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Ethereum 2.0: how it will revolutionize the crypto ecosystem


en.cryptonomist.ch 09 July 2022 10:00, UTC
Reading time: ~4 m

Ethereum 2.0 is, for all intents and purposes, a new blockchain called the Beacon Chain, which will replace the one currently in use from the beginning. 


What benefits Ethereum 2.0 will bring to the industry

The main difference lies in the fact that the new blockchain uses PoS as the consensus algorithm instead of PoW

Proof-of-Work (PoW) is also the consensus algorithm of Bitcoin, the first truly decentralized blockchain ever created, as well as all the other decentralized blockchains that came into existence in the early years after Bitcoin’s birth. 

Ethereum’s blockchain was born six years later, but still, it has always been based on PoW. 

PoW provides great security and high levels of decentralization, but it is very expensive and, most importantly, very energy-intensive. Proof-of-Stake (PoS), on the other hand, consumes much less energy while also providing significant fee savings. 

Thus, the real revolution of Ethereum 2.0 over the original version is lower transaction costs, lower energy consumption, and higher execution speed

The question that can be asked at this point is, is this a real revolution? 

Potentially, yes. Given that to date, registering a single transaction on the Ethereum blockchain can cost up to $35 at peak times, and rarely less than $1, it does not pay at all to make micro-transactions or transactions of small amounts. 

That severely limits the everyday use of the Ethereum blockchain and greatly limits its chances of achieving mass adoption

The fact that a similar argument can be made about Bitcoin actually turns out to be of little relevance, both because Bitcoin is primarily a store of value rather than a currency of exchange and because the fee problem on Bitcoin has already been largely solved thanks to the Lightning Network (LN)

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In some ways, the fact that there are second-tier solutions vaguely similar to LN, even for Ethereum, can also be considered unimportant, both because they have not yet reached the widespread use of LN and especially because they do not record transactions on the Ethereum blockchain. Many of Ethereum’s wide-ranging uses, in fact, provide that it is advantageous to be able to have public and indelible records of transactions.

There is, however, one point that seems likely to challenge the assumption that PoS on Ethereum could prove revolutionary. 

In fact, there are already alternative blockchains to Ethereum that use PoS, and none of them has yet even come close to matching Ethereum’s numbers. That might suggest that there is not that much market demand for such solutions, but a couple of objections need to be brought to light. 

The first is that no alternative to Ethereum has been able to achieve true mass adoption to date, and since only Ethereum seems like it can really make it relatively quickly, the move to PoS seems absolutely critical. Whether it will be enough to enable mass adoption is unknown, but certainly, with PoW, it would be an impossible achievement

The second is that, instead, there is at least one successful case of PoS versus PoW, namely Tether (USDT). 

Initially, USDT was traded on the Omni network, based on Bitcoin’s blockchain. At that time, the number of daily USDT transactions remained decidedly low. 

Then USDT on Ethereum was also created, and its use began to increase. But because of too high fees, Tether was forced to issue USDTs on other PoS-based networks, such as Tron, achieving resounding success. To date, in fact, it appears that USDT transactions on Tron have surpassed those on Ethereum. 

The move to PoS could ensure Ethereum’s mass adoption

If, as a result of the move to PoS, something similar were to happen within Ethereum itself, we could see a real surge in the number of transactions on this network, resulting in a significant usage increase

Add to this scenario an increasing use of second-layer solutions, and here is where the possibility that Ethereum usage could explode after the move to PoS seems to really start to exist. 

Should it no longer be inconvenient to register micro-transactions on Ethereum’s blockchain or some second layer of it, the real potential for its use could also explode

In the current state of affairs, these are only hypotheses, so much so that it is also entirely possible to assume the opposite, but without the switch to PoS, it seems, on the other hand, very unlikely that this will happen. 

However, it should also be pointed out that the consequences of Ethereum’s mass adoption due to the switch to PoS could also manifest themselves in several years, not necessarily immediately. If nothing else to date, it is not yet apparent that any alternative PoS-based blockchain has managed to get where Ethereum might get. 

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