Ethereum 2.0: how it will revolutionize the crypto ecosystem

By Marco Cavicchioli - 9 Jul 2022

Ethereum 2.0 is in effect a new blockchain, called Beacon Chain, which will replace the one currently in use from the beginning.


• What benefits Ethereum 2.0 will bring to the industry

• What are the risks that the Merge may not be successful

• Switching to PoS could ensure Ethereum is mass adopted

What benefits ethereum 2.0 will bring to the industry

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

Proof-of-Work (PoW) is also the consensus algorithm of Bitcoin, the first real decentralized blockchain that has ever been created, as well as all the other decentralized blockchains that were born in the first years after the birth of Bitcoin.

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

PoW guarantees great security and high levels of decentralization, but it turns out to be very expensive and, above all, very energy-intensive.   Proof-of-Stake (PoS), on the other hand, consumes much less energy, also allowing considerable savings on  fees.

So, the real revolution of Ethereum 2.0 compared to the current original version consists of lower transaction costs, lower energy consumption, and higher execution speed.

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

Potentially yes. Since to date recording a single transaction on the Ethereum blockchain  can cost up to $ 35 at peak times, and almost never less than $ 1, it is not at all convenient to carry out micro-transactions, or transactions of small amounts.

This severely limits the common use of the Ethereum blockchain, in fact also greatly limiting its chances of achieving mass adoption.

The fact that a similar reasoning can also be made on Bitcoin, in reality, turns out to be of little relevance, both because Bitcoin is above all a store of value, rather than a currency of exchange, and because the problem of fees on Bitcoin has already been largely solved thanks to Lightning Network (LN).

What are the risks that the Merge may not be successful

In some ways, even the fact that there are second-level solutions, vaguely similar to LN, even for Ethereum can be considered not very relevant, both because  they  have not yet reached the spread of LN, especially because they  do not record transactions on the Ethereum blockchain. Many of the wide-ranging uses of Ethereum, in fact, provide that it is extremely useful to be able to have a public and indelible trace of transactions.

There is, however, a point that seems to be able to question the hypothesis that PoS on Ethereum can be revolutionary.

In fact, there are already alternative blockchains to Ethereum that use PoS, and none of them has yet managed to come close to Ethereum's numbers. This might lead one to think that there is not so much market demand for solutions of this type, but there are a couple of objections that need to be brought to light.

The first is that no alternative to Ethereum has managed to achieve a real mass adoption, to date, and since only Ethereum seems to be able to really do it relatively quickly, the transition to PoS seems absolutely fundamental. It is not known if it will be enough to allow to achieve mass adoption, but for sure with PoW it would be an impossible result.

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

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

Then USDTs were also created on Ethereum, and their use began to increase. But due to the  too high fees, Tether was forced to also issue USDT on other PoS-based networks, such as Tron, achieving resounding success. To date, in fact, it seems that usdT transactions on Tron have exceeded those on Ethereum.

Switching to PoS Could Grant Ethereum Mass Adoption

If, thanks to the transition to PoS, something similar were to happen even within Ethereum itself, we could see a real surge in the number of transactions on this network, or a significant increase in use.

Adding to this scenario an increasing use of second layer solutions, here is that the possibility that the use of Ethereum could explode after the transition to PoS really seems to begin to exist.

If it is no longer inconvenient to record microtransactions on the Ethereum blockchain, or on some of its second layers, the real potential of its use could also explode.

At present these are only hypotheses, so much so that it is absolutely possible even to hypothesize the opposite, but without the transition to PoS it seems, instead, very unlikely that all this can happen.

However, it should also be noted that the consequences on the mass adoption of Ethereum due to the transition to PoS could also manifest themselves in several years, not necessarily immediately. If nothing else, to date it does not yet appear that any alternative blockchain based on PoS has managed to get where Ethereum could arrive.

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