Today we want to give you a short primer on the upcoming Serenity update on the Ethereum blockchain, also known as Ethereum 2.0. Learn why the update is both urgently needed and much anticipated and why Ethereum 2.0 might cause the ETH price to skyrocket to new heights!
As explained in our blog post “An Introduction to Ethereum and the World of Altcoins*, the Ethereum network is one of the largest and most widely used blockchain networks in the world. Moreover, it is also one of the world’s largest open source projects on Github. Since its first release in 2015, Ethereum has been making strides towards its ultimate goal of becoming a decentralized global computer that could one day replace many of the centralized applications that we use in everyday life.
However, the Ethereum community and network still has much work to do before this goal is realized. This article aims to provide you a quick informational overview about what you must know about the (hopefully soon) upcoming release of what is known as Ethereum 2.0 or the Serenity update. It will be the largest and most comprehensive update ever implemented by the Ethereum community.
For all of the potential the technology has, Ethereum currently has considerable limitations. In short, if Ethereum aims to be the backbone of the new financial system, it needs to be able to process a lot more transactions per second than it is able to process now. Given the distributed nature of the network, this is an immensely difficult problem to solve and Ethereum developers have been. Working on solutions. to solve the scalability problem for years. While doing so, they had to consider multiple factors. For one thing, to keep the network sufficiently decentralized, certain limits (or barriers of entry) must be enforced. At the same time, the network aims to be decentralized and barriers of entry may raise centralization issues as the higher the requirements to operate a node are, the fewer participants there will be, and the more centralized the network becomes. Therefore, increasing the processing speed of transactions may threaten the integrity of the system and give few actors a lot of control over the network.
Another criticism of Ethereum (and other Proof of Work cryptocurrencies) is that it’s tied to an incredibly high consumption of resources involved. In the mining process. In order to successfully append a block to the blockchain, they must mine. The process of mining refers to the solving of highly complex hash puzzles, which requires nodes to rapidly perform computations. This consumes huge amounts of electricity, which is not sustainable from an environmental point of view.
To address the limitations mentioned above, Ethereum 2.0 will bring a major set of upgrades. Once fully rolled out, Ethereum 2.0 should greatly improve the network’s performance as the release will transform Ethereum from a pure proof-of-work protocol to a fully-fledged proof-of-stake network. After that, instead of competing against each other to solve hash puzzles, users who accrue the most wealth, which they consequently “stake”, will be in charge of validating transactions. This kind of consensus mechanism is based on the assumptions that coin holders, especially the ones holding large amounts have an interest in keeping the network secure and will therefore be honest in the validation process.
The launch of the first phase of Ethereum 2.0 has tentatively been planned for July, starting Ethereum’s transformation from a no-frills proof-of-work protocol to a fully-fledged staking platform. According to the most recent information, the launch of thee full test-net can be expected within the next weeks.
This is a fundamental development that some experts believe could catalyze a bull run for Ether (ETH). As 30% of ETH’s supply locks up, demand will increase, which in turn will drive up the price. But what could generate a supply shock of this magnitude? According to experts, ETH supply will dwindle as many large investors flood in seeking steady gains from staking. At present, the annualized rate of return for staking ETH is estimated anywhere between 4% and 12%. This might be attractive for many investors, as they typically seek a minimum 3% to 5% return on investment.