with small amounts of ETH for their services. The entire system will be run through smart contracts, ensuring that all transactions are completely transparent, and verifiable via Ethereum block explorer.
What are Proof-of-Stake and Ethereum 2.0?
Ethereum 2.0, also known as Serenity, is the upcoming upgrade to Ethereum’s current Proof-of-Work consensus algorithm. The switch to PoS will help combat scalability issues and increase the network’s speed.
Proof-of-Stake (PoS) is a protocol that creates a verifier pool of nodes with high amounts of staked ETH. These nodes are randomly selected and then asked to validate activities on the network, in which they are rewarded with ETH for every block they verify correctly. Since these nodes have “skin in the game” or large amounts of ETH at stake, they are less likely to attempt double spending or other malicious behaviors that could negatively affect the network. This helps to boost the security of the Ethereum network while also being more energy-efficient than Proof-of-Work since verifying blocks requires much less computing power.
The Kiln Testnet Launch: What It Means For Ethereum Developers
According to an official blog post from the Ethereum Foundation, Kiln is an improvement over previous tenets like Ropsten and Kovan because of how it handles transactions. In particular, Kiln will use a “hybrid PoW/PoS consensus mechanism” to ease the testing process for developers.
This hybrid consensus mechanism is supposed to make it easier for Ethereum developers to understand how their applications will work on the mainnet once they go live there. It also means that they can experiment with their apps without worrying about making any mistakes because they won’t cost real money or ETH.
How Proof-of-Stake could benefit investors
With the recent ether price surge, it’s more important than ever to be aware of the cryptocurrency’s progress. The next step of this progress is called the “merge” and involves a change known as Proof-of-Stake (PoS), which would replace the current mining system. With mining, computers on the Ethereum network are required to solve complex puzzles to create new coins and verify transactions. The new PoS system will no longer rely on these puzzles—instead, transactions will be verified by those who hold coins, with verification being given greater weight to those who have more coins. This would mean that coin holders would earn money in proportion to their holdings each time a transaction is made on the network.
This could be a huge benefit for investors. It would allow them to hold onto their coins instead of being forced to sell them off to pay for expensive mining equipment. Miners would also no longer have to worry about solving complex equations quickly enough with the proper equipment—they could simply buy coins and verify transactions. However, some argue that this system would create an oligarchy of wealthy coin holders who could use their influence over transaction verification for monetary gain or other less-than-noble means.
The technical journey to PoS
The Ethereum Serenity upgrade is an umbrella term that covers four distinct phases, with the mainnet launch of Ethereum 2.0 serving as the final phase in this process. There are three phases of the Ethereum Serenity upgrade.
- Beacon Chain
The beacon chain is the first phase of the Serenity project and is the backbone of a proof-of-stake blockchain system. It enables nodes to coordinate via a consensus algorithm called Casper CBC (correct-by-construction), which allows them to agree on which block should be appended to the blockchain. The beacon chain also provides an abstraction layer that allows other chains (called shard chains) to exist and communicate. It will be broadcasted across the network so that every node can verify and process it in parallel to their other operations, allowing the network to scale horizontally and vertically.
- Shard Chains
Shards are added to the existing Ethereum blockchain to help improve scalability and facilitate cross-shard transfers. This will allow Ethereum to scale by creating groups called shards that each contain their state trees and transaction histories. Each shard can process transactions in parallel, which allows them to scale more effectively than before. The main chain will also be able to process transactions simultaneously.
- eWASM Execution Environment
The eWASM Execution Environment is the third and final phase of the Serenity upgrade, and it’s scheduled to launch sometime in 2022 or 2023. This phase aims to reformulate the execution environment to be more efficient, thereby allowing for even faster transactions, increased scalability, and reduced costs.
Challenges for the crypto market
Some challenges will come with the switch to Ethereum 2.0. Some of these challenges include:
- The switch to Ethereum 2.0 will be a gradual process, which means that the Ethereum blockchain will be running on two different versions for some time. This means that crypto trading will have to be compatible across both versions, which can cause latency issues in Ethereum trading.
- Ethereum 2.0 is being developed as a Proof of Stake blockchain, which means that the network’s security relies on staking rather than mining or hashing power like most other blockchains. This means that miners will have less incentive to operate on ETH 2.0 nodes because they won’t get rewards for their work in mining blocks like before.
- ETH 1.0 has been around since 2015 and is still one of the most popular cryptocurrencies in use today, so it’ll take some time before ETH 2.0 takes off as well.
Conclusion
While the upcoming Ethereum merge won’t radically transform its ecosystem, many of the proposed updates are still likely to have a major impact on Ethereum trading and its potential for change in the future. Only time will tell what kinds of transformations will occur once these changes go into effect, so we can only sit back and wait to see what happens.