Hello passengers may we have your attention, please? Your flight to the ‘Everything you need to know about the Ethereum Upgrade’ island is about to take off. We ask that you please fasten your seatbelts at this time, thank you. Alright! We think that it would be best to break down the Ethereum upgrade from a bird’s-eye view so that you could see the whole picture.
We should mention right off the bat that the upgrade is not a one-time thing, instead, it has been planned in phases. What stage of the upgrade are we in? what changes do we expect to see? As an Ethereum user, what should you do on your end? Well, let’s find out!
Before we go any further, let’s quickly cover Ethereum and its design, that way we can understand why the upgrades are necessary. To do this let’s go way back to 2015, and meet Ethereum’s founder, Vitalik Buterin. The Canadian programmer introduced Ethereum that year, as the first blockchain network to feature smart contracts, which are basically algorithms that self-execute once specific preset conditions are met therefore cutting out intermediaries.
Unlike the Bitcoin network which was and still is purely transactional, Vitalik envisioned Ethereum as a world computer, one upon which decentralized applications would live. This vision became a reality, and more and more dApps were built on the network at a staggering pace.
Ethereum started suffering from its own success with scalability issues as it can only process around 15 transactions per second. This is nowhere near enough, for context, the network processes trillions in transactions annually and has around $56 billion in total value locked according to Defilama. You sort of see the issue clearer now, right?
With the network being limited to 15 transactions per second, transaction times and fees end up rising at times of network congestion. Enter Ethereum Upgrades. As we’ve mentioned, the upgrades are not happening all at once. It’s not as straightforward as going to the app store and clicking ‘update’ or replacing one part with the other, rather, the upgrade will take place in phases.
Also, to avoid confusion, the Ethereum foundation deliberately stopped referring to the upgrade as Ethereum 2.0 earlier this year stating they intend to reflect the fact that what’s happening is a network upgrade rather than the launch of a new network.
The main phases of the upgrade
Anyway, let’s go deeper into the main three phases of the upgrade. The first upgrade known as the Beacon chain went live in December 2020. This upgrade introduced native staking to the Ethereum blockchain, a key feature of the network’s shift to a PoS consensus mechanism.
Keep in mind that Ethereum is traditionally a Proof-of-Work network where miners use a machine’s processing power to compete to solve complex mathematical puzzles and verify new transactions, which is an energy-intensive process.
On the other hand, PoS networks instead rely on your staked assets to secure the network and validate transactions. Specifically, the amount you’ve staked acts as a form of guarantee that you won’t try to compromise the very same network your funds live on.
The key advantage of PoS is that it consumes significantly less energy than PoW since it does not require a large amount of computer power to secure the blockchain. Note that the Beacon chain is a separate blockchain and has been running in tandem with the Ethereum mainnet.
The second stage known as the Merge represents the joining of the existing execution layer of Ethereum that is the Mainnet we use today with its new proof-of-stake consensus layer, the Beacon Chain. After the Merge happens, that is, when the two systems finally come together, proof-of-work will be replaced permanently by proof-of-stake.
This phase is in its final stage with the merge expected to happen in the third or fourth quarter of this year. You can check out the Ethereum foundation’s blog for the latest progress updates.
The final stage of the upgrade is known as sharding which involves splitting the database on the Ethereum blockchain so that Instead of settling all operations on one single blockchain, shard chains spread these operations across 64 new chains. This way, each validator verifies only the respective shards they’re responsible for instead of verifying the whole network.
Therefore, sharding encourages decentralization by lowering the barrier to entry for anyone wishing to run a node. This is also when Ethereum’s scalability and capacity are improved. Currently, scaling solutions like layer 2 rollup scaling solutions are already being implemented, and are meant to work synergistically with sharding in the future.
This technology takes much of the burden of computation and storage out of the main blockchain and uses the chain just enough to benefit from its security guarantees. According to the Ethereum Foundation, this stage is expected to be implemented sometime in 2023.
What happens after the upgrade?
Ok, so now what after the upgrade? Upon the upgrade’s completion, Ethereum will experience all of the proof-of-stake benefits. PoS will bring Ethereum better scalability, accessibility, and security, as well as make it more environmentally friendly. That said, the cause of Ethereum’s issues was scalability in the first place.
Ethereum’s upgrade aims to address the trilemma, a term coined by Vitalik himself which implies that you cannot have scalability, security, and decentralization all at the same time. For example, increasing scalability and decentralization means cutting into the security, as you have to do more validation more quickly, hence security will suffer.
According to Vitalik, it is the job of the Ethereum upgrade to make the network scalable while still sustaining its security and decentralization attributes. Though to make things clear especially since the next phase will be happening soon, the Merge will not lower transaction costs, nor is it expected to meaningfully increase the speed of these transactions.
Do you need to prep for the Merge?
So, What do you need to do for the Ethereum Merge? This question has come up due to some Ethereum users having concerns about their funds. Ethereum has specified that no action is required to upgrade on your part, so you do not need to do anything with your funds or wallet before The Merge.
To say that Ethereum’s endeavors are ambitious is an understatement. Though, it builds upon the incredible work already undertaken by the Ethereum network and the overall blockchain industry.
When completed the potential of decentralized technology may be truly realized. On a scale of 1ETH to 10ETH, how excited are you about the upgrade? Let us know in the comments.
Disclaimer: Please keep in mind that I am not a financial advisor. I’m only sharing my personal experience and thoughts. All strategies, tips, suggestions, and recommendations shared in this article are solely for the purpose of entertainment and education. Investing in the cryptocurrency market comes with some financial risks. You must conduct your own research and due diligence, and if necessary, seek the advice of a licensed crypto advisor.