Ethereum Origin and the Road to ETH 2.0
The road to ETH 2.0 includes interconnected protocol upgrades and transforming the Ethereum network into a more scalable, secure, and sustainable network.
What is Ethereum?
For newbies just know that Ethereum is a blockchain network with its cryptocurrency ETH (Ether). It is a decentralized project run by the community, capable of powering decentralized applications.
Ethereum vs. Ethereum 2.0 - The Difference
One of the major differences between Ethereum and Ethereum 2.0 is that the former version followed the PoW (Proof of Work) consensus mechanism as opposed to the upgraded PoS (Proof of Stake) consensus of Ethereum 2.0.
Ethereum 2.0 is not a separate blockchain but a refined version of Ethereum with better security against cyberattacks and enhanced scalability to host a massive amount of DApps (Decentralized Applications) and DeFi (Decentralized Finance). It is also a sustainable blockchain due to its eco-friendly PoS consensus that discards the mining network of PoW.
The Roadmap to ETH 2.0
The roadmap to Ethereum 2.0 began in December 2020 with the launch of the Beacon Chain. With the Altair Upgrade of 2021 and The Merge of 2022, Ethereum successfully transformed into Ethereum 2.0. Sharding is an essential part of the ETH 2.0 roadmap that remains to be implemented before the end of 2023.
Institutional Adoption of Ether
Institutions have been widely utilizing Ether, the world’s second-largest crypto. The Ethereum network is already home to 80% of all DeFi applications and 70% of NFTs (Non-Fungible Tokens) on the global market.
However, Ethereum is on its way to becoming the category leader of digital assets following its transition into Ethereum 2.0. Tax preparers and investors need to know that The Merge has significantly reduced Ethereum’s token emissions and energy consumption, allowing ETH token holders to earn a staking yield with its PoS. This new economic model is likely to boost Ether's adoption by institutions.
Outcomes The Merge
The Ethereum 2.0 network combines the Ethereum Mainnet with the PoS blockchain, the Beacon Chain. Traditionally, blockchains like Bitcoin and Ethereum operated with a PoW system that involved miners approving and validating all transactions on the blockchain, which was an energy-consuming process to solve complex mathematical puzzles to receive crypto rewards.
With The Merge, investors can become Ethereum validators by depositing ETH to be eligible to approve or deny transactions to earn rewards. It replaces cryptocurrency miners, thereby reducing energy consumption.
Additionally, any malicious actor must stake 32 ETH to become a validator. Thus, they have an enormous risk of losing a massive amount of money if discovered. With enhanced security, scalability, and reduced power consumption, The Merge has prepared Ethereum for growth and towards its next upgrade, Sharding.
Propelling towards Sharding
Another major upgrade on its way for Ethereum 2.0 is ‘sharding.’ Sharding is the concept of data distribution to increase processing speed. By introducing 64 shards into the Ethereum network, each shard will behave like a new chain connected to the Ethereum chain, working harmoniously to reduce workloads.
Benefits of Sharding
Sharding will promote scalability in the Ethereum network allowing transactional traffic to move quickly, smoothly, and efficiently. Imagine a single-lane highway upgraded to a new one with 64 lanes. Sharding will also increase the blockchain’s throughput and lower the gas fees on the network.
Sharding Concerns
Sharding is an effective solution for scalability in blockchain networks. It might not be a true solution to the scalability problem forever, but it is one of the best to handle the current technology and blockchain infrastructure.
The Impact of The Merge on Institutions
The Merge has transitioned Ethereum into an entirely new blockchain by addressing the most significant shortcomings that the blockchain network has faced in recent years.
The Merge transforms the original Ethereum and makes it extremely powerful with the following benefits.
- Enhanced Security and Decentralization: The PoS system of Ethereum will increase the malicious actors’ cost of attacking it. With over 434,874 validators for cross-team ecosystem collaboration and around 14.7M staked ETH, the blockchain is potentially impossible to attack as a 51% attack (implying control of more than half of the blockchain, which is required to compromise it) would require over $11 billion.
- Diminished Carbon Footprint: There is a 99.95% decrease in Ethereum’s energy consumption by eliminating miners, which is a huge step for sustainability goals without compromising yield returns.
- Better Staking Opportunities: Staking contracts on Ethereum will allow stakers to earn rewards for participating in the PoS consensus, helping them receive an estimated 5.5%-13.2% yield, which is already ~4.0%.
- Interoperability: Ethereum 2.0 enables full network interoperability with the highest number of live clients. With a wide array of options, institutions can choose their interactions with Web 3.0.
- Pension Funds and Endowments: From spot exposure to 401(k) investments, investors' exposure to this growing asset class will require new risk management and investment strategies to survive the adoption cycle.
- Institutional Exposure: Financial institutions worldwide may seek to increase exposure to DeFi, starting with NFT drops and embedding crypto wallets into banking applications. Furthermore, institutions and organizations may attract portfolio managers for increased exposure to DeFi yield farming opportunities on protocols launched on Ethereum 2.0. New career opportunities are just getting started.
The Merge is a huge step for institutional investors but only the first step toward a complete Ethereum.
With a planned approach and continuous improvement of the Ethereum network, the blockchain will fulfill the appetite of institutional investors by adapting to choices, geopolitical and macroeconomic factors, and crypto market volatility.
New professional opportunities and challenges are unfolding in the months and years ahead as we all adapt to the next phase of financial innovation.
More to come in the next post.
Your Crypto Navigating Team,
-- ALT Monie Crew
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Disclaimer: Results will vary. Not financial/legal/tax advice. Risk is a guarantee, past performance is not. Always do your own research. For educational purposes only. Data assumes the world doesn't implode this week. All decisions are your responsibility. Research curated from various public and private proprietary resources.
