ETH 2.0 is the forthcoming upgrade in the Ethereum community to facilitate the functionality and security of Ethereum in numerous strategies. It would be misleading to call ETH 2.0 an update of ETH1. It is an entirely different project, developed on different architectural principles. Today, ETH1’s architecture is sustained by Proof-Of-Work, as well as a single chain affecting the capability to process transactions rapidly. ETH2 will support a Proof-Of-Stake consensus and use shard chains that are expected to increase the transaction speed from 15TPS to thousands of TPS.
But, although Ethereum 2.0 looks promising, every new project faces challenges.
What does switching to PoS mean for a cryptocurrency?
In a PoW algorithm, miners are the ‘driving force’ behind providing security to the network in return for a block reward and transaction fees. On the other hand, in PoS, there are no miners, but new ether is minted, and transactions are processed by validators selected randomly from algorithms.
The Risk of Centralization
In Ethereum 2.0, it is mandatory to stake a minimum of 32 ETH in order to become a validator. However, if you want to invest less ETH, staking pools and services would be the solution. They make participation possible for everyone, sharing the rewards within the pool. Simply put, the more money you own, the more tokens you have to stake, and the richer you become. The outcome could be a network dictated by high-powered stakeholders that control transaction fees, network upgrades, therefore the future of the root chain’s environment.
Although, centralization is still possible in PoW if large mining pools with enormous computational resources possess the majority of the hash rate. One thing is certain, the launching of ETH 2.0 marks the beginning of a new era for Ethereum and the world of crypto.