All eyes are on Ethereum as the second-largest cryptocurrency undergoes its pivotal upgrade.
The year 2020 has so far seen major developments taking place in the digital asset space, starting with the Bitcoin halving in May.
The sector also recently received a massive nod of approval from US regulators following the publication of a letter from the Office of the Comptroller of the Currency (OCC) clarifying that US banks will finally be allowed to offer crypto custodial services to clients.
The other major event in the industry this year is the highly-anticipated upgrade of Ethereum, Ethereum 2.0.
Hot on the heels of Ethereum’s fifth birthday, we look back at the milestones of the second-largest cryptoasset by market cap, and examine the new era of Ethereum 2.0.
Ethereum has gone through multiple iterations since it was first launched in July 2015.
However, the new pack of improvements will undoubtedly be its most substantial and important yet, allowing the blockchain to compete with the global rate of transactions.
Issues concerning security, sustainability and scalability have been raised frequently over the last few years, with Ethereum’s blockchain often choking on the volume of its traffic during volatile periods of the market.
Ethereum 2.0, also known as Eth2 or Serenity, promises to rescue the network from all of these pitfalls.
The upgrade will be rolled out in multiple phases: phase 0 (The Beacon Chain), phase 1, and phase 2. And when all is said and done, in addition to being more energy efficient via a Proof-of-Stake (PoS) algorithm, Ethereum should see vastly improved performance, speed, functionality, as well as the possibility of writing decentralised applications (dApps) in any programming language.
Though the cryptocurrency has long played second-fiddle to Bitcoin, the forthcoming combination of improved scalability and lower barrier of entry for developers could see it potentially dethrone Bitcoin as the top digital asset.
However, the road to Ethereum’s much-awaited upgrade has been paved with roadblocks. Unexpected delays have plagued the project for a number of years, and Ethereum’s creator, the talismanic Vitalik Buterin, recently admitted that the team misjudged how long the sharding and PoS features that characterise ETH 2.0 would take to develop.
The first iteration of Ethereum 2.0, Phase 0, is currently planned to launch in Q3 of 2020, following its announcement in 2018 and launch delays in 2019 and 2020.
Phase 0 is perhaps the most significant upgrade Ethereum 2.0 has to offer as it contains the most alluring aspect of the upgrade rollout — PoS staking.
The importance in this switch from a PoW based consensus to a PoS is to Ethereum what the halving is to Bitcoin — which is to say it’s a change of unprecedented significance which will give tangible value to the network’s underlying asset.
Apart from the obvious environmental benefits, the PoS consensus mechanism will give people a real reason to HODL their ETH. In recent weeks, the price of ETH has seen a notable boost– nearly doubling in value in July 2020, rising from a price point of around $200 to $400.
A switch to PoS isn’t all phase 0 is about, however. It also contains the preliminary groundwork for supporting sharding – an innovative technique Ethereum 2.0 will implement to improve scalability and efficiency.
Ethereum’s notorious scalability challenge has served as a key driver for the 2.0 implementation. Currently, the platform can only support around 30 transactions per second (TPS) as its blockchain structure is made up of a single chain with consecutive blocks, making it slow and inefficient.
Sharding solves this issue by splitting the blockchain into fragments to enable parallel processing, removing bottlenecks to transaction throughput and thereby increasing capacity, speed, and efficiency. According to Buterin, Eth 2.0 will achieve 100,000 TPS.
Although the first phase of the Ethereum upgrade is poised to place in late summer this year, sharding will only be implemented in the last phase – which is about two years away – in order to achieve the guaranteed speed of 100,000 TPS.
Only once sharding has been implemented, and dApps can start to migrate to the new chain, will Ethereum become truly scalable.
But let’s not assume Ethereum 2.0 is around the corner. It’s quite remarkable that something which hasn’t even launched yet is characterised by such a long history of delays! For this reason, it’s perhaps best not to put too much stock in a hard and fast deadline on when exactly all of this is supposed to happen. The answer is no one knows.
However, earlier this month on 4 August, Medalla, the last public testnet for Ethereum 2.0 went live. The launch of Medalla did not proceed as smoothly as expected. However, as a vital step in ultimately rolling out the main event, the testnet will go a long way in securing confidence in a future launch of Ethereum 2.0 – whenever that may be.
While the upcoming Ethereum 2.0 upgrade has played an enormous part in the cryptocurrency’s recent price rally, a significant chunk of the excitement surrounding ETH this year can be ascribed to the ascent of the DeFi movement – which has stolen the spotlight as of late.
In a nutshell, decentralised finance or DeFi, describes the evolution of traditional financial services into a decentralised, blockchain-based form using smart contracts. Ethereum is a leader in this space.
While DeFi isn’t new, the number of services available as well as the number of users continue to rise. An array of assets and financial products are being tokenised and made available on smart contracts powered by ETH, providing new opportunities for users and providers alike.
Earlier in July, DeFi set a record by reaching the market capitalisation of over $9 billion. As more individuals and financial institutions start to grasp the utility of DeFi, we expect to see increased adoption of ETH.