A Deep Dive into ETH 2.0
We all know what Ethereum has brought to the crypto-world, and now, the new and improved Ethereum 2.0 promises more than what its predecessor had to offer. Eth 2.0 is expected to launch in 2020, and it marks the anticipated upgrades in the Ethereum public blockchain network.
So, what will do we expect to happen in the upgrade? That said, this article is in your best interest. But first, let’s take a summary of what Ethereum is and how it has affected the cryptocurrency world.
What is Ethereum?
Ethereum happens to be the second-largest crypto network next to bitcoin. What’s more, it’s a decentralized open-source network that features smart functionality. The founders of this crypto are Vitalik Buterik and Gavin Wood.
The most outstanding feature, which also is the lucrative nature of Ethereum, is its DApps capability. You can essentially create an application or even an entire blockchain to run on top of the Ethereum base code.
That has given most entrepreneurs a chance to create several tokens on the Ethereum blockchain network. Now, the Ethereum 2.0 also promises to provide the public with a better version of the blockchain with additional security. But what does that mean? Well, let’s take a look at what is ETH 2.0
What is ETH 2.0?
Simply put, ETH 2.0 is one of the significant upgrades in the Ethereum blockchain that’s designed to accelerate the mass adoption and also usage by improving the speeds. In a time when speed is everything, this will surely sky-rocket the prices of the blockchain and also increase the adoption of the coin.
History of the ETH 2.0
For those who are new to ETH 2.0, you should know that this is not a new concept to the Ethereum community. Change in the underlying mechanism of the blockchain to address the restrictions in the POW (Proof of Work) has always existed in this system since the launch of the blockchain. The Ethereum 2.0 arrives when the main net is scheduled for upgrades.
This main upgrade is specifically essential compared to the other updates, thanks to the implementation of the POS (Proof of Stake). This is a relatively new feature that will be incorporated into the main net and will move the blockchain upwards from its POW architecture.
Proof of Stake
POS is the most significant change in ETH 2.0. That’s because it gives the crypto an incentive structure that will help in the validation of the blockchain. Currently, Ethereum’s mainframe is maintained by the POW. In fact, the mechanisms of the POW are well known to the blockchain community. It’s a structure that’s used to validate other blockchain today, for instance, Litecoin, Bitcoin, and more.
In the POW, miners run the nodes and expend the computational energy to help solve complex mathematical equations as they compete to mine the next block. The time and electrical energy the miners use to validate the equation; hence mining the block is rewarded by blocks. In addition to that, the POW chains are incredibly secure. For you to compromise, a well-known POW blockchain will cost a lot of money.
However, as much as the POW is secure, it suffers from problems such as scalability and accessibility issues. On that note, the POS replaces two significant components of the Ethereum blockchain, which is the electricity and the miners. Instead, you will get validators and stakes.
Vaguely speaking, the validators will permanently replace the miners who will agree to maintain the block by receiving rewards for randomly selected data of the block.
Benefits of the ETH 2.0
Crypto-enthusiasts believe that the ETH 2.0 will have a positive impact on the price of the ETH and also the trading volumes. Without a doubt, staking will open a wide range of investment opportunities to the network and for those who prefer to buy and hold their ETH coins for the future. Most crypto experts predict that staking will help stabilize the cryptocurrency prices, and it will encourage users to set limits and sell orders.
Another benefit from the ETH 2.0 is that the launch update will reduce the costs and also help in speeding up the transactions at the price of a drop in gas. However, even with all these advantages, the ETH 2.0 also brings with it a set of risks and challenges that could potentially affect everyone in the network.
You’ll lose your ETH if you don’t stake hard
One of the most significant risks that come with the ETH 2.0 relates to the high requirements for the stakers and also the urge to freeze your funds so you can be eligible for transactions. As much as staking rewards, the participants also increase the security in the network; it also has a hidden element that most of the users do not fully understand.
That said, the lack of understanding and the complexity involved in the new staking version will potentially lead to loss of the withdrawal keys. In addition to that, you are also prone to taking incorrect procedures when trying to transfer your funds.
Another significant risk is how to connect the Ethereum 1.0 to 2.0. That’s because you are prone to the lock-up risk. What do I mean? Well, the new 2.0 version allows you to stake your ETH to the new ETH 2.0. However, in case of any swings in the prices, users might be unable to sell your assets hence making it hard to limit the losses.
In such a case, using a third party will work for you. But you also need to understand that when you are using a staking pool, someone else can also gain access to your funds. Such potential risks should be well known to the ETH traders.
To wrap it all up
The new ETH 2.0 comes with upgrades that will surely benefit the whole crypto community, let alone holders of the ETH coin. On top of that, it will also increase the mass adoption of cryptocurrencies. However, we should all understand the potential risks involves, and whenever possible, we need to find ways to avoid them. All in all, the ETH 2.0 is around the corner, and it will launch sooner than you think. Stick around for more interesting topics on the same.
