The Ethereum network is upgrading to a Proof-of-Stake consensus algorithm. This upgrade is known as “The Merge.”
This guide will explain what the upgrade means, why it’s happening, and its benefits. We have also recommended some of the best places to buy Ethereum.
What is Ethereum 2.0?
Ethereum 2.0 is the latest upgrade to the Ethereum blockchain network. It describes the sets of updates happening on the Ethereum network, the first of which is merging the Ethereum network with the Beacon Chain.
The upgrade also involves transitioning the mining consensus from a Proof-of-Work (PoW) consensus to Proof-of-Stake (PoS). Subsequent updates, such as “Sharding,” will take effect in the coming years.
What Exactly is Being Merged?
Developers are merging the Ethereum network, the execution layer, with the Beacon Chain, a consensus layer.
The Beacon Chain works as a layer independent of the Ethereum network to facilitate fast transactions.
The Ethereum network currently utilizes a Proof-of-Work (PoW) model to validate blocks (i.e., to confirm and record transactions made on the network). Under this model, validators compete using powerful machines to validate the next block.
After the upgrade, validators will only mine blocks using Beacon Chain via a “Proof-of-Stake (PoS)” model. The Beacon Chain will be responsible for picking validators and coordinating block validation and other related activities.
What are Proof-of-Work (PoW) and Proof-of-Stake (PoS)
“PoS” and “PoW” are the common models blockchains use to validate and record transactions.
“PoW” requires validators to solve complex math problems. The validator who correctly solves the problem first receives the right to validate and create blocks.
Validators in a PoW network go for fast, sophisticated, expensive mining rigs to ensure they can mine blocks. These rigs also consume a lot of energy. The more computing power and speed they possess, the more likely the network will pick them to produce the next block.
This model makes block validation capital and energy intensive. It also creates a high barrier to entry for anyone looking to become a validator.
On the other hand, “Proof of Stake (PoS)” requires validators to stake some of the underlying assets on the blockchain network. The mechanism chooses validators randomly.
This model does not require extreme amounts of computing power or energy-intensive mining rigs. All validators need to do is stake the maximum amount of assets required to participate in securing the network.
How Will Validation on Ethereum 2.0 Work?
The Beacon Chain will randomly select a group of validators every twelve seconds and designate their roles. This group will be 1/32nd of all validators on the network.
One of the selected validators serves as the block proposer. While the other validators are the attesters. The block proposer’s role is to propose a block to be validated. The attesters will attest (validate) to the validity of the block proposed by the block proposer.
Everyone who stakes their ETH as validators earns rewards when participating in the block validation. The rewards come from block rewards and transaction fees generated by the network.
Everyone shares equally in the block rewards regardless of whether they are among the chosen group of validators.
What are the Benefits of the Ethereum 2.0 Upgrade?
Ethereum 2.0 upgrade will transition the network from the Proof-of-Work model to the Proof-of-Stake model. It offers numerous benefits, some of which are:
● Easier hardware requirement
The current PoW scheme requires high output graphic cards. These cards are expensive to obtain and cause the network to depend on supply chain dynamics.
With Ethereum 2.0, people can participate in securing the network with standard, less expensive hardware such as standard laptops.
● Reduced risk of centralization
The need for specialized hardware made validation the exclusive domain of a select few due to the high cost of purchasing this required equipment.
After The Merge, the hardware requirements will be easy for most people to participate in network security and create a more robust chain.
● Less ETH issuance
Since validators will need less expensive hardware and energy to secure the network, they will not require as much incentive to secure the network. The issuance of Ethereum tokens will drop by 90%, from 4.3% to 0.43%.
● Penalizes malicious behavior
The costly penalty (slashing of staked ETH) makes it expensive for malicious actors to perpetuate their attacks on the Ethereum network.
Furthermore, malevolent actors can be removed from the pool of validators. After which, they can only get back in after a few weeks.
● Makes Sharding possible
Ethereum 2.0 is only a starting point for the new developments coming to the Ethereum network. One such development is Sharding.
With the Beacon Chain coordinating all validating activities, the network will be able to accommodate and provide consensus on multiple shards of the network.
● Energy efficiency
Under this new model, validators will use 99.95% less computing power to secure the network.
● Environment Friendly
Due to the PoW’s high energy requirement, some miners have to use fossil fuels to generate energy. This impacts the environment significantly because fossil fuels have a high carbon footprint. The Ethereum network will substantially reduce its carbon footprint by transitioning into a PoS model.
When Will the Upgrade from Ethereum to Ethereum 2.0 (ETH 2) Take Place?
We expect the Ethereum upgrade to go live in 2022. The Ethereum core team has set September 19, 2022, as the tentative launch date. The final Testnet will undergo merging on August 11.
Once the final Testnet merging is complete without any hitch, the next step will be merging the Ethereum Mainnet.
Should You Change Your Investment Strategy Because of the Ethereum Upgrade?
It is a little too early to switch investment strategies. It will take a while for the market to react fully to the developments coming to the Ethereum network.
If investing in ETH or similar technology, you must have a long-term plan. Those with high-risk appetites can engage in speculative trading.
If you own Ethereum and your strategy is to keep increasing your assets, it may be wise to continue. However, you should also increase your knowledge about crypto and blockchain tech to make sound, profitable decisions.
Those who are looking to invest in Ethereum can do so now. However, financial experts warn against investing more than 5% of your investment portfolio in cryptocurrency. This precaution may not apply to experienced investors with no debt and higher risk tolerance.
Furthermore, you might want to look into Ethereum stacking when the network transitions fully into PoS. You may be able to earn more by staking your ETH on the network.
Recommended Places to Buy and Store Ethereum
Are you looking for excellent, easy-to-use platforms to buy Ethereum? We’ve got some great recommendations for you.
- Morpher: Morpher allows you to buy and trade tokens 24/7. You can use the desktop application or mobile app or choose both. It features zero Fees, liquid markets, verifiable executions, and no counterparties.
- Ledger: Ledger is a hardware wallet. It offers the best level of protection for your crypto assets and supports securely buying and exchanging crypto assets. It is an excellent choice for daily management and long-term secure storage.
- Binance Lite: Binance Lite is one of our top recommendations for beginners who want to invest in cryptocurrency. It is easy to use and offers all the great features Binance has in a beginner-friendly interface. You can enjoy some of the lowest fees in the crypto market, test your trading skills and grow your crypto portfolio.
- Coinmetro: Coinmetro offers an excellent crypto platform for beginners and seasoned traders. You can instantly buy Ethereum, Bitcoin, and other crypto assets with a credit card. Pro traders will love the advanced trading tools and indicators. In contrast, beginner traders can choose to auto-copy other professional and successful traders. Coinmetro complies with crypto regulations in the EU, USA, and Australia.
The Ethereum upgrade (Ethereum 2.0) offers excellent benefits such as decentralization and improved security. The major highlight is the network transition from a PoW model into a PoS model. In this article, we have highlighted what the upgrade entails and the major benefits.