What is Ethereum 2.0 and Why Should You Care

Ethereum 2.0 is an umbrella name for a range of Ethereum updates designed to improve the scalability, security, and sustainability of the network. The first out of three update phases – the Beacon chain, is already out (it went live in 2020). It marks the beginning of the transition from Proof-of-Work to Proof-of-Stake. Because of this change, to check the network stats and transactions you should you should use some special ETH2 explorer created to work with ETH2.

In this post, we will take a look at how committing to the Ethereum 2.0 roadmap sets the development team apart from its rivals, namely Ethereum Classic, discuss the key changes to the network, and elaborate on how Ethereum 2.0. will disrupt finance and other industries.

How Is ETH 2.0 Different from Ethereum Classic?

Let’s start by adding context to how ETC came to be and what its key differences from the main ETH chain are.

In 2016, The DAO hack (a result of a smart contract bug) divided the community into two camps. The first one (the majority, including Buterin himself) supported a hard fork that would revert the change and get the organization its $10 million worth of ether back.

A minority group voted for leaving things the way they are. The main chain forked forming two networks – majority as ETH and minority as ETC.

Ever since ETC split from ETH, conceptual and philosophical differences started to pile up. The Ethereum Classic community prioritized security, choosing a conservative approach that prioritizes the integrity of the blockchain.

The Ethereum chain keeps a so-called “progressive” outlook, prioritizing scalability in the development roadmap.

To understand how two visions are distinct, we summarized the distinctions between them:

As for similarities, both ETC and ETH tokens are used as cryptocurrencies. Both platforms enable smart contracts using Solidity.

Until recently, the divergences between Ethereum Classic and ETH were less pronounced since both platforms used PoW and replicated databases. However, with ETH 2.0. both chains will largely go separate ways.

Let’s take a closer look at the system design changes that will infrastructure-wise set the main chain apart from the fork chain.

Sharding and Shard Chains

Decentralized databases are among the founding principles of blockchain network security. The idea is that if all nodes on the network store the full version of the database (containing assets, transaction history, smart contracts, etc) it will be more resilient.

Such a mode makes blockchain security ready to counter black-swan events and capable of surviving nuclear-war-level catastrophes.

However, having to store the full blockchain introduces scalability tradeoffs. Requiring a single node to process all transactions limits the throughput of blockchain to that of a single node (3-7 for Bitcoin, 7-15 for ETH).

The development team saw sharding as the solution to the problem.

Sharding is a way to distribute the network load horizontally by breaking the main chain into smaller shard chains.

Sharding transactions aren’t processed by every node on the main network – only by those on the fragmented chain. Thus, nodes can validate transactions in parallel, increasing the total throughput of the blockchain network.

Benefits of sharding:

• Reduced hardware requirements – by design, it should be possible to process a shard chain or a laptop computer. That increases the number of network participants and the degree of decentralization.
• Higher transaction throughput improves the efficiency of the network and reduces congestion.
• Lower impact of network attacks since they would target single shard chains, not concentrated on the full blockchain.

Considerations of sharding. There’s a probability of shard takeover risks – if a shard is corrupted, the portion of data it stores can be lost permanently.

How Will Ethereum 2.0 Disrupt Traditional Industries?

Since Ethereum 2.0 puts scalability first, once the update is released, more individuals and organizations will use the platform to build decentralized apps and reform industries.

Let’s take a look at Ethereum’s potential in disrupting workflows in traditional industries:

• Finance. Ethereum is the backbone for a wide range of solutions (including DeFi) that allow users to manage and trade assets via smart contracts. Exemplary applications of Ethereum in finance include crypto derivatives trading, wallets, exchanges, and managing sub-currencies.
• Security and data protection. Ethereum builds upon the legacy of Namecoin by enabling the creation of a blockchain-based DNS. Also, the platform can support email authentication and on-chain reputation systems.
• Insurance. Ethereum can help individuals and insurance companies settle claims by managing derivatives contracts that use weather data, not a price index. Possible applications include crop and disaster insurance management.
• Decentralized storage. Given the growing need for streamlined asset management, the market is full of centralized storage platforms. Building a similar platform on Ethereum blockchain introduces added security and decentralization. For one, developers can use tokens to incentivize users for renting hard drives for storage. Enterprise teams see this as a sensible solution since they pay more in cloud storage maintenance fees than they would be by storing data on hard drives.
• Data sharing. Development teams can use Ethereum to build data streams where contributors are incentivized for providing the same data (the “truth”). These feeds can feature financial data, answers to questions, or other types of input.
• Gambling. The Ethereum blockchain network can be used to create peer-to-peer gaming protocols with low fees and protection against cheating. Gambling applications range from basic implementations like contracts on block hash differences to complex systems.

How to Become a Part of ETH 2.0?

To become a part of the network, you need to stake Ethereum. According to the official website, one needs to deposit 32 ETH to become a full validator. If you don’t have enough ether, the next best option is joining a staking pool and dividing rewards with other validators.

It’s worth keeping in mind that stakers won’t be able to trade or withdraw funds until the update is complete (by 2022, according to estimates).

Redot gives users an easy way to join Ethereum 2.0 and get rewards for securing the network. You can use the platform to stake as little as 0.01 ETH and earn interests. We don’t charge fees, allowing stakers to claim full rewards.

Stake ETH in one click to become an early validator. This way, you will increase the probability of selection among other nodes and winning rewards.