Ethereum follows a roadmap and a team works behind it to keep it on track. Even though Ethereum’s offerings like Ether (ETH), smart contract and tokenization capabilities offer a ray of possibilities, it is also stricken with some issues like network congestion, relatively low transaction times and throughput, large blockchain size and excessive electricity use for mining.
It is expected that Ethereum 2.0 will bring about some biggest changes in the network. But Ethereum network use falling left people think about what will happen to the DeFi ecosystem with the rolling out of EThereum 2.0.
Ethereum 2.0
Ethereum was created in several stages and Ethereum 2.0 is scheduled to launch in the second half of 2020. The first stage being known as ‘’Phase 0’’ is going to see the launch of the Beacon Chain, the spine that supports the whole of the new Ethereum 2.0 system. ‘’Phase 1,’’ the next stage, will bring the implementation of shard chains.
These two stages will found Ethereum 2.0 and will coexist with the current blockchain causing solutions for the congestion and scalability issues. The two will only be merged in the third stage ,’’Phase 1.5.’’ Beacon Chain will deduct the need for token swaps for those who wish to remain on the original chain throughout the implementation of Ethereum 2.0.
Maybe, the completion of Phase 2 and beyond releasing will be done by 2021 and until then, the proof-of-work consensus model will continue to be supported and developed to ensure a stable basis for DApps and DeFi before jumping top PoS system is made.
Is Ethereum 2.0 urgent?
Ethereum is yet incapable in the case of scalability issue and gas use and limits create a fee market where people must often compete for transactions and smart contracts to be processed quickly by paying higher gas prices.
While Bitcoin’s chain is bigger, 283 GB, Ethereum’s blockchain is currently 142 gigabytes making the Ethereum Chain almost as resource-intensive as Bitcoin. It is thought that the issues will get worse as the DeFi ecosystem expands. So in this situation it is really urgent for Ethereum to have a new solution.
Is transition period tolerable
It is previously said that the shift to Ethereum 2.0 will take time for DeFi and DApps. With the happening of Phase 1.5 merger, the PoS and chain sharding features will be a reality for all of Ethereum. Users that want to stake Ether will have to send their coins to a one-way smart contract when Phase 0 is launched.
The transition period between the existing version and Ethereum 2.0 isn’t a major concern in the DeFi space.
Advantages and Dangers of Ethereum 2.0
PoS at its completion will bring improvements to the whole ecosystem and solve some of the most fundamental issues of DApps allowing ETH transactions and DApps to compete with other blockchains. The transaction speed and throughput will be increased by the sharding feature of Ethereum 2.0. Spending of Ether across multiple chains will be easy and these chains will be interoperable.
Improvements in the long run have a huge impact on DApps. Sharding will solve the issue of the necessity of more resources which take root with the development of Ethereum ecosystem. Ethereum 2.0 being promising for the DeFi space carries certain amount of risk.
How will staking affect DeFi?
Staking will allow anyone with 32 or more ETH to earn new coins by staking theirs, which adds a penalty system for any malicious attempts on the network while rewarding those that process transactions accordingly. PoS model resemble lending in its fundamental manner, as users will lock their ETH in order to receive interest. Ethereum can currently be in a crisis of a good solution to their congestion issues but remember one that Ether is still the largest altcoin out there. Ethereum 2.0 is very important for the DeFi ecosystem which needs to be done right to ensure the improvements go well.
