Table of contents

Ethereum 2.0 - Serenity

This article will discuss:

  • Roadmap for Ethereum 2.0
  • Release date
  • What is Ethereum 2.0
  • Migrating from Proof-of-Work to Proof-of-Stake
  • What is the impact on the Ethereum price

Ethereum has dominated decentralised applications from the past years. It has provided its users with their minting platform, an open-source programming language, and a progressive environment. Powered by Ether, this blockchain is seeking to bring a shift in its underlying mechanism by addressing the limitations it possesses.

The launch of Ethereum 2.0, as a distinct version of blockchain from the existing Ethereum, is the most significant leap this platform is to execute since its initiation into the financial market.

Ethereum was introduced in the digital world as a different product from Bitcoin since it could store and execute Smart Contracts in the form of applications used on networks. The Ethereum community built the previous versions of the blockchain to be trusted and immutable. For seeking better scalability, the network is considered to be upgraded to Ethereum 2.0, which comes with distinguished performance. The Ethereum Classic or the first version of Ethereum is a conserved system focused on bringing security while the upgraded version of Ethereum is a performance-oriented system. These differences are diversely discussed in detail as follows.

This is the most significant upgrade Ethereum 2.0 has to offer to its customers, where it switches its mode of operation and its proximity of action from the Proof-of-Work based consensus to a Proof-of-Stake consensus model. As the Ethereum Classic used the PoW based consensus mechanism, it operated with a high degree of security and value. Its significant features included a peer-to-peer blockchain network with a 50% fault-tolerance on the database states. The PoW based model brought a very substantial computational barrier for hackers and served as a proxy of value in the economy. Ethereum 2.0, on the other hand, operated entirely under the Proof-of-Stake consensus mechanism. It didn’t use mining as it’s prior and had a fault tolerance of 33%. Furthermore, it doesn’t constitute a computational barrier for hackers and serves as a proxy. Its property of minimal mining presents higher probabilities for scalability, which in turn drives a higher throughput.

The database model holds importance for covering the security aspects of blockchain networks. It is required that the blockchain replicates itself in as many nodes as possible. This extreme redundancy logically computes and protects the integrity of the database. Hence, the model of Ethereum Classic, which is preserved, ensures complete replication in all nodes. Ethereum 2.0 has driven itself towards more scalability. Thus it followed the process of “sharding,” which is the fragmentation of the database into minute clusters of nodes. This makes it a network of separate shards of data rather than fully replicated copies.

Blockchain technology is already known for its immutability, yet the conversion of Proof-of-Worto Proof-of-Stake brought a more secure Ethereum platform that solved the 51% attack problem. The design choices made in Ethereum 2.0 might’ve brought up more secure models and policies, yet they lack the probabilistic finality compared to the previous version. This, in turn, makes Ethereum 2.0 a less socially scalable platform due to its dependence over the subjective management of the network.

Ethereum 2.0 was built over with the motives of higher scalability; hence it tends to revolve around faster technologies. The use of the Proof-of-Stake consensus mechanism provides Ethereum 2.0 with a flexible monetary policy and increased average transaction processing. This shall make it comparable to traditional systems of PayPal or Visa over small transaction performances.

Proof-of-Stake has a flexible monetary policy with no restriction on the supply cap and the database is segmented smartly thereby more shards can process more transactions collectively.

As a comparison, Ethereum can currently manage almost 900,000 transactions per day. This makes it compatible with the global transactions processing system such as FedWire and Target 2.

Ethereum 2.0 is expected to be able to manage thousands of transactions per second. This means the transaction performance of Ethereum 2.0 can compete with centralized networks like PayPal, Visa, and Facebook cryptocurrency Libra.

Ethereum 2.0 is intending to swiftly develop into a much improved decentralized structure, where it will use “staking” similar to “mining” served in the previous version. The benefits of staking in the network allow users to earn excessive amounts of staking rewards. The recent structural plans of Ethereum 2.0 calls for the need of at least 32 ETH before staking on the network. It is predicted that with around five million ETH tokens staked, the percentage of the rewards would rise to about 14.7%. Users can use the recently launched ETH 2 Calculator by to evaluate their potential earning through staking.

If you want to begin the staking successfully, you are required to operate a validator node and initially deposit an ETH token. Ultimately, you can participate in the block creation. Validators are selected randomly from the Ethereum network to vote on new blocks. Afterward, the remaining validators consent on the result thereby the consensus is achieved.

