Thursday, July 29, 2021

Ethereum 2.0 Launch: All-New Ether Network

Ethereum 2.0 Launch Explained

The world’s second largest cryptocurrency just underwent a major transition, which is the Ethereum 2.0 launch. The transition may overcome some of the challenges that its larger counterpart faces. Ethereum 2.0 launch happened on the 1st of December on a system that is faster, cheaper and more environmentally friendly. Especially when compared to bitcoin which has crossed its all-time high of about USD 20,000.

Ethereum currently trades for $606 almost 5 times its value at the start of this year. However, it is still a long way off from its peak of $1,432.88 reached on 12th Jan 2018. Ethereum has a market cap of 70 billion USD compared to Bitcoin’s 360 billion USD.

Ethereum 2.0 Launch Explained

Bitcoin at its heart, depends on miners. Miners are entities which solve complex mathematical equations in order to get the chance to validate the bitcoin blockchain. I.e the record of all transactions in it. Validating the blockchain generates transaction fees for miners. This is called ‘proof of work.’ However, this requires large computational power and hence electricity. It also brings the system in for criticism from environmentalists and also raising the cost per transaction. Furthermore, it opens the system to capture by large, organised mining companies.

The Ethereum 2.0 launch will move from this proof of work system to ‘proof of stake.’ In this system, entities to validate the blockchain will be chosen by ‘staking.’ Instead of solving puzzles, those who hold larger quantities of ether and hold it for long periods will have a higher chance of getting selected as validators.  Hence generating fees from the validation. Anyone with 32 ETH (ether) can offer to stake, a process that currently locks up one’s money for 1-1.5 years.

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“The Ethereum 2.0 launch starting from December 1 will take 2-3 years. The main benefit will be a fall in the cost per transaction, charged by miners/validators. It will also allow ordinary people to earn some returns on their ethereum by participating in this new process of validation (staking). These returns will fall over time as the amount of ethereum staked goes up but is currently in around 18%.

Ethereum 2.0 launch has also seen an increase in the number of transactions that can be processed per second. This along with the lower cost of transactions positions it to complement rather than supplement bitcoin.

Technological Platform

Unlike other cryptocurrencies, Ethereum 2.0 launch offers a technological platform on which smart contracts can be built, for instance, loan agreements. These contracts can be created by computer code without the intervention of courts or legal authorities and execute themselves. This can happen for instance, by automatically seizing collateral.

According to experts, a drop in the cost of transactions of Ethereum in the 2.0 shift can give a major momentum to such contracts.

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