03 Jun 2021

What is Ethereum?

Ethereum is often compared to Bitcoin, however, they serve two very different purposes. While Bitcoin aims to act as a storage of value and is directly a currency with its own blockchain; Ethereum brings smart contracts into the decentralized economy. Ethereum is a blockchain platform with a cryptocurrency called Ether that is used on it. Because Ethereum is a blockchain platform, developers can build on top of Ethereum to create their own smart contract cryptocurrencies.

Ethereum's intention is to be built upon to create decentralized applications (dapps). Each decentralized app aims to fill a particular transactional niche. Some aim to act as a decentralized loan service where you can lend or borrow without having to go through a bank or traditional lender. Interest is automatically charged and given to the person lending the money. Other apps strive to include the community in how the currency functions by providing a voting system within the blockchain itself for new features. Cryptocurrency is a new way to think about money with the potential to create new ideas that have not even been considered yet. Ethereum provides a platform to match the freedom and scale of the internet might just be the next technological advancement that drastically changes how we interact on a global scale.

What is Ethereum 2.0?

With any software, scalability is hard to build into the initial version. Ethereum was created on July 30th, 2015 and the team has learned a lot as more and more people use Ethereum directly and build upon it. Ethereum's growing popularity highlights areas for improvement such as scalability, security, and sustainability.

Upgrading a system that is active and growing by the day will not happen overnight. Phase 0 in the migration to Ethereum 2.0 is the creation of "The Beacon Chain". This feature was released on December 1st, 2020 to coordinate the network as well as to lay the groundwork for the rest of the migration. The beacon chain does not directly affect the still active Ethereum blockchain.

The Beacon Chain

The beacon chain also brought in the concept of staking. Staking is similar to mining but aims to remove some of the negative aspects of crypto mining. Similar to the "proof of work" familiar to miners, proof of stake will provide consensus to the new blocks added to the blockchain. The difference between mining and staking is that there is no competition in staking because validators are randomly selected to the the one to add the next block. This drastically reduces the amount of computing power needed to keep the blockchain working. With less computing power there will be less electricity needed and allows for a lower barrier to entry than creating a mining farm with expensive dedicated hardware. With more individuals able to contribute this also makes the network more distributed. To become a validator, you will need to stake at least 32 ETH. If a validator tries to cheat the system, they will lose Ethereum that they staked to discourage fraudulent behavior. To start staking, go to the official Ethereum webpage.

The Merge

Merging the current Ethereum network (aka the mainnet) with the beacon chain is referred to as the merge and will put an end to the outdated mining system and fully transition to leverage proof-of-stake.

Shard Chains

There will be even more improvements after the merge takes place in late 2021 or early 2022. The next step in the upgrade will be the introduction of shard chains. With all of these new terms to learn, it helps that they are very descriptive! The shard chain essentially breaks up Ethereum's single chain into 64 separate chains. This is equivalent to taking a very congested one-lane road and turning it into a 64 lane superhighway! Higher throughput means even faster transaction times while still keeping the computing power needed to a minimum. With smaller chains, it is even easier for you to become a validator since desktops, laptops, and even phones will have enough computing power to run a node.