Ethereum ETH, -2.19% has been subject to many difficulties early blockchain technologies struggled with, and to a certain extent, it managed to find solutions to these problems, and contribute to the global DLT scene with countless ideas and protocols we are familiar with nowadays.
Ethereum is the home for more than half of all altcoins, and it has been constantly evolving since its launch in 2016, implementing new strategies and creating new possibilities for its users, ranging from decentralized applications (dApps), smart contracts, and decentralized cryptocurrency exchanges to mention some of the most popular use cases.
What does Ethereum already offer?
Ethereum is already very popular. If you’re buying Bitcoin BTC, -1.50%, no matter where you get it from, there is a 99% chance that same broker will also trade you ETH, the native asset of the Ethereum blockchain.
One of Ethereum’s main characteristics, which also acted as a big selling point during the project’s crowdfunding back in 2014, are smart contracts.
If you’re new to the term: smart contracts essentially create a predesigned protocol as agreed by two or more individual parties and it follows a set of rules as ordered and approved by all party members.
Participants can choose when a smart-contract is considered ‘breached’ and what should follow in each scenario. The protocol will be automatically followed due to the blockchain’s nature, even if one of the users would try to act in a malicious way, or try to hide information subject to the specific contract from other members of the agreeing party.
The Ethereum platform is very useful for businesses or communities that want to create their own blockchain-based tokens but don’t want to create a chain from scratch. Some popular tokens launched on Ethereum include Maker, OmiseGO, Project 0x, Status, Golem, Decentraland, and more.
Ethereum’s cryptocurrency ETH is also used as a major base pair in most cryptocurrency exchanges, in fact, there are more exchanges that have ETH-only than-BTC only base pairs. Ethereum is also used to develop and deploy decentralized cryptocurrency exchanges where people could trade their Ether, ERC-20 tokens, ERC-721 Collectibles and other exchangeable digital assets that function on Ethereum’s blockchain.
What are some key issues with Ethereum’s current state?
Ethereum might be faster and cheaper compared to Bitcoin when it comes to transaction time and fees, but it inherits a lot of Bitcoin’s problems as it also utilizes a proof-of-work consensus model.
In short, miners are solving complex mathematical problems using enormous processing power in order to keep the blockchain ‘running with integrity’.
Miners, among other things, promote or confirm the transactions on the blockchain, every time someone like me receives or sends ETH between different wallets. For that reason, and for their contribution to the decentralized network’s functionality, they are usually compensated with a tiny fraction of the value of the transaction itself.
The mining process is necessary with coins such as Bitcoin and Ethereum, due to the network’s architecture, although it is extremely energy-consuming and expensive to maintain.
Both Bitcoin and Ethereum can perform a fixed number of transactions per second, therefore sometimes, a transaction that usually takes no more than a couple of minutes can be confirmed anywhere between several hours to a full day in some scenarios.
How does Ethereum 2.0 plan to address these issues?
As previously mentioned, Ethereum is a well-organized project that understands its pros and cons and has been constantly evolving, trying to upscale its platform to be ‘up-to-date’ when it comes to blockchain functionality.
Ethereum’s main goals for the next 3 or 4 years can be split into 2 main categories:
1. Introduce a proof-of-stake consensus mechanism, which will eliminate the need for expensive proof-of-work mining.
2. Introduce sharding, which will improve the speed and throughput of ETH transactions.
According to the Ethereum wiki maps, there are seven distinct phases for the development of Ethereum 2.0 and it will certainly take several years to develop and implement each step into the newly bred blockchain.
The three first phases are the most crucial as they will have to be achieved before Ethereum developers can actually build on Ethereum 2.0:
- Phase 0, Beacon Chain: Probably the most important step, the Beacon Chain is a proof-of-stake blockchain that will be parallel to the PoW main net of Ethereum.
- Phase 1, Basic Sharding: Sharding is meant to solve the scalability issue with Ethereum, essentially aiming to a network that will be able to process transactions faster, and in larger quantities compared to Ethereum’s current status.
- Phase 2, eWASM: Practically a new Ethereum Virtual Machine that supports both PoS consensus and sharding. Unlike Phase 0, where there will be no option for smart contracts and accounts, eWASM introduces the first gateway to the new blockchain.
It is said that the first phase of the ‘upgrade’ or Phase 0 will take about one and a half up to two years to develop.
In a recent interview, when asked about the main difference between Ethereum and Ethereum 2.0, Vitalik Buterin says that “Ethereum 1.0 is a couple of people’s scrappy attempt to build the world computer: Ethereum 2.0 will actually be the world computer”.