Ethereum is moving from a proof-of-work (PoW) governance mechanism to a proof-of-stake (PoS) governance mechanism in the foreseeable future, which will result in a faster and more efficient blockchain.
The Ethereum network has seen a huge increase in transaction volume and size since DeFi and NFTs took over the worlds of finance and art. This traffic often caused systemic bottlenecks with significantly increased fees that made the blockchain unsustainable.
To bring Ethereum into the mainstream and support an increasing number of transactions, the need for a substantial transformation has arisen. Upgrading from PoW to PoS will make Ethereum more scalable, efficient, and sustainable while ensuring its fundamental decentralization.
The upgrade will only happen at the backend level within a technical framework without affecting the way users transact and hold assets on the network. The Ethereum roadmap foresees the following three phases for the upgrade:
Phase 0, also known as Beacon Chain
This update is already live and brings staking to Ethereum. It lays the groundwork for future upgrades and will coordinate the new system.
Fusion
Mainnet Ethereum, which is the current network, will have to merge with the Beacon chain at some point, and this is expected to happen in 2022. The merger will enable staking for the entire network and signal the end of heavy mining. energy intensity.
Chains of Shards
Shard chains should be initiated in 2023. However, sharding is a phased upgrade to improve Ethereum’s scalability and capacity. Shard chains enable Layer 2 solutions to offer low transaction fees while improving network performance.
Sharding is the process of allowing smaller sets of nodes to process transactions in parallel without needing to reach network-wide consensus. Ethereum 2.0 promises to bring transaction speed up to 100,000 transactions per second (TPS) through the deployment of shard chains, as opposed to the 30 TPS currently in place.
Ethereum’s transition to PoS has sparked heated debate within the crypto community. While some of the resulting benefits are clear, including scalability and sustainability through a more energy-efficient system, many fear that decentralization is under threat due to its implementation.
The PoS validation process can stumble upon large holding validators who can have undue influence in verifying transactions, thus impacting the true nature of decentralization. Critics of the transition also see sharding as a threat to network security. Since fewer validators will be needed to secure multiple and small shard chains, there is a higher risk that they will be more exposed to malicious actors.
How will Ethereum 2.0 impact the intrinsic value of Ether?
Many crypto experts believe that 2022 will be a breakthrough year for Ether price. The digital currency has seen an extraordinary rise since its launch in 2015, rising from a mere $0.30 to a high of $4,800 in 2021, including some highly volatile moves along the way.
Will Ether keep up with its massive growth thanks to the move to ETH 2.0? Although it is impossible to predict the price of any asset based on technical or fundamental analysis, crypto investors unanimously believe that ETH 2.0 will impact the intrinsic value of Ether, and a lot will depend on the successful implementation of the upgrade.
As with any major transformation, the initial rollout of ETH 2.0 could be a direct cause of volatility. Until the upgrade is thoroughly tested, approved, and effective across the network, experts predict months of uncertainty that will inevitably affect the price of ETH.
In the long term, the transition to a more sustainable and efficient point of sale will benefit Ethereum adoption for users and businesses that rely on the platform. However, how and when all of this will play out is a cause for hesitation among investors showing signs of being cautious with their allocation until there is a more definite outlook.
Much will depend on the success of the upgrade in terms of demand and functionality and the ability of the renewed platform to maintain its leading position among all other innovative competitors in the network.
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