As Bitcoin started to increase in popularity, Ethereum entered the scene in 2015. Besides being a new decentralized cryptocurrency, Ethereum brought decentralized smart contracts to the masses as well. This opened the door to endless possibilities due to the smart contracts being Turing complete, which is very interesting for companies looking to improve their efficiency or even create entirely new business models. Since then, the crypto market has boomed with thousands of projects that either aimed to improve on what Ethereum had set up or came up with new models of their own. Ethereum is currently still the second-largest cryptocurrency in terms of market cap after Bitcoin despite the efforts of the competition.
Issues with Ethereum
While Ethereum has gained plenty of projects utilizing its platform and a massive community, it still is not what it is supposed to be for mass adoption. The Ethereum blockchain is able to process about 15 transactions per second. In order for a large number of businesses to actively use the Ethereum blockchain, a lot of transactions are needed. This has thus far resulted in bottlenecks, leading to high transaction costs as well. For companies, this leads to inefficiencies and higher costs and thus disincentivizes them from using the blockchain. Another issue is the Proof of Work (PoW) consensus mechanism, which requires miners to consume a lot of energy which in turn drives up their costs to sustain the network as well.
Of course, the developers working on Ethereum know of these issues as well and have been working hard to come up with solutions for years now. After being postponed multiple times, it seems like we are finally on the brink of the huge changes that everyone has looked forward to. The major upcoming change to the ecosystem is called Ethereum 2.0 and consists of three phases.
- Phase 0: Beacon Chain
- Phase 1: Basic Sharding
- Phase 2: eWASM
Ethereum 2.0 will start with Beacon Chain. This is a new blockchain for Ethereum that will run parallel to the current blockchain. However, the Beacon Chain will have Proof of Stake (PoS) as a consensus mechanism instead of Proof of Work, which will eliminate the problem of enormous amounts of energy consumption by the miners of the network. At release, the Beacon Chain will be very basic but will be upgraded to support smart contracts etc.
Basic Sharding will help to increase the number of transactions per second that the blockchain is able to handle. Simply put, this feature will split the Ethereum network into portions called “shards”, which will each contain their own independent state. This effectively allows the system to process many transactions in parallel, thus increasing the number of transactions per second that the network can handle. The transactions per second that the new version of Ethereum will be able to handle are expected to be tens of thousands.
eWASM is simply a replacement of the old virtual machine (VM) for the new blockchain. The new virtual machine is necessary to support the PoS and Sharding features. With this phase, smart contracts, accounts, etc. will be added to the new Ethereum.
It is currently expected that phase 0 will launch later in 2020, after which the others will follow. An exact date is unknown as it has been postponed on multiple occasions in the past as well.
Why this is good for crypto
The upcoming improvements coming to Ethereum will allow it to finally get ready for the future. Up until now, the network looked very promising but has been coming up short on some essential points. With the new upcoming features, the network finally becomes practical.
An article was recently posted on the Icoinic website that discussed DeFi, which is expected to be a huge industry within the cryptocurrency market. Many view this as the most important reason for cryptocurrencies to exist. However, in order for this new way of finance to be adopted on a massive scale, infrastructures are needed that are able to process all of those transactions that come with these apps. The platform that is most reliable, cheap, and efficient, will likely be chosen by many as the platform to build their apps on.
Of course, not just Ethereum has been working hard on achieving high numbers of transactions per second in a reliable and decentralized way, but it is definitely the one that is about to make the strongest progress in doing just that while already being the largest cryptocurrency platform that is out there. With the upcoming high transactions per second, it looks like the right platform is here for the DeFi revolution.