In its current form, Ethereum cannot compete with Fiat systems such as VISA. Here we come to the advent of ETH 2.0 or Ethereum 2.0.
Eth2 refers to a series of upgrades to the Ethereum platform that are currently being worked on. The three main objectives of these upgrades are increased scalability, security and sustainability. These objectives are being achieved in two main ways, the introduction of sharding and the migration to a new consensus mechanism known as proof-of-stake.
Sharding is a computer science technique used to distribute the load on a particular network. In Ethereum’s case, the idea is to spread the transactional and contractional data processing load across 64 different chains. It is hoped that this technique will improve Ethereum’s capacity to process transactions to up to 100,000 per second.
Proof-of-stake is an alternative way for blockchains to achieve consensus. These are known as consensus mechanisms. Up until now, Bitcoin and Ethereum have used a mechanism known as proof-of-work.
Proof-of-work is very costly in terms of computer processing power which translates to high energy costs. It also risks the network being corrupted if mining centres grouped together and took control of more than 50% of the network.
Proof-of-stake aims to address these two problems by randomising the consensus burden rather than having it as a competition. Switching to proof of stake will see a transition from miners to validators. There will still be a reward for confirming transactions; however, it will be more of a random selection than proof-of-work.
As we saw earlier Ethereum’s transaction fees are known as Gas and naturally, these fees fluctuate with demand and are limited by Ethereum’s transaction processing limitations. Increased demand and a limited supply are a recipe for high fees.
It is hoped that the Eth 2.0 upgrades will dramatically increase Ethereum’s capacity to process transactions and therefore Gas fees (transaction fees) will become much lower.
Through these two main upgrades and a promise of a more easily upgradeable infrastructure, Ethereum 2.0 aims to be the platform that Vitalik initially envisioned for Ethereum. The community launched the first phase of Eth2 in December 2020, and the full rollout is planned to take place over the next two years.
It remains to be seen if Ethereum can fulfil its promise of being the ‘world’s computer’, but you certainly can’t fault them for their ambition.
Leave a Reply