The PoW consensus mechanism ecology of ETH1.0 has formed a larger system, ETH1.0 will continue to exist, and the construction of 2.0 will proceed steadily.
On June 24, the Ethereum testnet launched the London upgrade. Within one day, 100,000 Ethereum was pledged on ETH2.0, worth about 200 million U.S. dollars. The opening of the London upgrade means that the arrival of ETH2.0 is also increasing. The closer it is.
As the king of blockchain public chain applications, Ethereum launched the ETH2.0 testnet at the end of April 2020. After half a year of testing, it officially launched its 2.0 mainnet in December, which marks the official era of Ethereum 2.0. begin.
Ethereum 2.0 is a major upgrade to the current Ethereum 1.0 mainnet. It aims to accelerate the use and application of Ethereum by improving its performance, including scalability, security, and sustainability .
Ethereum 2.0 will be mainly divided into four “Phases” for release, and in each phase, the functions and performance of Ethereum will be improved in different ways.
Unlike 1.0, these upgrades are led by multiple different teams in the Ethereum ecosystem. Each team focuses on building a specific part of the entire upgrade, which is like the release of a company’s product.
Phase 0 : This is the first phase of Ethereum 2.0, focusing on the launch of the beacon chain.
Phase 1 : The focus of this phase is sharding or data sharding as we will describe later.
Stage 1.5 : The focus of this stage is to connect 64 shard chains to the beacon chain, making the current ether chain one of the shards, with a total of 65 chains.
Phase 2 : At this stage, Ethereum begins the integration and improvement of the system, and gradually completes 2.0.
As the leader of the public chain, Ethereum has far surpassed other public chains in market value and transaction volume, and has always been firmly in the position of the “big man” in the public chain.
Then why do you need to upgrade to Ethereum 2.0?
1. Demands and trends
From the data provided by Etherscan.io, it can be seen that from the beginning of the establishment to the present, the transaction on the Ethereum chain has increased by a thousand times. The daily maximum transaction volume is nearly 1,300 times the minimum transaction volume, and the growth rate is extremely fast. The high growth rate of Ethereum also makes the demand of Ethereum high growth.
As a platform that carries users and applications, the value of the public chain is actually reflected in users and their applications. Commercial value is the foundation of the existence of the public chain. With the increase of users and applications, more funds and traffic will flow into the public chain, thus attracting more high-quality applications to be deployed and developed on the chain, which will attract more users. Form a good circulation effect.
However, as more and more users recognize and use blockchain technology, people have more requirements for technology and applications. From the perspective of the application development of blockchain, users’ demand for blockchain is more reflected in privacy and new application types based on this, which mainly include security and transparent application requirements, and a wider range of financial services. demand.
On the one hand, with the development of the Internet, users have become more and more demanding for privacy protection, and they are also accustomed to performing activities in this secret state. Therefore, a brand-new Internet application that can ensure security and transparency, but also achieve privacy Become a strong demand from users.
The world of blockchain is an open and transparent world. This feature can generate application value in many fields, such as traceability, but for finance, it may not be an advantage but a disadvantage.
The data shows that since February 2021, the amount of TVL locked on the Ethereum chain has basically remained above 40 billion U.S. dollars, and reached a high of nearly 54.5 billion U.S. dollars in mid-April.
Financial applications are the basic applications for the development of Ethereum, which promotes the development of Ethereum. The blockchain world is too open and transparent. Obviously this will become an important restriction on financial development and make users have some scruples. This is also an important restriction on the development of Ethereum. factor.
Therefore, how to achieve better privacy protection while ensuring security is actually the focus of the exploration of blockchain financial applications. For Ethereum, which is occupied by more than half of the country, this shows the future direction of Ethereum. One.
2. The threat of the rise of similar public chains
The public chain plays the role of the underlying infrastructure in the blockchain industry, and it has always been one of the most competitive directions in the industry. In the past, people thought that because Ethereum had formed its own ecological barrier, it was difficult for other public chains with similar functions and positioning to threaten it.
But now, unlike what was expected in the past, this type of public chain has begun to rise and has gained a lot of traffic and users, which poses a great threat to Ethereum to some extent.
In the past, the goal of public chains was to kill ETH, but now the goals of public chains are more extensible. They are characterized by compatibility with EVM and belong to the category of Ethereum-linked public chains. This type of public chain refers to whether it is in the execution environment. Or in terms of application design, public chains that are very similar to Ethereum or imitated public chains.
