What is Ethereum 2.0 and how does it work?
Ethereum 2.0 is an update that will be eliminating the Proof-of-Work (PoW) consensus model in favour of the Proof-of-Stake (PoS) consensus model. Over the last year, the Ethereum network has developed at an exponential rate.
Since the introduction of the burn mechanism in August 2021, the Ethereum network has been burning its ETH tokens. Burning tokens is an act of removing a particular currency from circulation to create a deflationary effect and improve the blockchain. The burning mechanism was introduced as part of the London Update of the network which was introduced as a stepping stone for the smooth transition towards the Ethereum 2.0 update.
What is Ethereum 2.0?
Ethereum 2.0 is an update that will be eliminating the Proof-of-Work (PoW) consensus model in favour of the Proof-of-Stake (PoS) consensus model. The PoS consensus technique replaces the PoW’s high computational and energy demands. Because of the scale of the changes, this upgrade to the consensus process has been called Ethereum 2.0.
Why is the Ethereum network switching to PoS?
Over the last year, the Ethereum network has developed at an exponential rate. This was primarily owing to the recent surge in popularity of NFTs and Decentralised Finance (DeFi) projects.
On the Ethereum blockchain, there are now over 200 DeFi projects. As a result, the volume of transactions on the network has increased significantly. Because of the increased quantity of transactions, miners had to use even more processing power to validate them. The increased processing capacity resulted in greater energy consumption, to the point where people began to consider the environmental impact.
This became a major source of concern for scientists, who cautioned the public about the alarmingly high levels of energy use and the consequences for the environment. The PoW consensus process was then scrutinised by legislators all around the world.
The transition to PoS will eliminate the PoW model’s heavy processing requirements, making Ethereum a more environmentally-friendly network.
How will the PoS consensus model work in Ethereum?
Users must stake at least 32 ether tokens to be a validator on Ethereum’s PoS. Users can also join a staking service, which pools multiple users’ tokens to form a single validating pool.
The validators will be chosen using an algorithm based on the amount of money they have locked in the network. The more you bet, the more likely you are to be chosen. The chosen validator receives ether in exchange for the transactions they process.
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