What is Ethereum 2.0 and how will it improve the use of ERC20 tokens, like the WOONK?

The most popular blockchain for ERC20 tokens will revamp its features within the next months

The upcoming update of one of the most popular protocols to create custom tokens, Ethereum, is causing massive interest in the technology. While a recent development in the ETH platform, Defi, will profit from the update some issues concern businesses and users alike. Let us dive into what the update in the Ethereum blockchain comes along with.

What is Ethereum 2.0 and how will it improve the use of ERC20 tokens, like the WOONK?

Why Does Ethereum Need an Update?

A popular saying among developers goes like this: “if it is not broken, do not fix it” — summarizing that it is never good to change the software that already works fine. Is Ethereum “broke” then? Not exactly, but improvements do not hurt. The cost of updating the protocol, though, is enormous and needs to take place in phases. What are the issues with Ethereum?

  1. Scalability. Arguably, the most troublesome factor in the network. Having +180k ERC20 tokens running on ETH requires gigantic resources. The 5-transaction-per-second speed is not capable of handling the growth.
  2. Storage. Connected to the previous, as the network expands, there is an increasing need for space in devices. This is not ideal for light wallets, mobiles, or, in general, for someone who only cares about one’s transactions instead of the whole network.
  3. Not available offline. As for now, we must be connected to the Internet to make transactions with ETH. Adding offline capabilities would be a major plus to improve usability in the future.
  4. Proof of Work. There is a lot to be said about consensus algorithms. However, proof of stake (PoS) will be added in ETH 2.0 to prevent a 51% attack from happening in the network. Thus, making all transactions irreversible.

What Does Ethereum 2.0 Bring to the Table?

The technical information available about Ethereum 2.0 (see paper here) is vast and will unfold as the implementation phases progress. There is yet plenty of work to be complete, researched, and documented. A shortlist of improvements include the following updates to the blockchain:

  • More efficiency with PoS,
  • Fast block time,
  • Economy finality,
  • Scalability,
  • Cross-shard communication,
  • Computational censorship resistance

Dapps will be faster and execution cost less due to POS
and sharding (yeah!)

What are Shards?

There is a trilemma in blockchain systems that can be visualized in form of a triangle known as the DCS triangle, what it conveys is “It is impossible to achieve all three Decentralization, Consistency, and Scalability simultaneously. A tradeoff is necessary (you can choose any two but not all)”.

Source: Ethhub

Sharding is an attempt to solve this challenge. It simply means partitioning large chains (databases) into smaller, faster ones hence making the entire system more scalable. How? To solve scalability, we split the state and history stored on the main chain into shards. Each shard manages itself, has its own transaction history, and the effect of transactions in some shard are limited to that shard only. — https://docs.ethhub.io/ethereum-roadmap/ethereum-2.0/sharding/

However, not everything is easy with a new protocol. Other than the end-user experience, the work in the backend is often complicated when it comes to smart contracts. The update brings several improvements but also some concerns:

  • The update work is extremely technical. Few people are qualified to turn a complex research paper into a practical solution fitting enterprise criteria.
  • The work is being done by several teams located worldwide — social distancing enhanced by the pandemic. Although everyone is working towards the same goal, the friction of having distributed teams is there.
  • The transition to Ethereum 2.0 is complex. The update involves wrapping up the current network and placing it inside the new chain. For some time, both blockchains will coexist until the transactions move to the newer.
  • There is an important risk that certain existing functionalities and smart contracts will break. These failures would mean a major disaster for corporate applications since funds could be forever lost.
  • There is also the potential for a hard-fork split, as Ethereum 1.0 and Ethereum 2.0 will co-exist for some time. Also, the transition might fail in some cases, with some node operators choosing to run the old chain instead to stay connected to one blockchain.

How Will ETH 2.0 Be Implemented?

Having the drawbacks in mind, is all the hustle necessary? To put it simply, as time goes on, the Ethereum network could collapse when — even more — tokens are added and the requirements rise. So, the question is not “if” the network would run too slow, it is a matter of “when”.

The update is taking longer than initially estimated. We are now in phase 0, the beacon chain, and next comes phase 1, introducing shards, to finalize with phase 2: execution. Right now, there is not a definite date, but the complete deploy is scheduled for 2021–22.

It’s better to upgrade when everything is still running with decent parameters. In the next years, we will see a more robust Ethereum blockchain that will provide more features we will use and love.

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Written by César Patiño, PR Manager at Woonkly.

Venture Builder focused on blockchain. Bridging the gap between blockchain and the Traditional World with defi.finance/ NFT Social Network & Marketplace.