Now, they are gradually emerging, such as SOL, HECO, and BSC. Among them, the BSC chain is the leading one. At this stage, it is also the most threatening to the public chain of Ethereum. Why these public chains can threaten Ethereum is nothing more than:
(1) Due to network congestion on the Ethereum chain, the gas fee for redemption on the chain is too high, and these public chains have low handling fees and can meet the needs of a large number of small-capital users.
According to Bscscan.io, the BSC chain can process more than 50 exchanges per second, processing a total of more than 550 million transactions, which is obviously higher than the current number of transactions processed by Ethereum (approximately 10-20 transactions per second). Much.
(2) Some of the new public chains represented by BSC are compatible with the Ethereum EVM, and after a considerable period of polishing, the infrastructure has been relatively mature and mature.
(3) Public chains like BSC and SOL are supported by powerful ” funders” like Binance and FTX platforms, so they can largely benefit from “natural” user dividends and financial support.
The introduction of a large number of user traffic and the spare funds to support these public chains can grow rapidly, but the most essential thing is that due to the low conversion efficiency of the current Ethereum ecosystem, network congestion has led to high handling fees, which makes it difficult for ordinary users. Daily interactions continue through the Ethereum public chain, which leads to the overflow of users and funds, and gives a great opportunity for the rise and development of similar public chains with similar functions and applications.
This is a further “remind” that Ethereum needs to enter ETH2.0 as soon as possible to solve the network congestion problem, improve efficiency, and reduce its transaction fees, so that it can secure its “throne”.
3. Ethereum itself
Ethereum’s low efficiency and high exchange fees have been criticized for a long time, and there are many development teams to develop related applications in order to solve these problems.
At present, the most successful is Flashbots developed with the support of the Paradigm Foundation launched some time ago. By attacking the preemptive exchange robots on Ethereum, it reduces the negative external impact of MEV (miner extractable value) on the smart contract blockchain. Risk to significantly reduce transaction fees on the Ethereum chain.
According to data from Etherscan.io, the average gas price of Ethereum has dropped significantly from the highest point in April at 166Gwei on April 19, after Flashbots was officially launched on April 20, and the daily average gas price in mid-to-late April The fee is about 50Gwei.
However, the gas fee of Ethereum has risen rapidly after the beginning of May, and when there are a large number of frequent exchanges on the chain, its gas fee has risen rapidly.
For example, on the evening of May 19, due to the violent market fluctuations, the Ethereum Gas fee rose extremely fast. According to the data, it quickly confirmed that the Gas fee once rose above 2000GWei.
Although Ethereum can improve exchange efficiency and reduce fees to a certain extent by using external applications, when a large number of on-chain transaction needs arise, it will still cause those “old problems” on the Ethereum chain.
Therefore, if Ethereum wants to solve this problem more thoroughly, it still has to solve it fundamentally, that is, to improve and solve this problem from within the Ethereum public chain. Therefore, whether from an external or internal perspective, the upgrade of Ethereum is a rigid demand, and many factors promote the need to accelerate its pace.
Major upgrades of ETH2.0
Performance greatly limits the number of Ethereum transactions and inhibits the growth of public chain users. Ethereum has focused on targeted solutions in this 2.0 upgrade, the most important of which is the addition of two new technologies/mechanisms: Shard Chains and Proof of Stake.
1. Sharding chain
The shard chain is a scalability mechanism that can greatly increase the throughput of the Ethereum blockchain.
At present, Ethereum generally can only process more than a dozen exchanges per second, which is very inefficient. The purpose of sharding is to divide all network computing resources into shards, so that nodes do not need to process, calculate, store, and read. Take each exchange in the blockchain history for a new exchange (write and upload).
In Ethereum 2.0, each “shard” is basically an independent new chain, which will directly solve the scalability and efficiency problems of Ethereum, because sharding will greatly increase the workload of the network.
A new proof-of-stake network is basically created through the beacon chain and runs in parallel with the current Ethereum network. As a hub chain, the beacon chain will become a segment to communicate with other 64 segments in two-way for information transfer.
Through two-way communication, a shard block will have a much higher amount of data than the current ETH1.0 chain block can hold. Most importantly, each Ethereum node only needs to run one shard.
This means that only a small part of the data is stored, and the node can be operated more easily without powerful hardware. The easy operation of the node will attract more network participants, bringing more decentralization and higher security.
