New Ethereum release still on track for 2022

Ethereum, the second largest blockchain in the world, is set to upgrade to a brand new version this year, which will change virtually everything about how it works. The Ethereum Foundation calls the new version “The Merge”, but many others call it “Ethereum 2.0”.

Why is this important: For blockchain critics, this will massively reduce Ethereum’s power consumption (perhaps by 99%). For ether holders, this will reduce the emissions of that coin, which should improve price appreciation.

  • For the spectators: it’s a bit like changing the engine of a jumbo jet from gasoline to electric, without landing. it could be a real mess.
  • That said, to say the developers have been cautious about its deployment would be an understatement roughly equivalent to, “Jupiter is a bit larger than the other planets in its solar system.”

Big picture: Because blockchains have no leader, they need a way for all users to agree that transactions on the network are valid, i.e.: to achieve consensus.

  • The next update will move Ethereum’s consensus method from a proof-of-work system (like Bitcoin) to a proof-of-stake system (like most other new blockchains).
  • Either method discourages bad actors by making malicious exploitation too expensive.
  • Proof of work requires miners, the entities that verify that all transactions are legitimate, to do a ton of computational work (which requires a lot of electricity). They earn cool coins for this work.
  • All this electricity caused a lot of anger against blockchains.

As proof of participation, instead of volts, validators put a large amount of ETH at risk. If they behave maliciously or incompetently, the network can take that ETH.

  • Again, it is expensive to cheat, but using different means.
  • A validator will stake a minimum of 32 ethers (~$38,200) to run a node, but people can also participate by delegating ethers to professional node operators (most people will).
  • As of this writing, with the new release still on the way, 403,814 validators have staked a total of 13.6 million ethers.

Be smart: If you hold ethers or Ethereum tokens or NFTs on exchanges or in a personal wallet, you don’t have to do anything.

  • “Nothing happens from the user perspective. The last block was proof of work and the next block is proof of stake,” Tim Beiko, who coordinates Ethereum developers, told Axios in a post. interview.

When? Nobody will say for sure and it has been delayed several times, but everyone still believes it will happen this year. Testnet deployments generally went well, even though they did find new bugs.

  • When the timing is announced, it will be linked to a very obscure moment called “full difficulty”. When this is announced, people should be able to estimate in a day or two when this will change.
Users support switch

Ethereum has become very popular and active Ethereum users are generally supportive of the change.

Source: Etherscan; Graphic: Axios Visuals
  • There are many users on Ethereum, but not every wallet is a unique user.
  • Still, a lot more wallets almost certainly means a lot more real users.

A pain point that all the users behind those 199 million+ addresses okay, though: Gas costs.

  • The context: Ethereum is a complete computer that works like a blockchain. Since each validator performs all the calculations requested by users, users must pay for this processing work in ETH (which they call “gas”).
  • It can be quite expensive, running into the hundreds of dollars for a somewhat complicated transaction when demand is high.

Reality check: This will not change when Ethereum moves to proof-of-stake.

  • Beiko explained, “Throughput limitations are completely independent of the consensus algorithm we use.”

Rollback: The chain won’t go much faster either, even if the next phase of the rollout had been a plan to create “splinters”. Shards are essentially independent blockchains that all register with the main one.

  • This plan has changed somewhat. A bunch of layer 2 solutions have come online which is basically the same as shards, so Ethereum has adopted that instead, according to Beiko.
  • There will probably still be a few chipsbut probably a less ambitious model, and it won’t change gas prices on Ethereum itself.
Earnings

So if gas fees aren’t getting cheaper and processing isn’t speeding up, why are people who already love Ethereum excited about v2?

  • Simple: Earnings.
  • Everyone thinks ethers will become much more valuable in a slower growing supply world.

Why is this important: Blockchains pay validators by regularly issuing new coins and assigning them to people who secure the blockchain. Blockchain coin holders want validators paid, but just enough so that it is interesting to continue to secure the network.

What they say : Angel investor and ETH supporter Eric Conner Explain tweeted how much Ethereum users are paying miners right now, writing, “Ethereum block times are around 13 seconds, which translates to ~4,850,000 ETH produced per year (8.6 billions of dollars, ~4% inflation) *just* to pay for network security.”

  • This inflation was then halved by an update that destroys a portion of the Ethereum spent on gas with each block.

In the weeds: Once proof-of-stake begins, inflation will depend on how much Ethereum is staked, Beiko explained. At current staking levels, however, issuance would grow from nearly 5 million ETH to over 600,000 ETH per year.

  • And the burning of ETH with each block will continue. In fact, many believe that such an amount will be burned that the ether supply will shrink every day.

Ergo: If Ethereum continues to be used by more and more people, Ether should become more expensive.

  • Add to that a decreasing supply and holding ether, Ethereum Believers Supportlooks like a very smart investment.

The bottom line: If everything goes well, Basic everyday users of the leading smart contract blockchain should barely be able to tell that anything has changed.

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