Ethereum 2.0: what does the upgrade bring?
After Bitcoin, Ethereum is the most successful cryptocurrency. Now it’s getting an upgrade to make it even better. We’ll show you what’s changing and what that has to do with staking.
Ethereum 2.0 is the further development of Ethereum, the second most successful crypto currency after Bitcoin. With the introduction of split chains and proof of stake, ETH 2.0 should become faster and require less energy. Existing ethers will be transferred to the new functions.
What is Ethereum 2.0? Faster, more energy efficient, staking
Ethereum was already the second generation of cryptocurrency in 2015 and developed into a top dog next to Bitcoin. Now the network behind ETH is starting to raise the successful technology to a new level. There will be a bundle of updates for this: The Beacon Chain, Staking and Shard chains. But what does that mean and how should Ethereum become faster, better and more energy-efficient with it? We explain the terms to you and show you how Ethereum 2.0 works.
The first step into a new age
So far, both Ethereum and Bitcoin have generated new coins through mining. Users of the cryptocurrency solve encryption puzzles to confirm new blocks of data on the blockchain. The difficulty of the puzzles increases with the computing power available in the network. As a result, more and more computing power is required and the energy consumption increases extremely. This is a key problem in mining.
On the one hand, the environmental impact of digital coins with their high energy requirements is increasing. On the other hand, private users can hardly muster the computing power. In addition, the time required for transactions also increases. A first step in solving these problems was the development of the Beacon Chain. This will prepare the existing Ethereum system for the realignment.
The newly developed chain is intended to replace the existing blockchain model behind Ethereum. It enables the use of proof of stake processes to extract new coins. If Ethereum has previously stood for mining with mainnet, i.e. proof of work, as is also used with Bitcoin, the beacon chain is the backbone of Ethereum 2.0. The chain currently exists parallel to the previous one. A merger is planned for the next update.
From mining to staking
The Beacon Chain can be used since December 1, 2020, as reported by Ethereum. This is the first step towards Ethereum 2.0. Anyone who wants to can already reserve coins for staking. The new chain is then verified with staking. At the same time, Ethereum is still working with mining until both chain technologies are merged. Mining is the method used since the development of Bitcoin to confirm data blocks and thus gain new coins. But what is staking?
Bitcoins and cryptocurrencies are currently in disrepute, as more and more energy has to be used to generate coins. We mentioned this aspect above. Staking is a process that requires much less computing power. That saves a lot of energy. And also enables many private users to participate in the process. In contrast to mining, computer performance is not important. The right to verify data blocks is drawn.
Staking refers to the Proof of Stake consensus process. The holders of coins of a cryptocurrency may apply to participate. To do this, they provide part of their coins as a deposit and thus legitimize themselves as partners. An algorithm in the chain then assigns the authorizations. So you need coins to generate coins.
More performance through more chains
But Ethereum is not only developing the consensus procedure further. In a third step, the network wants to convert the chain technology. So far, it has been common practice to use a blockchain. This leads to a large energy requirement. At the same time, this reduces the number of possible transactions, as the network always forwards the entire chain. This is where Ethereum 2.0 comes in.
Instead of including all data blocks and thus the entire blockchain for transactions, Ethereum 2.0 will introduce shard chains. The idea is to “split” the data chain and only require one shard, i.e. one splitter, at a time. This increases the speed and in turn reduces the energy requirement. Then Ethereum 2.0 is complete and a new generation of cryptocurrency is in circulation.
Would you like to be part of Ethereum 2.0?
At the moment, Ethereum 2.0 is still a vision of the future. But you can already enter the Ethereum universe now. With the merger, ETH will then be transferred to ETH 2.0. And you can already register for staking with ETHs now.
With Ethereum, as with all cryptocurrencies, caution is of course required. Just like trading stocks, you can take high risks when trading cryptocurrencies. They are further increased by the high volatility of digital money.
Sources: Ethereum, own research
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