Ethereum 2.0 is gaining a lot of attention from the enterprises at the moment and the crypto industry seems shaken by this overhaul. A few weeks ago, the largest Ethereum development event occurred in Osaka, Japan. And during the conference, the details of the upcoming Ethereum protocol upgrade were announced. It looks like it is going to be one of the most exciting developments in the world of cryptocurrency. But what financial and technological opportunities will it bring forth for the enterprises? Is it going to wipe out the existing applications? Well, we will be discussing all these important aspects of this new-and-improved Ethereum 2.0 ahead in the article. But first, let’s have a basic understanding of what Ethereum is all about.
What exactly is Ethereum?
As we know all our personal data and financial information are mostly stored in clouds and servers owned by companies such as Google, Amazon, and Facebook. Even the article you are reading now is stored on some server controlled by a company that charges to hold this data. However, in this case, there are chances of vulnerability. A hacker can steal, leak or change your important files without your knowledge by influencing the third-party service.
This centralized design of the internet makes it insecure to some extent and hence privacy activists and venture capitalists advocate about having the decentralized internet. And Ethereum is one of the newest technologies that can help to achieve this goal. Ethereum is an open-source distributed computing platform and operating system based on blockchain technology that aims to create a ‘World Computer’ that would decentralize the existing client-server model.
While the Ethereum protocol seems right so far, it has underlying issues such as its increasing storage requirements and performance degradation. Many of these existing shortcomings can be eliminated by the newly proposed Ethereum 2.0, scheduled to go live in early January 2020.
What Ethereum 2.0 is expected to Bring to the Table?
Enterprises often face a challenge of scaling constraints with a public network. Ethereum network handles hundreds of decentralized applications and a huge number of transactions per second. However, as each node in Ethereum needs to verify each transaction, the addition of more nodes does not increase the scalability of the network. And the increased use of the Ethereum network increases the time and cost of transactions. As a result, the network turns out to be slower and less convenient to use. This led to the development of Ethereum 2.0 that enables the network to achieve mass adoption and massively increase scalability. When Ethereum is implemented in an enterprise, it will eliminate the scaling constraints and allow hundreds of transactions to take place per second.
Other key issues that Ethereum 2.0 is going to address are efficiency and environmental sustainability. Many blockchain networks including Bitcoin and Ethereum rely on a proof of work (PoW) consensus protocol for ensuring its network security. Arguably, one of the biggest issues with PoW is it is relatively vulnerable to “51% attack.” Also, the PoW consensus takes a huge amount of computational power and electricity and is quite inefficient. Ethereum 2.0 is developed to transit the network from a proof of work protocol to a proof of stake (PoS) protocol called Casper, which intends to solve this issue of efficiency and sustainability. Moreover, Ethereum 2.0 also addresses the speed and usability issues of Ethereum by sharding.
Key Risk Areas
Ethereum 2.0 has a huge potential to change the current systems and technical infrastructure. But Despite the obvious positives, the new protocol also has several key risk areas that must be addressed soon. The first concern is its complexity. Ethereum 2.0 involves wrapping up the current network and inserting it inside the new chain to make them run together for a period of time. The transition to Ethereum 2.0 is so complex that there is the potential for a hard-fork split as some node operators may choose to run the old chain. Also, it is extremely technical and complex that very few will be qualified to turn a complex research paper into a practical solution.
Many enterprises are engaged in the production usage of Ethereum 1.0 and some are also using stablecoins for lending and hedging. And they are afraid of the risk of their bonds existing twice on parallel chains or they may end up with non-functioning smart contracts. Well, they need to update their source code and follow up on every public update from phase 0 to phase 2, projected for 2022. Once Ethereum 2.0 is fully deployed, it will offer a faster network with higher scalability and transaction speed.
Though Ethereum 2.0 is well-poised to maintain its lead as the biggest crypto asset, it will continue to run in harmony with ETH 1.0 for an expected two to three years. The rollout of Ethereum 2.0 is going to be a lengthy process with seven distinct phases. In fact, a report from Kyokan reveals that the delivery of the first three phases will take at least a year and a half.
This is all very enticing, but is it going to succeed? Unfortunately, there is no clear answer! However, one thing is certain, if Ethereum 2.0 becomes successful, it will pave the way for the enterprises to take the best parts of the public network with increased privacy and faster transaction speeds.