What is Ethereum and how does it work?

Ethereum is a technology ecosystem that works on a blockchain. It has support for building decentralized apps, DeFi applications, programmable smart contracts, NFTs, and more. The cryptocurrency called Ether (ticker: ETH) is the native currency of the Ethereum platform.

Ethereum is a technology ecosystem that works on a blockchain. It has support for building decentralized apps, DeFi applications, programmable smart contracts, NFTs, and more. The cryptocurrency called Ether (ticker: ETH) is the native currency of the Ethereum platform.

ETH has real-world usage and it is extremely popular on crypto exchanges. It is used for transacting cross-border, payments, investment, and trading. It is also used as a store of value. The Ethereum technology is set to undergo a major upgrade called Eth2 or Ethereum 2.0.

What is Ethereum 2.0?

Currently, Ethereum is Proof of Work, which means miners use specialized software such as high-end gaming GPUs or ASIC machines to mine Ethereum, thereby maintaining the blockchain and keeping it secure.

There is no mining in a Proof of Stake arrangement. People “stake” or freeze their cryptocurrency to maintain the blockchain. Ethereum 2.0 is the proposed upgrade over the current mining-based Ethereum blockchain in which the system will switch to Proof of Stake.

Ethereum 2.0 is a major upgrade that will change the Ethereum ecosystem and blockchain technology in general. Although ETH2 is not yet fully functional, you can see the progress of the current stage on one of a few existing ETH2 blockchain explorers.

As Ethereum is the second most popular cryptocurrency in the world (and also the one with the second-highest market capitalization), such a major upgrade is getting a lot of attention.

Everyone from investors to blockchain developers is patiently waiting for the upgrade to roll out phase-by-phase and to see the effectiveness of the results.

Advantages of Ethereum 2.0

  • The network will become more scalable and efficient.
  • Ethereum will become more secure.
  • Transaction speeds will increase manifold on Eth2.
  • Developing apps on Eth2 shards will be easier and more robust.
  • Ethereum will stop consuming 99% of its current electricity usage because mining Ethereum will be a thing of the past, thus making it a more environment-friendly technology.

Disadvantages of Ethereum 2.0

  • Miners will be badly hit. People who have relied on mining to earn ETH will need to change their tactics.
  • There will be some price drop in ETH’s value before the transition happens.
  • There’s a risk of network stability issues arising during the upgrade.

How could Ethereum 2.0 affect Ethereum’s price?

If all goes according to the plan and Ethereum 2.0 makes good on its promises, we can expect the price of Ethereum to skyrocket. That is why many crypto investors tend to participate in so called “staking” on Redot exchange.

Essentially, as Ethereum becomes a better, more efficient, more scalable, greener, and more secure system – people will surely find more value in using it.

Apart from users, investors will also be pulled towards the enhanced Ethereum in large numbers.

When Ethereum switches to Proof of Stake, its energy consumption will drop drastically. This will be a blow to Bitcoin Core (BTC) – the #1 competitor of Ethereum. BTC is Proof of Work-based and has no plans of switching in the future. BTC mining consumes much more electricity than any other cryptocurrency mining does. In fact, it’s comparable to the annual electricity usage of a whole country like Argentina.

Hopefully, people will begin to see Ethereum as a more sustainable alternative and this will help ETH’s price go up.

 


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