The future of finance is cryptocurrency. The pace of doing business, transactions, and the building of a sustainable finance model are some of the things that are expected to speed up. One of the cryptocurrencies that are taking the world by storm is Ethereum. Ethereum is a blockchain that works on a Proof-of-work system. The verification and confirmation of transactions require a network-wide consensus by miners. They are rewarded for executing smart contracts and processing transactions.
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A while back the team at Ethereum recognized a need to upgrade their chain to improve scalability and reduce the stress on the environment. Here are some things you need to know about Eth 2.0.
- Proof-of-work to proof-of-stake model – A lot of resources are required to power the computing systems that make the blockchain possible. The users verifying the transactions were rewarded with Ether based on a proof-of-work system. Is working on a new model or Ethereum 2.0, which uses a proof-of-stake system as an alternative to proof-of-work, to minimize power consumption and work towards reducing the burden on resources. In proof of stake, the miner can validate the transactions based on the number of crypto coins he or she holds before actually starting the mining. So based on the accumulation of crypto coins the miner has beforehand, he or she has a higher probability of mining the block.
- Phase 0 – Phase 0 is all about staking. The Beacon Chain’s arrival will allow ETH holders to become ETH 2.0 validators and earn income on their staked ETH. Its sole purpose is to bootstrap ETH 2.0’s validator set and ensure that the network securely supports the features introduced in subsequent phases. Despite its minimalist features, the Beacon Chain will have real financial opportunities and consequences for stakers.
- Sharding – The splitting of a chain into shards improves efficiency as the validators maintain their own Shard’s information. Validators will be shuffled between shards for improved security and to avoid manipulation. The way to communicate between those shards would be called the Beacon Chain.
- The Beacon Chain – The Beacon Chain is made up of epochs that further break down into slots. A slot is a 12-second window during which a block can be added to the network.
- Better productivity due to PoS – PoS will make Eth a significantly more productive asset than it was under PoW. On the current chain, Eth has a store of value and commodity properties from its use as money and gas. On the new chain, Eth will also possess capital asset properties from its use in PoS.
- Fee structure – Yes, you heard that right. Ethereum will be charging lesser for transactions. This means the miner’s fee will go down too. However, the volume of transactions is expected to be more and the difference will make up for it. Reasonable costs and higher speeds will allow more types of security tokens and NFTs to come into play that did not fit into Eth 1.0.
- Debt and equity – Staking provides ETH with bond-like features which means it’s a type of digital agreement where Ethereum acts as a bond issuer and stakers act as bond-holders. Just like a regular bond, stakers provide capital to Ethereum and Ethereum pays stakers periodic rewards. The main difference is that stakers can redeem their ETH on command as opposed to having to wait until the maturity date.
- Minimum impact to issuance from Beacon Chain – Staking participation will likely start low and increase over time as holders gradually become more comfortable with the Beacon Chain and deposit more ETH into the deposit contract. This means that issuance could be extremely low in the first few months after the Beacon Chain launch before reaching their envisioned limits.
- Validator performance is rewarded – The Beacon Chain adopts a clever system of validator rewards and fines to avoid subpar execution. This encourages honest voting practices and high uptimes. Validators receive rewards for both producing and attesting blocks that receive supermajority support. The yield is driven by the number and the quality of validators.
- Key things to remember – PoS and sharding are complex processes. Simplicity allows Eth 2.0 to reduce development costs, minimize its attack surface, and convince users that protocol parameter choices are legitimate because they’re easier to understand. ETH 2.0 is designed with the idea in mind that once built, there should be little need to change it for long periods of time, in order to achieve the stability necessary for Ethereum to serve as public infrastructure. In order to achieve sufficiency, blockchains must have an expressive programming language, scalable data availability and computation, and fast block times.
The demand for Eth has increased and the price of 1 Ethereum to INR has gone up to 3,00,896 rupees at the end of 2021, as compared to 53,429 rupees when the year started.