Staking incentivizes its users with value-added rewards, but the actual rate of return is deliberately obfuscated from the active participants of the Ehtereum network. Ethereum developer Vitalik Buterik proposed an idea of an annual return of 15% to 18% that depends on how much ETH is staking across an entire Ethereum network.

Justin Drake, a lead developer and co-founder of an Ethereum network is a proponent of a 5% return for a validator. He further asserted gas returns and inflation must be incorporated in the annual returns. Ethereum 2.0 also penalizes its users to sustain the integrity and security of its platform. Small penalties are imposed on validators to encourage staying online for a prolonged time.

Aside from that, the Ethereum network has a very effective strategy to secure an entire network from malicious validators. A process is known as “Slashing” that will take away a portion of the validator’s stake and force them to leave the network. Thus, the network will remain safe from all the mall intentions of corrupt validators.

Needless to say, Ethereum 2.0 transition from the Proof-of-Work consensus to the Proof-of-Stake is highly promising as it ensures the saving of hefty cost incurred on valuable resources. Simply speaking, consensus algorithms is a set of rules that devise a reward mechanism for an untrusted validator to preserve the security and consistency of the blockchain network. An attacker could have to pay a hefty cost to compromise the blockchain network that’s why it’s economically infeasible to perform malicious attacks on the blockchain.

Proof-of-Stake is pretty much similar to Proof-of-work but it secures the blockchain by necessitating all the participants of the network to deposit Ethereum digital coins. It instructs all the validators to propose and vote on the newly created block of transactions. Validators are rewarded by providing them a good markup over their deposits if they strictly adhere to the protocol’s rules. If they act dishonestly, they are penalized by the confiscation of their deposits.

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The highly-anticipated upgrade to Ethereum 2.0 also called Serenity is supposed to revolutionise the blockchain landscape. It was supposed to be released in 3 phases but recently phase 1.5 has been added.

The introduction of Ethereum 2.0 in the digital market will be carried out in phases, which will initiate from Phase 0 in July 2020. This would be the launching of the beacon chain of the network. With the implementation of the Proof-of-Stake and management of the registry of validators, the attestation of blocks would come into existence on Ethereum 2.0. The original Ethereum PoW blockchain will tend to exist while the beacon chain won’t be useful for users of Ethereum in Phase 0.

It is anticipated that Phase 1 will be followed a year after the release of the beacon chain in Phase 0. It would be focused on the implementation of the shard chains and the scalability solution, as described before. Ethereum, which is capable of processing a single block at a time, will be partitioned into 64 separate blocks, which leads to a division of the data burden.

There will be another phase named Phase 1.5, where the original existing Ethereum blockchain will be merged with the new proof-of-stake chain. It will act as a complete integration of the older version with the new mechanisms.

With the mechanisms introduced in Phase 0, Phase 1, and Phase 1.5 this phase would focus on bringing improvements in ether accounts, transactions, withdrawals, and the Smart Contract execution.

A testnet of Ethereum 2.0 mainnet has been launched in the mid of April 2020, and Ethereum 2.0 phase 0 is expected to be released in July 2020, however the release date has still not been confirmed. The rest of the phases are expected to follow and currently Ethereum 2.0 is expected to be fully implemented by the end of 2021.

The price of Ethereum will be the same as the current version of Ethereum. Many people expect the price of Ethereum to rise once we get closer to the release. As Ethereum is migrating from Proof-of-Work to Proof-of-Stake, one would assume that many investors would try to buy at least 32 Ethereum as that is the minimum for running a validator. It is expected that many exchanges and staking services will set up these to provide Ethereum 2.0 staking on their platforms. In that case any amount of Ethereum would be accepted for staking rewards. The fact that you can stake would encourage investors not to sell and thereby the price would go up.

Ethereum 2.0 will try to eliminate the scalability concern of cryptocurrency and that is why it is anticipated as the perfect alternative to the traditional transaction processing systems.

It won’t be done with its evolution after the implementation of the motives in Phase 2. There are greater opportunities and contemporary paths that lead toward a more improved functionality of the Ethereum network. Ethereum 2.0 provides greater opportunities for its users to participate and receive rewards over the maintenance of the network.