ETH 2.0 gets a makeover, what impact will the June upgrade have?

After 2022, the Ethereum community will stop using "Eth1" and "Eth2" and instead use "execution layer" and "consensus layer" to describe the upcoming Ethereum upgrade. Although this change in name has not caused significant discussion in the domestic crypto community, it indicates that the Ethereum core team is making final preparations for the Ethereum upgrade.

This upgrade is important for two reasons.

First of all, this is another major technical upgrade of Ethereum after EIP-1559. The existing Ethereum will be merged with the beacon chain, and the PoW miners will be eliminated through the difficulty bomb, which will even have an impact on graphics card manufacturers, thereby alleviating the current situation of insufficient global chip supply to a certain extent. The so-called Ethereum difficulty bomb refers to the sudden increase in the difficulty of mining at a certain block height in Ethereum to prevent miners from continuing to use the proof-of-work mechanism to mine after the transition to PoS.

Secondly, as the leader of public chains and the second largest in the crypto world, this upgrade will inevitably have a significant impact on the entire crypto world.

So, why is the Ethereum upgrade imminent? When will the Ethereum upgrade come? What impact will this upgrade have on the entire industry?

Ethereum upgrade, imminent?

When you are very interested in questions like "Why is Ethereum upgrading imminent?", you are actually asking "What exactly is the reason for Ethereum's slow performance and sky-high transaction fees?", that is, what problems Ethereum is facing.

It should be said that Ethereum is facing "crisis" in four aspects.

First, the extremely high gas fee. When many high-performance public chains such as Solana/Avalanche/Cosmos/Terra/Polygon/Polkadot have emerged, Ethereum still maintains an extremely high gas fee, which seems out of place. We have reason to believe that if Alipay had always maintained "1,000 yuan per transaction", it would never have had a major impact on the banking industry around 2015, and thus changed the financial industry.

For Ethereum, Gas fees are used to pay miners to motivate them to provide computing power for the entire network. With limited computing resources, the higher the Gas fees provided by users, the faster the transaction will be executed. This "highest bidder wins" logic caused by resource shortages has turned Ethereum into a real community of rich people. After all, sometimes the Ethereum Gas cost is higher than the value of a transaction. For example, the Gas fee for purchasing a low-cost NFT may be higher than the price of the NFT itself.

Secondly, high energy consumption. Under the trend of energy conservation, emission reduction and low carbon environmental protection, it is inappropriate for Ethereum to continue to implement PoW. As the scale of the Ethereum ecosystem becomes larger and larger, the value of Ethereum increases, and the network computing power continues to increase, the power consumption of the Ethereum network continues to increase, which is obviously not in line with the trend of social development. In addition, as the scale of the Ethereum network continues to grow, the continuous accumulation of historical data will continue to push up the operating costs of newly added nodes, thereby limiting the development of Ethereum in the direction of decentralization.

Then, inefficiencies. Ethereum’s inefficiencies slow down the execution of smart contracts and limit the Ethereum network’s ability to run highly complex applications.

Finally, the impact on GPUs. Ethereum’s PoW consensus has led to an increasing demand for GPUs in the Ethereum network, which is likely to lead to a shortage of GPUs, causing graphics card prices to soar. High GPU prices have had a huge impact on GPU-related industries.

For example, graphics cards are almost sold out on overseas e-commerce platforms such as Amazon and Newegg. The prices of second-hand GPUs on websites such as eBay and Xianyu are several times higher than their suggested retail prices, which has caused great trouble for people who rely on graphics cards for daily operations, such as multi-computer building enthusiasts, multimedia practitioners, and gamers.

The Ethereum community generally believes that these problems hinder the wider development of Ethereum applications. The upcoming upgrade is an important step in the Ethereum community's efforts to improve the Ethereum fee structure, which will have four impacts on the crypto world.

Four impacts of Ethereum upgrade

As the leader of public chains and the second largest cryptocurrency in the crypto world, every major upgrade of Ethereum will have a significant impact on the entire crypto world. Take the EIP-1559 upgrade in August 2021 as an example. At that time, driven by ETH, the entire crypto industry rebounded from the bottom. In the subsequent rise, Bitcoin broke through its previous high in one fell swoop, reaching a high of $69,000.

So, what impact will this Ethereum upgrade bring?

First of all, according to the Ethereum upgrade roadmap, the Beacon Chain will eventually merge with the current Eeh1 in mid-2022. At the same time, the difficulty bomb will be activated, PoW miners will be eliminated, and the Ethereum consensus mechanism will switch to PoS.

Under the influence of the EIP-1559 burning mechanism and the PoS mechanism, ETH will enter deflation. Since the implementation of the EIP-1559 proposal in August 2021, Ethereum has destroyed 1.797 million ETH, while the amount of ETH generated through mining rewards in the same period was 2.524 million, and the net reduction of ETH in the entire network reached 71.2%.

As Ethereum upgrades and PoW switches to PoS, the rewards originally intended for miners will be cancelled, and Ethereum tokens will enter a true deflation.

Secondly, the Ethereum upgrade will also benefit the development of high-performance public chains. It is generally believed that as Ethereum switches to PoS, performance will be greatly improved, which is obviously a huge negative for high-performance public chains. But in fact, this is a misunderstanding at the cognitive level. Switching to PoS will not improve Ethereum performance, and with the arrival of PoS, Ethereum performance may actually decline.

Recently, Ethereum founder Vitalik said in a communication with the community that although the blockchain in the PoS state does not generate uncle blocks, each block confirmation in the PoS state requires thousands of multiple signatures, and 12 seconds is still a conservative estimate.

This means that the block time of Ethereum in the PoS state may even exceed that of the PoW state. Currently, the stable block time of Ethereum is 12s to 13s. PoS can neither improve the speed nor the performance. Therefore, this upgrade of Ethereum may still have a positive impact on high-performance public chains.

Then, it is good for PoW projects that use the ETHash algorithm. When the difficulty bomb is activated, eth1 will merge with the PoS-based beacon chain, and the PoW consensus and computing power will be abandoned. These computing powers are likely to look for new PoW projects based on the ETHash algorithm.

Finally, if the Ethereum upgrade can be successfully implemented, it will inevitably have a positive impact on the entire crypto market. Take the EIP-1559 upgrade in August 2021 as an example. At that time, driven by ETH, the entire crypto industry rebounded from the bottom, and then driven by the positive impact of the "Bitcoin Futures ETF", Bitcoin broke through the previous high in one fell swoop, reaching a maximum of US$69,000.

As for when the upgrade will come, in October 2021, Ethereum officials postponed the execution of the difficulty bomb to June 2022. As for whether the upgrade in June this year can be successfully executed, we will have to wait and see.

In short, in the foreseeable future, as Ethereum continues to upgrade, its currency attributes and underlying application attributes will be continuously strengthened.