But initially, sharding will only provide additional data, and the sharding chain cannot handle exchanges or smart contracts. At this time, you may have such a question: How can sharding improve scalability without processing? This is because of the expansion of Layer 2-especially Rollups.
Rollups is an extended solution of Layer 2. Through Rollups, all redemption status and execution are performed off-chain, while the Ethereum main chain only stores transaction data.
Rollups allows off-chain packaging, exchange and execution of smart contracts, generating encrypted proofs and submitting them to the chain. This process requires only one available data shard to store the proof, which means it can be used with the initial version of the shard. The mixture of data sharding and Rollups makes it possible for Ethereum to process more than 100,000 transactions per second.
Rollups is also considered to be the most ideal expansion plan at present.
2. Proof of equity
The current operation of the Ethereum network is based on Proof of Work (PoW), which requires a lot of computing power and energy. In Ethereum 2.0, Proof of Stake (PoS) will be used to replace Proof of Work that consumes a lot of energy.
Proof-of-stake (PoS) 2.0 improves the security and scalability of the network, and is more resource-saving. After entering the proof-of-stake (PoS) mechanism, it will rely on verifiers and pledge ETH to build new blocks. By replacing a large number of mining equipment with a smol server, the miners are replaced with validators.
Proof of equity attempts to solve the power consumption problem by completely detaching from miners. It will protect the network security by relying on economic incentives. This will reduce the energy consumption of Ethereum by more than 99%. Ethereum 2.0 may be able to even more in this way. To achieve sustainability well, reduce external doubts.
In the POV Crypto podcast, V God also emphasized the impact of the transition to PoS on the Ethereum network and ecosystem, and why such a transition is very suitable for Ethereum and its distribution model.
He pointed out: “One of the reasons for PoS is that we want to significantly reduce the issuance. I think we have calculated that if everyone participates, the theoretical maximum issuance of ETH 2.0 is about 2 million per year.”
By combining the PoS mechanism, it can help solve the problems that have always existed in Ethereum 1.0, reduce the issuance of ETH, and implement a gradual deflation mechanism, which will endow or maintain ETH (higher) value.
PoS Staking of ETH2.0
During ETH1.0, the PoW consensus mechanism used by Ethereum was the same as the system used by many other blockchains, such as Bitcoin. Miners get ETH by processing the package exchange.
However, using the PoW mechanism for staking has the following disadvantages: consensus time is long, energy consumption is high, and accounting costs are high, and now the trend of centralization of computing power is getting stronger.
The PoS used in ETH2.0 does not require the entire network’s computing power to grab a block at the same time like PoW, and requires a large amount of computing power to protect the network, resulting in a large amount of waste of computing power and low processing efficiency.
Under the equity proof mechanism, users only need to mortgage ETH to become a validator on the network to obtain a representative share of equity proof. In the equity proof PoS mode, there is a word called currency age, and the system will distribute interest based on the currency age (ie Income), and determine the packaging rights of the next block according to the number of pledged coins and the age of the coins.
The change in the staking mechanism is to pack the original computing power of the entire network into a block, change it to distinguish the computing power of the entire network, and then assign each block to the differentiated computing power, so that the computing power of the entire network can be Pack multiple blocks at the same time to increase the efficiency of data processing on the entire network.
So how to participate? First, you need to have 32 ETH.
Because, to become a validator of ETH 2.0, users must deposit 32 ETH into the ETH2.0 deposit contract, which is a necessary condition for becoming a validator and being activated. That is, you only have to pledge a minimum of 32 ETH to staking and get rewards.
In addition, two key parameters must be specified at the same time: the verifier’s public key and the deposit certificate of 32 ETH.
In order to prevent verifiers from playing with the system and verifying fraudulent transactions, the proof-of-stake system implements a mechanism called “slashing”. If the verifier acts dishonestly, he will lose part of his pledged tokens.
Then, the user needs to run an ETH2.0 verifier node and sign the block when it is their turn, otherwise, they will be penalized for not complying with the agreement.
But a key point here is that the public key and the withdrawal certificate do not need to be controlled by the same entity. Therefore, if you do not want to build your own facilities and want to participate, you can entrust the verified private key to a third-party pledge service provider to participate in the consensus, but you need to prevent single-point failure risks such as third-party running and being punished.
Currently, ETH2.0 is still in stage 0 (beacon chain). In this stage, the Ethereum network will have two chains, one is the PoW chain and the Token is ETH1, and the other is the PoS chain and the Token is ETH2.
