Ethereum 2.0: When Is It Coming and What Will Change?

Whispers of Ethereum’s long-awaited upgrade have permeated the crypto space for months, if not years. But now, talk of Ethereum 2.0 is finally serious, with founder Vitalik Buterin actually revealing that the network upgrade could come in September 2022.

So, what is Ethereum 2.0 exactly? And how will it affect the cryptocurrency market? Let’s take a closer look at the upgrade and how it will reshape the crypto space.

Why Does It Matter Now?

Understanding what Ethereum 2.0 is and what it will mean for the cryptocurrency market is time-sensitive. Why? To put it simply, this may be a golden opportunity in the making — it’ll be a shame to miss it.

Right now, the crypto market is in a slump. It has been in one ever since central banks around the globe started tightening their monetary policies in response to sky-high inflation. Essentially, right now it’s a good time for buying the dip, particularly if you expect a price increase in the near future.

So, if you were considering investing in Ethereum, it might be good to do it now, before the upgrade goes live. You can benefit from its somewhat lower price because after Ethereum 2.0 arrives, its price might explode again. If you’re tired of being a bystander and wish to “benefit from the fantastic opportunities the cryptocurrency market has to offer,” as Immediate Edge put it, the time might just be now.

Why do we think Ethereum will rise again? It all has to do with how much better Ethereum 2.0 is supposed to be than the current network. Let’s see why in the following section.

Ethereum 2.0: the Upgrade

As the second blockchain cryptocurrency network ever created, Ethereum is considered an old dog. Indeed, it has been more than seven years since its 2015 launch — an upgrade is long overdue.

In the time since Ethereum appeared, lots of other blockchains joined the crypto market. Each one brought a host of innovations, building off of Bitcoin and Ethereum. As newer blockchains addressed the flaws of their predecessors, networks like Ethereum began to lose some of their lustre. 

While being first certainly has many advantages — Bitcoin and Ethereum are far more famous than some of the newer players — you also run the risk of watching everyone else do what you did better than you. That is especially the case for consensus mechanisms, i.e., the protocols networks use to validate transactions.

Generally speaking, older blockchains use proof-of-work to keep the network secure. Yes, this includes Bitcoin and Ethereum. But by today’s blockchain standards, proof-of-work is old news and has too many disadvantages.

Block Validation

To better understand consensus mechanisms, we need to briefly look at how validation works. As the name suggests, a blockchain consists of data organised in blocks that are sequentially linked to one another. Each block has a unique identifier (hash) that keeps things neat and indicates the relationship between blocks in the chain. 

As people transact with a given cryptocurrency, more data must be added to the chain. In other words, more blocks are created. But to ensure there is no fraud, all computer nodes connected to the blockchain network must constantly check the blocks to ensure they are valid before they accept and add them to the blockchain. That’s what cryptocurrency mining really is — validating blocks to keep scam transactions at bay.

The Proof-of-Work Consensus Mechanism

With PoW networks, the most powerful computers have the highest chance of getting a reward, i.e., to mine a new ether coin. The idea behind PoW is that whoever works the hardest deserves the highest reward. 

While this makes sense logically, it’s not very efficient in reality. Mining is a slow, arduous process and consumes large amounts of energy. Plus, with the rise of crypto farms, where organisations run thousands of nodes jointly, individual miners stand no chance. 

Overall, crypto mining is a costly process. It requires both expensive hardware (lots of it) and high amounts of electricity, driving utility bills through the roof. For that reason, proof-of-work networks have faced a lot of backlash for their negative impact on the environment. 

That’s where Ethereum 2.0 comes in: the network plans to abandon PoW and switch to Proof-of-stake instead.

What’s Proof-of-Stake?

Proof-of-stake is an alternative consensus mechanism that disregards how much work you do. Instead, the validation rewards go to a group of users who have ‘purchased’ the right to validate blocks by staking their tokens.

For example, you might have to stake 1,000 ETH to qualify as a validator. Please note that this is just a random number; we don’t actually know what the staking requirements will be yet. So, you stake 1,000 ETH — they get locked in a smart contract, and you can’t use or spend them. Then, you perform the validation, get your ether reward, and the original coins you staked are released to you as the smart contract expires. 

Essentially, what you stake works as collateral. If you validate a faulty transaction, the network will take what you staked, and you’ll be at a huge loss. That’s how the blockchain ensures validators will have no interest in cheating the system — the punishment is just too severe.

But won’t PoS benefit the richest users only? After all, you need to already own a lot of tokens to become a validator — what if you get chosen every single time and just keep getting richer? 

Those are valid concerns. But as we’ve seen with other PoS networks, there are mechanisms to ensure there are always multiple validators and that their identity switches at intervals. As a result, new people can join all the time instead of relying on the same nodes to validate transactions over and over again. So, in practice, no one can monopolise the blockchain.

But Does It Work?

That’s the question, isn’t it? Many people might wonder if such a large-scale upgrade won’t just “break” the blockchain. 

Luckily, Ethereum 2.0 has been running as a test environment since April. Thus, developers have reviewed months’ worth of performance data to rule out bugs and other problems. It seems they are now satisfied with how the blockchain performs to a degree where they can make the changes live.

How Will Ethereum Be Affected by the Upgrade?

The overall response of the crypto community has been quite positive. Though proof-of-stake protocols are not perfect, many see them as superior to PoW. That’s why with these changes, it seems Ethereum is moving in the right direction for the majority of crypto enthusiasts.

Even though the upgrade hasn’t happened yet, Ether is already up in price. Forbes reports that the value of Ethereum is already up 12% in anticipation of the switch. It might not seem like much, but considering how low all cryptocurrencies have been trading for the past year, it’s a feat few tokens can boast of.

In fact, in that same interview, Vitalik Buterin said that he thinks the change has not been fully priced in yet. In other words, Ethereum might be undervalued as the market has not realised just how good the upgrade will be for the network.

So, What’s the Timeline for the Upgrade?

As is often the case with technology, dates are not set in stone. Nevertheless, Buterin said the merge would likely begin around the 6th of September. It may take a few weeks for the upgrade to roll out completely.

As a result, September will likely be a month of high volatility for Ethereum. Proceed with caution if you trade ether during that time. Remember that all investments pose a risk to your capital. Research your deals carefully and think twice before entering any positions.