What Is Ethereum 2.0? What You Should Know
Written by
David Granahan
Edited by
Amber Barkley
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Ethereum 2.0 was the next level of blockchain technology and cryptography. Though Eth2 is no longer the terminology used, Ethereum isn’t sitting idle. Ethereum, however, isn’t sitting idle. It’s altering its state as time goes on.
Is Ethereum 2.0 Ever Coming Out?
Ethereum 2.0 — referred to as the Ethereum upgrades — consisted of three core steps, two of which were completed. The third step was deemed no longer necessary as other technology was developed faster than expected. While the Ethereum 2.0 upgrades no longer carry the name, the Ethereum ecosystem still has a long-term roadmap in place: Innovations to the ecosystem are making it more scalable, secure and sustainable.
Ethereum 2.0 consisted of three core steps, two of which were completed:
- Launch of the Beacon Chain — complete
- The Ethereum Merge — complete
- Ethereum Sharding — replaced by layer 2 rollups
Step 1: Ethereum Beacon Chain
The Beacon Chain was the first stage of migrating Ethereum from a proof-of-work mechanism to proof-of-stake. It was a test to ensure PoS was a sustainable way forward for Ethereum’s blockchain before its introduction to the ecosystem. When the test proved successful, the PoS mechanism worked alongside the previous PoW system as the next phase began developing.
Step 2: Ethereum Merge
The Ethereum Merge followed the introduction of the Beacon Chain and combined the blockchain data collected since Ethereum’s inception with the data collected on the Beacon Chain, creating one mechanism dedicated to the PoS consensus.
Before the Merge, PoS and PoW co-existed, but the purpose of the Merge was to eliminate the need for PoW. The overarching goal is to end energy-intensive mining. Additional benefits include reduced environmental damage, increased scale usability and improved security.
While PoW still exists, it has been altered so that it’s no longer profitable for miners to use it. Post-Merge, it’s estimated that the amount of energy used for Ethereum decreased by 99.95%. Using Bitcoin’s energy consumption as a comparison, estimated to be around 150 terawatt-hours per year — equivalent to the amount of electricity Argentina expends annually — the Ethereum Merge works as a far more energy-efficient monetary system.
Step 3: Ethereum Sharding — Layer 2 Rollups
The last step of the original Ethereum upgrades roadmap, Sharding has been dropped from the roadmap thanks to the quick development of another tool of scalability: layer 2 rollups. While the previous stages focused on security and sustainability, Ethereum Sharding was designed to concentrate on scalability and encourage network participation.
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Layer 2 rollups are a different approach to scalability. It refers to taking hundreds of transactions completed on layer 2 — a secondary blockchain of Ethereum — and “rolling up” or bundling them into one transaction on layer 1, which is Ethereum’s base blockchain. This process has been able to provide scaling without the step of sharding.
What Is Sharding?
Sharding divides data into smaller subsets, making it easier for a network to handle. This isn’t a new concept — it’s an ideal frequently shared in the computer science industry and seeks to reduce transaction times and network congestion on the blockchain.
The belief is that increasing data availability removes the need for expensive computing hardware. Therefore, anyone with a regular phone or laptop will be able to contribute to securing the network.
Ethereum’s New Roadmap
While Ethereum 2.0 is no longer the accepted term, that doesn’t mean Ethereum has stopped developing. ETH now breaks its roadmap into four categories:
- Cheaper transactions: The current effort to reduce fees is focused on reducing data storage costs through Proto-Danksharding — moving data from Ethereum to temporary storage.
- Extra security: Planned improvements to Ethereum’s security include increasing liquidity, protecting users from spam attacks and from failures in the network, hardware and software.
- Better user experience: Ethereum is aiming to make itself easier to use through protection for lost or stolen wallet keys and making nodes more accessible for the less tech-savvy.
- Future proofing: To keep itself both relevant and reliable, Ethereum is developing upgrades to protect the network from anticipated future threats.
Other Effects of the Ethereum 2.0 Upgrade
Ethereum 2.0, while it was called that, brought up a number of questions beyond the basics outlined in its roadmap.