However, due to the current one-way movement, users can transfer ETH1 to ETH2, but cannot exchange ETH2 back to ETH2. The ETH2.0 upgrade is not a simple hard fork upgrade. In the past hard fork upgrades of ETH, the old chain was stopped and the new chain was running.
However, in ETH2.0, the Ethereum Foundation believes that the old chain, the PoW chain, will coexist in parallel with the PoS chain for at least 3-5 years. (I.e. stage 1.5: the demarcation point for PoW to be completely transformed into PoS) But there is also news that ETH developers conservatively plan to end PoW Staking by the end of 2021.
1. Obstacles to participating in ETH2.0 PoS pledge
To become an ETH 2.0 verifier, users must deposit 32 ETH into the ETH2 deposit contract, and specify two key parameters: the verifier’s public key and the proof of withdrawal, as well as bear the cost of the verification node and the facilities.
In particular, a minimum of 32 ETH is required for participation. How many users can meet it? Under the same other conditions, I believe they will be more inclined to be able to pledge any amount of ETH, delegate the work of operating the facility to others, and withdraw their deposit instantly.
In contrast, participating in the PoS Staking of ETH2.0 through a well-known platform or institution with a large scale has become the best choice for ordinary users.
Because these institutions, on the one hand, have a high degree of trustworthiness and a relatively complete risk mechanism, the risk of running away is greatly reduced; in addition, they have a professional technical operation and maintenance team capable of 24-hour operation and maintenance, and if there is a penalty, the institution will bear , And most of the costs of verifying nodes and facilities are borne by them.
The most important thing is that most platforms only need 0.1 ETH or even 0.01 to participate in ETH2.0 staking, which greatly reduces the threshold.
Finally, although the pledged ETH cannot be redeemed due to the development progress of ETH2.0, in the phase of the coexistence of the two chains, there will be a new native anchor ETH 2.0 pledged Token named “BETH” on ETH2.0 Token and BETH can be exchanged and circulated in the market on the platform. When the ETH 2.0 mainnet is activated, its BETH can be exchanged back to ETH at a 1:1 ratio, which can reduce risks.
2. The pros and cons of participating in ETH2.0 PoS
But participating in ETH2.0 staking at this time period has both advantages and disadvantages.
- Participating in pledge, the threshold is relatively high : 32 ETH;
- The lock time is too long and cannot be redeemed. The specific time needs to be determined according to the development progress of ETH2.0. For miners, this is a relatively large risk and drawback, which will lead to insufficient liquidity;
- In the early operation stage of ETH 2.0, all aspects of technology are not stable, there may be some loopholes , there are certain technical risks, which cause losses, which has not happened before;
- Compared with other staking, the rate of return of participating in ETH2.0 Staking is not high , especially compared to the extremely high annual rate of return of DeFi Staking and other methods, and the general 6%-20% (or even lower) of ETH 2.0 , Which is very low in comparison.
- Once 2.0 is fully implemented, staking through the PoS mechanism will greatly reduce the circulation of Ethereum in the market. This will greatly solve the current inflation problem of Ethereum. The relationship between supply and demand in the market has changed, and demand gradually exceeds supply, which is conducive to the increase in the value of ETH.
- With the stable advancement and landing of ETH2.0, its ecological development can also be more diverse, which is very good for the potential value enhancement of ETH in the future. From this perspective, early participation may be able to gain greater benefits.
To sum up, because it is expected that this phase of ETH 1.0 and ETH 2.0 will be parallel, the time is uncertain and may be longer, so there is not high demand for liquidity, and users who are cautious but interested in participating in ETH 2.0 should participate in the ETH 2.0 of the platform organization. Staking would be a good choice.
Looking at the market, the PoW consensus mechanism ecology of ETH1.0 has formed a larger system, ETH1.0 will continue to exist, and the construction of 2.0 will proceed steadily.
In response to the deficiencies in ETH1.0, ETH2.0 makes changes to the PoS mechanism, in-depth reference to data sharding, and upgrades and changes at the grassroots level, which will affect the entire blockchain technology and market.
As the king of the public chain, Ethereum’s past development has accumulated a large number of native users and excellent development teams for its ecology. I believe it can continue to provide strong support for its future development.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/ethereum-is-already-the-king-why-bother-to-continue-upgrading-to-2-0/
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