What Was Ethereum 2.0?

What Was Ethereum 2.0?

Ethereum's history is rich with significant developments and notable incidents, marked by both progress and challenges. In mid-September 2022, the network transitioned from the proof-of-work (PoW) model to proof-of-stake (PoS), aiming to reduce its energy consumption, improve scalability, and shorten transaction times.

This upgrade was initially known as Ethereum 2.0, a term used to describe the network's evolution into a more efficient and accessible system. However, the term has since fallen out of use, as the blockchain community views the upgrade as a natural progression in Ethereum's ongoing development rather than a completely new phase.

• Ethereum 2.0 significantly upgraded the Ethereum network, shifting the network to proof-of-stake from the proof-of-work model.
• Ethereum 2.0 aimed to improve the network’s scalability, accessibility, and transaction throughput.
• It will take more work and several upgrades to get to the version that fulfills the promise of more than 100,000 per second and increased scalability.

What Was Ethereum 2.0?

Ethereum 2.0 was a term often used to describe a series of upgrades aimed at addressing some of Ethereum's biggest technical challenges. However, it was more of an informal label, and the community doesn't really recognize it as an official name for the blockchain or network. Instead, the Ethereum Foundation prefers to simply refer to the upgraded blockchain as Ethereum. The new system is divided into two layers: the consensus layer, known as ETH 2, and the execution layer, referred to as ETH 1.1.

The idea of Ethereum 2.0 had been in the works for several years, so the upgrade wasn't a single event. It officially began with the launch of the Beacon Chain in December 2020. This allowed ether (ETH), Ethereum's native token, to be staked.

Staking involves locking up tokens and keeping them out of circulation in exchange for the opportunity to participate in the network's consensus and validation processes. Those who stake their ether earn rewards in the form of fees paid in ETH.

Why Move to Ethereum 2.0?

This Ethereum upgrade was complex, but the network needed it for several reasons. The Ethereum network was bogged down by technical limitations—namely network congestion, scalability, and accessibility.

Improvements in these areas were and remain critical if Ethereum is to reach a wider level of adoption. Ethereum is the blockchain many smart-contract-based decentralized applications (dApps) are housed on, and these have applications in finance, real estate, supply chains, and governance, among many others.

But to have the intended scalability across all industries and uses, the blockchain needed to be able to handle network interactions on a much larger scale.

How Did Ethereum 2.0 Change Things?

The Ethereum network faced bottlenecks due to the sheer volume of activity on the blockchain. For example, gas fees—the payments made to miners for processing transactions—sometimes soared to extremely high levels. However, with the upgrade and the shift to staking, these fees have improved as validators began staking their ether.

To run a solo validation node, validators need to lock in 32 ETH to activate it. However, anyone can stake any amount of ETH by joining a staking pool or using an exchange that offers staking services.

The PoS model is both faster and more eco-friendly than PoW, as it consumes significantly less power. Unlike PoW, where miners compete to solve complex mathematical puzzles to validate transactions, PoS randomly selects nodes to validate transactions and create new blocks, which drastically reduces the energy required.

As of May 2024, the Ethereum network processes around 14 transactions per second. Despite this modest number, developers remain optimistic, promising that future updates could boost this capacity to 100,000 transactions per second.

Achieving this level of scalability, necessary for the numerous applications developers envision for the blockchain, will require another major update. This update will introduce proto-danksharding and danksharding, which will replace rollups with blobs and distributed data sampling. Rollups currently offload transactions off-chain for verification, but they are costly for nodes as they are permanently recorded on the blockchain. This can bloat the blockchain, slowing down the network and requiring node operators to invest in more powerful equipment. In contrast, blobs will not be stored on the blockchain indefinitely, preventing this potential bloat.

Will ETH 2.0 Make ETH Worthless? Ethereum 2.0 marked the most significant change in the network’s history, paving the way for a future where Ethereum can efficiently handle a wide range of applications and become more accessible to the public. When the Merge occurred on September 15, 2022, it didn't significantly impact ETH’s price, largely because the entire market had already seen a decline.

How Much Energy Will Ethereum 2.0 Save? The shift from proof-of-work to proof-of-stake drastically reduced Ethereum’s energy consumption by 99.95%, highlighting the stark efficiency difference between staking and mining.

Will Ethereum 2.0 Overtake Bitcoin? Bitcoin, designed primarily as a payment method, remains the most popular cryptocurrency. On the other hand, Ethereum serves as a scalable global platform where developers can build blockchain-related projects. Its native token, ether, is used for transaction fees and holds market value. Whether Ethereum will surpass Bitcoin in market value or usage is uncertain, as both cryptocurrencies have distinct purposes and strengths.

The Bottom Line The transition to proof-of-stake represents the most significant evolution in Ethereum’s history. However, it’s essential to understand that this change wasn’t about creating new investment opportunities or adding value to the cryptocurrency. Instead, it was about transitioning the blockchain to a more efficient model.

The Ethereum Foundation likened the transition to this: "Imagine Ethereum is a spaceship that isn't quite ready for an interstellar voyage. With the Beacon Chain, the community has built a new engine and a hardened hull. After significant testing, it's almost time to hot-swap the new engine for the old mid-flight." The upgrade has been implemented, but developers continue to work on refining the network, with the understanding that there might never be a final version.