Ethereum 2.0: The threat of emerging cryptocurrencies

Ethereum 2.0 is coming soon. It should be mentioned that Vitalik Buterin introduced Ethereum in  2015. Smart contracts and dApps of this network were considered a revolutionary technology. They have impulse developers to create communities around Ethereum and increase the use cases of blockchain. Thanks to the creation of smart contracts, people can make complex financial transactions involving digital assets like non-fungible tokens, or NFTs

However, Ethereum has been facing some negative effects in terms of efficiency, speed, and high fees involved in the transactions made on this platform. This is the reason why the creation of alternative blockchains such as Solana, Cardano o Binance Smart Chain were introduced to the market so these problems are solved. 

But, with the arrival of Ethereum 2.0, there are some changes and even some threats that new scaling solutions and new cryptocurrencies will face when entering the market.

So, in order to have a better understanding of what is Ethereum 2.0 all about, knowing when it is going to be launched, what are the differences between Ethereum 1.0 and Ethereum 2.0, and how much of a threat this new Ethereum update is, we have compiled all these answers on this article. 

What is Ethereum 2.0?

Ethereum 2.0, also known as ETH 2.0 or Serenity, is the first upgrade to the classic Ethereum blockchain that aims to increase the scalability, speed, and overall efficiency of the platform. This allows the transactions to have lower costs, process a higher volume of transactions, and make them more sustainable. This last point is relevant considering that this new update means it will help reduce around 98% of the total Ethereum’s energy consumption. In reference, Ethereum consumes 54.47 TWh per year, while the energy consumption of the country of Peru is 49.01 TWh per year.

If you already are in the Ethereum ecosystem and own ETH, you do not need to do anything to acquire this update, this update will run automatically behind the scenes.

In order to achieve this Ethereum 2.0 upgrade, there will be a switch taking place on this platform, going from proof-to-work (Pow) to proof-of-stake-consensus (PoS). 

Ethereum 2.0 release date

The initial release of Ethereum 2.0 was in 2019. However, since its announcement, the upgrade has undergone several delays in its development phase. 

In the latest Ethereum information, it was said that the merge between the mainnet with Ethereum 2.0’ s Beacon Chain which enables full staking is going to happen in August 2022. However, Preston Van Loon, Ethereum Core developer, has tempered this date expectation by saying that it would only happen if they do not have to move the EIP- 4345 Difficulty Bomb. 

Meanwhile, Andrew Keys, DARMA Capital said that the transition from proof-to-work (Pow) to proof-of-stake-consensus (PoS) will take place by mid-Q2 of 2022. 

Therefore, ETH 2 is still subjected to changes, even though it has already faced some delays.

Ethereum vs Ethereum 2.0: What are the differences?

There are some differences to highlight when it comes to Ethereum and Ethereum 2.0. The main differences between ETH 1.0 and ETH 2.0 are the following:

  • Proof of stake consensus mechanism: In Ethereum 1.0, it was used the proof-to-work (Pow). This is a mechanism that solves complex mathematical puzzles. Miners of Ethereum employ them when validating transactions. In this procedure, the miner who solves the riddle first is the one who wins the prize. An energy-intensive motivational system that aims to encourage innovation in the renewable energy sector. 

Meanwhile, Ethereum 2.0 will use proof of Stake (PoS), where validators (not only miners) can verify the transactions made. They validate transactions to place them in the block, and this block is then added to the blockchain network after having made some attestations. As it uses less computational power, it is more energy-efficient than the previous mechanism and the validators can get paid regularly in ETH. 

  • Sharding: Ethereum 2.0, different from Ethereum 1.0, will work under a new scaling solution named ‘sharding’. This means that Eth 2.0 will be divided into multiple shard chains. This system called ‘sharding’ allows the increase of efficiency as validators can keep track of their own Shard’s information. In order to ensure there is maximum security, and to avoid any manipulation that might occur on this platform, validators will not stay in the same shard all the time. They will be swapped between shards and communication among these shards can take place via the Beacon Chain. 

The future of ETH 2

Despite the criticisms of Ethereum 1.0, this blockchain could be considered the foundation of decentralized finance, the home of several projects built on the Ethereum mainnet since the first appearance of the crypto boom. This is why around 79.23% of all dApps are built on Ethereum. Also, looking at the total value locked (TVL) in the DeFi industry, Ethereum accounts for US$77.2 billion, over 75% of the TVL. Meanwhile, Binance Smart Chain, second to Ethereum, represents US$17.9 billion, only a TVL of 17%.

The Ethereum dominance in the market is clear, meaning that the Ethereum 2.0 could be considered one of the most important upgrades in the DeFi industry. Considering that the upgrade is going as planned, the ETH market is unlikely to loosen. 

But, as mentioned before, Ethereum 2.0 has also suffered from several delays. This is why scaling solutions such as Polygon Layer 2 Solution were created so people can have a temporary solution while they wait for the arrival of ETH 2. Scaling solutions and alternative blockchain networks can still capture more market share and diminish the dominance of Ethereum while it is not officially launched. 

Is ETH 2 a threat?

With the launch of Ethereum 2.0, it does not mean there is no room for other scaling solutions or the appearance of new cryptocurrencies. They will face some level of threat of entry as Ethereum is a well-established blockchain. 

However, the DeFi industry grows 88x per year, leaving room for different digital platforms to contribute and coexist in the era of Web 3.0. Looking at the future of decentralized finance, it seems that it is going to be based on multiple robust networks, not built on a single dominant entity.