The hottest new developments in the crypto world are the defi solutions. The growth in market capitalization for these tokens has been impressive. And the overwhelming majority of these tokens all have one thing in common, they are based on ERC-20 standard, running on the Ethereum blockchain. (read more HERE)
But with all the additional traffic on the blockchain the strain on the system has made some problems become clear. And the increasing gas prices for transactions has make small value transactions impractical. If these issues are not addressed, the usefulness of the ERC-20 protocol is reduced. You can see the progression of the Ethereum gas prices in the following chart:
There are already other actors in the crypto space like Tron, EOS that have popped up trying to get their piece of the lucrative Defi pie. Eth2.0 is the Ethereum ecosystem adapting itself to the new requirements of the Defi world.
What will the new Ethereum look like?
Eth2.0 is coming, implementing some innovative solutions to be able to scale up the network improving processing capabilities and optimizing network resources.
First of all, Eth2.0 network will implement proof-of-stake protocols. The current network runs Proof-of-Work validations, just like bitcoin. This change will reduce the energy expenditure required to confirm transactions.
The new Eth2.0 network will ease the processing of transactions as it breaks up the overall network into shards. Nodes will be responsible to process only a subset of the shards, not the whole blockchain. Each shard is like a blockchain, the current blockchain will in the end become just another shard in Eth2.0 network. This is how Eth2.0 has managed to ensure backwards compatibility even when making a change as significant as that of the validation protocol.
The Beacon Chain will be the new backbone of the network. This will be the mother of all chains, the glue that holds all the shards together and ensures the security of the network. This is very important as the new network will be in fact a collection of blockchains.
This beacon chain has been running on a test net dubbed Medalla for a while now. Today a proposal was presented by developer Danny Ryan for the final public release of the Beacon Chain. This would be the first phase of the new Eth2.0 network implementation. In phase0 transactions will be validated via proof-of-stake protocol.
Shard Chains will be implemented in the second phase to be released later this year. Phase1 will allow shards to be validated via Proof-of-stake protocol. The expectation is for 64 shards to be launched, that would mean the load required to handled validations will be cut significantly. These shards will not yet be able to handle accounts or smart contracts, which limits their usefulness somewhat at this point.
The third phase is expected on 2021, phase1.5 will see the current Ethereum blockchain become just another shard in the network. Current Ethereum coins will then transition to proof-of-stake.
The last phase, phase2, will probably come around 2022. This is the final implementation phase, when shards become fully functional chains. At this stage Shards will handle smart contracts and communicate with each other freely.
It looks like Ethereum is taking the necessary steps to handle the additional strain caused by the success of Defi. While that may hit competitors like a bucket of cold water it will also reduce friction in defi transactions and benefit all players in that ecosystem.