How is Ethereum 2.0 going to change in the crypto industry?
Will Ethereum 2.0 be a new coin? And what will happen to the original Ethereum? This article takes an in-depth look at how the transition to Ethereum 2.0 will affect both investors and developers in the industry and evaluates what we can expect to see once this upgrade has been implemented.
What is ether
Ether is both a digital currency (ETH) and an Ethereum-based platform for smart contracts that developers can use to build decentralized applications (DApps). Ether was first proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer working in Toronto at the time. He wrote a white paper describing how Bitcoin could be modified to support more advanced applications, essentially creating Ethereum (although he did not initially use that name). The Ethereum network launched in July 2015 with 72 million coins pre-mined for release over several years.
Ethereum development has been funded by an online public crowd sale during July–August 2014, in which investors bought ether tokens (the symbol for ethers) using bitcoin, leading to a jump in its valuation from about $2 per token initially to $15 and it remained around $14 for two years before rising more than 300% in 2016. Its success has attracted attention not only from those who seek applications that require blockchain technology but from mainstream companies such as Fidelity Investments, JPMorgan Chase, Deloitte, and Microsoft that are interested in experimenting with blockchain-based business models.
Ethereum-based smart contracts are gaining acceptance, and major banks such as UBS and Barclays have announced plans to adopt Ethereum technology for their own purposes. Tech giants like IBM, Microsoft, and Samsung are also looking into using Ethereum as a smart contract protocol. As with any relatively new technology, however, there remain some concerns over security issues as well as legal uncertainties that must be clarified before businesses feel comfortable using blockchain products in a large-scale production environment.
What is cryptocurrency
Cryptocurrency or digital currency is a method of payment that uses cryptography to secure transactions, verify fund transfers and generate new units of currency. While traditional currencies are often backed by government agencies like central banks and financial institutions, cryptocurrency uses decentralized control as opposed to centralized electronic money and central banking systems; blockchain technology is used as a distributed ledger for keeping track of all transactions without any need for third-party verification (such as a bank).
There are over 800 types of cryptocurrencies in existence since their inception in 2009; these are referred to as altcoins (alternative coins) and represent around $300 billion USD. The most popular examples include Bitcoin, Ethereum, Ripple, and Litecoin – these command an ever-growing market cap worth hundreds of billions of USD combined.
Cryptocurrencies are decentralized in nature; they are not issued by central banks and do not exist physically, unlike paper money. They take on many forms, including digital tokens and cryptocurrencies; tokenizing refers to creating an asset or utility that can be traded, which can be a currency or another type of asset (such as a commodity like gold or silver). While traditional fiat currencies have a fixed supply, there is no limit on how many cryptocurrencies can come into circulation – aside from those set by their creators.
Current issues with cryptocurrencies
Cryptocurrencies are well-known for their volatility—sometimes, they go up; sometimes, they go down. It can be hard to tell what’s going on and whether or not you should sell your currency and move into a different one before it’s too late. That’s why people invest in cryptocurrency index funds—they give them more exposure than a single coin could, but without having to constantly track which ones are moving up and which ones are moving down.
Furthermore, some currencies are just very hard to spend—one of the largest in circulation, Bitcoin, works well as a store of value but isn’t particularly useful for everyday transactions. This is due to its hefty transaction fees and long processing times; when you purchase something with a credit card or cash, there’s almost no wait time before you can use your money again.
With Bitcoin and other major cryptocurrencies today, however, users often have to wait hours or days before they can reuse their coins.
It’s unclear if Ethereum 2.0 will have any impact on that issue—but it’s possible we may see ERC-20 tokens gaining more prominence in 2019 if so! As of February 2018, Ethereum-based ERC-20 tokens were responsible for nearly 90% of all cryptocurrency transactions on a daily basis—and that’s not including Bitcoin or other coins! Although there are plenty of industries using blockchain technology—cryptocurrency isn’t just about its potential for a booming investment portfolio; it can also improve other areas like supply chain management and data security as well.
What are Casper and Sharding?
Casper and sharding are two different technologies that make up Ethereum’s Shaper upgrade, which will be released alongside version 2.0 of its software in 2019. Both technologies have been in development for years and both offer solutions to some of Ethereum’s most pressing problems. However, they are not entirely interchangeable: While Casper offers some improvements on proof-of-work consensus, sharding offers much greater scalability than previous plans offered (which relied on layer 1 scaling solutions like Plasma). But what do they actually do? And how do they work together? Read on!
What is Casper? Basically, Casper is a proof-of-stake (PoS) consensus protocol that Ethereum developers hope will eventually replace its existing proof-of-work (PoW) consensus protocol.
What is Sharding? Sharding refers to a method of splitting up a blockchain’s data into multiple partitions, or shards, each capable of processing transactions in parallel with one another. Each shard can theoretically process a larger number of transactions than other blockchains can because they only need to verify and confirm their own smaller set of transactions (the ones on their own partition). Each shard runs its own consensus protocol, but they all interact with one another so that every transaction gets verified by every node on the network.
How does Casper work for validating transactions?
The first and perhaps most important component of Casper is how it updates Ethereum’s consensus algorithm, called proof-of-work (PoW). Currently, miners who are creating new blocks are given a financial incentive to do so—and as more miners compete for rewards, they contribute more computing power to mining new blocks (which requires even more electricity!). In contrast, nodes in a proof-of-stake system don’t receive direct rewards for validating transactions; instead, they simply stake their coins and validate transactions according to a set of economic incentives written into Ethereum software.
One of these incentives includes slashing—essentially, a penalty against validators who make errors and don’t follow rules that keep Ethereum secure. How do you define when validators make mistakes? When they deviate from the protocol or official rules written into Ethereum software that dictates how consensus should work.
While sharding may sound like a reference to some sort of medieval torture device, it’s actually an Ethereum scalability improvement proposal that many see as vital for moving from where Ethereum stands today, with 15 transactions per second, toward its goal of becoming a global decentralized computer capable of supporting millions – if not billions – of users. Ethereum developers have been working on an implementation known as sharding since at least 2017, but new details and pieces of code have come into view only recently.
The basic idea behind sharding is that instead of every node in a public blockchain having to verify every transaction, only certain nodes would need to do so; furthermore, different transactions could be handled by different subsets (or shards) of nodes. Sharding is not a groundbreaking new technology; in fact, it’s used every day by companies like Google and Facebook to increase database efficiency.
But using sharding on a blockchain brings several unique challenges, and Ethereum developer Vlad Zamfir – who has been working on sharding for Ethereum for more than a year – recently noted that about 60 percent of his time has been spent simply studying distributed systems theory; if you don’t have a solid grasp of those concepts, sharding becomes incredibly difficult very quickly.
The benefits of implementing Casper and Sharding
The question that investors, traders, and blockchain enthusiasts are asking today is what will happen when Ethereum finally implements Casper and Sharding? What happens when there’s a protocol switch from Proof of Work (PoW) to Proof of Stake (PoS)? The truth is, nobody knows for sure what Ethereum 2.0 (or PoS) will look like. But we do know that many people are talking about these developments, which means they must believe it’s going to have a significant impact on ETH prices over time… but how exactly?
No one can say for sure what Ethereum 2.0 (or PoS) will look like at launch… but there are two things we do know: First, many people are talking about these developments; and second, those same people have high expectations for ETH prices moving forward… so in a way, that could very well be a self-fulfilling prophecy where expectations become reality!