Will Ethereum 2.0 Be a New Coin?
There is no new coin or crypto resulting from Ethereum 2.0 upgrades. One of the main reasons developers changed the wording from “Ethereum 2.0” to “Ethereum upgrades” is to avoid that confusion.
Those holding ethereum, or ETH, do not need to take any action. ETH can still be used in the same manner as always: trading, staking, exchanging and other usual functions.
Binance issued a warning that anyone asking users to buy “ETH2” tokens may be a scammer. Any contact suggesting funds need to be sent to an unknown third party should be ignored. Crypto scams are prevalent, and holders of digital assets must remain skeptical of suspicious activity.
Did Ethereum 2.0 Reduce Gas Fees?
The Merge was not expected to reduce gas fees in any meaningful way. However, as Ethereum updates continue, lower gas fees — and quicker transactions — are expected to follow.
Did Ethereum 2.0 Replace Ethereum?
The move to Ethereum 2.0 does not affect the ethereum that people currently hold. Each ethereum token is no different from before, and the Ethereum blockchain was upgraded, not replaced.
Ethereum 2.0 was simply an upgrade that gave the community of ethereum holders the option to earn yield from the proof-of-stake model. Participants can receive a percentage reward in exchange for using their ethereum to secure the network.
In fact, some analysts predict that the upgrades will increase ETH’s price in the long term, though that remains to be seen.
Insiders Weigh In on Ethereum 2.0
A key Ethereum researcher, Justin Drake, told Time that Ethereum 2.0 “dramatically increases the security of Ethereum.” In his words, the upgrade will make it far more challenging to make any attacks on the Ethereum ecosystem.
Co-founder of Ethereum, Vitalik Buterin, also made his feelings known following the successful Merge. He took to Twitter in September 2022, proclaiming that the event will cut “worldwide electricity consumption by 0.2%.”
Final Take
Ethereum’s 2.0 upgrades promised to create positive results and appear to be succeeding so far. Decreasing Ethereum’s energy consumption by 99.95% is a significant step toward ensuring cryptocurrency’s place in an environmentally conscious future.
While ethereum is still far from its previous peaks, that isn’t necessarily a reflection on the upgrades — cryptocurrency as a whole remains in a bear market for the time being. Once the market turns, Ethereum could be a focus of interest for investors and crypto technology enthusiasts alike.
Before making any investment decisions, remember that the cryptocurrency market is volatile. It may be a good idea to consult with a financial professional before investing in any crypto assets.
FAQ
Here are some questions people ask about the Ethereum 2.0 upgrades.- Is Ethereum 2.0 the final upgrade?
- No – the Ethereum upgrades are a continual process. The major steps of the Beacon Chain and the Ethereum Merge are now complete. More upgrades occurred in April 2023, and further upgrades such as staking withdrawals are expected later this year.
- Is ethereum a good investment?
- As far as cryptocurrency goes, ethereum is one of the better investments because of its continuous development and wider use cases. However, the price ethereum will command in the future is unknown.
- Finder, a fintech specialist, estimates ethereum will be worth $14,814 by late 2030. For now, while crypto as a whole has not yet left its bear market, recent upward moves may show promising signs for the future.
- When did the Ethereum Merge happen?
- The Ethereum Merge was completed on Sept. 15, 2022, solidifying the move to PoS consensus.
- Is it better to buy ethereum or ethereum 2.0?
- There is no way to buy ETH2 because it is the same as ETH. Ethereum's upgrades did not and will not result in a new token. In fact, anyone attempting to sell ETH2 tokens is probably a scammer – or got scammed themselves.
Chris Ozarowski and Amber Barkley contributed to the reporting for this article.
Information is accurate as of May 26, 2023, and is subject to change.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
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- Binance. 2022. "What Will Happen to My Ether After Ethereum's Merge?"
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- TheNewsCrypto. 2022. "ETH Merge Will Reduce Global Electricity Consumption by 0.2%."
- Time. 2022. "A Top Ethereum Developer Plays Down the Inevitable Glitches During the Merge."
- Our World in Data. "Argentina: Energy Country Profile."
