Why Ethereum 2.0 is the next big thing in the crypto world?
Here are a few projections of how the update will impact the community
Right now, Ethereum, the world’s second-leading blockchain, is gearing for the release of its most ambitious update yet – Ethereum 2.0.
In this post, we will take a look at what makes a unique phenomenon in crypto and explore the benefits of PoS, as well as the future of crypto mining.
What Is So Special About Ethereum 2.0?
Ethereum 2.0 is a culmination of five-year-long thought experiments conducted by the development team. It’s a challenge both for the foundation (the new Ethereum is technically complex and is one of the most delayed updates in crypto up-to-date) and the crypto community, which will be exposed to large-scale implementation of proof-of-stake.
How will Ethereum 2.0 change crypto? Here are a few projections of how the update will impact the community:
- Solving the scalability trilemma – through sharding, the blockchain will be able to process a higher number of transactions while staying decentralized and secure.
- Reducing energy consumption and promoting sustainability by switching to PoS.
- Fuel the growth and usage of DeFi platforms. The new blockchain will be more inclusive for developers since the new version of EVM (eWASM) will support general-purpose programming languages.
At present, no PoS blockchain catches up to Ethereum by scale and range of applications. The platform’s shift from proof-of-work gives developers, investors, and crypto enthusiasts a way to see how viable Proof-of-Stake is in large-scale blockchains – if it stands the test of time, PoS adoption will inevitably surge.
What does Proof of Stake Do, and How Does It Improve Ethereum?
At first, the very need to switch to PoS might seem redundant – after all, Ethereum is doing just fine on a PoW blockchain. The update is complex and not risk-free so the benefits need to be highly impactful to make up for trade-offs.
Potentially, Proof-of-Stake is a more sustainable, decentralized, and secure solution than PoW. The key benefits are:
- Lower energy consumption
- Lower entry barriers (no upfront hardware investment and technical skills required to join the network).
- PoS is self-contained and to a lesser extent dependent on regulator policy.
- 51% attacks will become next-to-impossible to execute as more contributors join the network (to overpower them, attacks need to deposit astronomically high stakes). On the other hand, PoW is becoming increasingly more centralized, with several resource-rich entities dominating the network.
Challenges of PoS adoption:
- Since no external factors are involved, the token must be valuable to stay a reliable incentive mechanism.
- No answer to the “rich get richer” dilemma (not that PoW offers one).
- The lockup period associated with Ethereum’s PoS adoption makes ETH2 illiquid.
Will Proof-of-Stake Be the End of Ethereum Mining?
One of the update’s most prominent features is the difficulty bomb – once it’s released, solving the PoW puzzle will become so resource-consuming that miners will have no incentive to do it.
As a result, in the future PoS will be the end of Ethereum mining.
What can miners do about it? Some pools prepare for the update by reemerging as validator pools. Others plan on using the hardware to mine different cryptocurrencies.
The Future of Ethereum 2.0
There’s no telling how the market responds to the update once it’s out. On the one hand, once the lock-up period is over, a lot of tokens will enter circulation, resulting in a price drop.
On the other hand, if sharding and other infrastructure changes ideated by the founding team are successful, Ethereum 2.0 will have a higher TPS and will be attractive to dApps developers and end-users who’ll pay lower transaction fees.
Increased interest in the network will broaden the array of use cases and increase the value of ETH. Even now many Ethereum holders participate in staking on Redot, Binance, and Kraken exchanges to get the low-hanging fruits of investing into Ethereum 2.
By design, the update introduces innovative and valuable changes. However, only time will tell how attack-resistant and convenient for end-users the new blockchain will be.