The launch of Ethereum 2.0 is especially significant in comparison to previous updates because of the implementation of a Proof of Stake consensus mechanism, moving away from the network from its existing Proof of Work structure.
Ethereum 2.0 is a major upgrade to the existing Ethereum blockchain, being deployed to expand Ethereum’s usage and adoption by enhancing its performance and scalability.
The Story Behind Ethereum 2.0
Ethereum 2.0 is not a new idea in the Ethereum community. The upgrade is a shift from consensus mechanism used previously by Ethereum also known as Proof of Work, to cover the restrictions posed by the proof-of-work algorithm.
Proof of Stake
Proof of Stake (PoS) is the most significant change in Ethereum 2.0 because it adopts the crypto-economic incentive protocol for shifting towards proof-of-stake mechanism which has a considerable effect on the economics behind Ethereum. Ethereum’s current architecture is maintained by means of a Proof of Work (PoW) consensus mechanics. Proof-of-work is used by public- blockchains such as Bitcoin and Litecoin.
One of the major disadvantages of Proof-of-work is ‘money and the time’ that miners need to spend on hardware and electricity to validate blocks. Although extremely stable, PoW blockchains have problems with scalability along with access difficulties.
With the rapid growth of businesses being built around the internet of Things, it is important to understand the evolution of Distributed Ledger Technology and the impact of decentralized computing, in order to be prepared for tomorrow’s innovation. Blockchain technology is a protocol of computers that has multiple users linking together. It is akin to a shared computer database with no centralized administration, where data can be shared among multiple users.
One notable difference between Ethereum and Bitcoin is the shared consensus protocol. With Bitcoin, the network of computers decide how to update or “mine” new blocks in the database. The majority of users often contribute to the centralization of the network. With Ethereum, the consensus algorithm is self-policing, such that only certain nodes in the network contribute to a block.
Ethereum 2.0 introduces different smart contracts that allow for security for data and operations. Smart contracts will allow for Ether to be exchanged for real-time information, instead of storing information on a centralized service. These services are made possible with the new Ethereum Distributed Consensus Protocol (DCP).BlockchainResearch.in
Decentralized Applications (Dapps)
So let’s start by looking at how the execution smart contract can function. The Ethereum Virtual Machine (EVM) is a peer-to-peer network of computers that execute a Smart Contract. Each computer that executes the smart contract will be referred to as a “node”.BlockchainResearch.in
One feature that will allow consumers to run operations, or programs, on the Ether network, is through the use of Decentralized Applications (Dapps). These Dapps are created by developers by deploying “smart contracts” that are created for specific uses.
The more people involved in the Ethereum network, the more uses of Ether can be put to use. This includes the smart contract of prediction markets, a popular concept used by some bookmakers in both the UK and the US. In prediction markets, participants are paid to predict what will happen to the price of Ether in the future.
The popularity of this concept has made it possible for many computer scientists to run prediction markets on the Ethereum blockchain. These are used for information exchanges between traders, like in prediction markets, which can be used for many things.
Ethereum – The future of Money
Ether is also currently used as a medium of exchange and as an asset. This is an important factor to consider as the Ethereum 2.0 protocol will allow users to use the Ethereum blockchain as their own system of consensus.
One of the major disadvantages to using the Ethereum blockchain is that many functions, such as identity, are left up to centralized service providers. However, this is another area where applications can be developed. Another factor is that the Ethereum blockchain is vulnerable to attacks, and therefore security measures are recommended to protect against these types of attacks.
There are also other areas where Ethereum could be beneficial. Some of these are currency exchanges, peer-to-peer trading, direct transactions between merchants and customers, and risk management. All of these areas will require a high level of communication and information that will be centralised.
Decentralized systems provide businesses the opportunity to interact with the outside world in a completely different way. Eth’s development and application into other areas will make it very interesting to watch and take advantage of.