ETH 2.0 Gets a New Look: What Impact Will the June Upgrade Have?
After 2022, the Ethereum community will cease using "Eth1" and "Eth2," instead using "execution layer" and "consensus layer" to describe the upcoming Ethereum upgrades. Although this terminology change did not spark significant discussion in China's crypto scene, it signals that the Ethereum core team is making final preparations for the Ethereum upgrade.
There are two reasons why this upgrade is extremely important.
First, following EIP-1559, this is another major technical upgrade for Ethereum. The existing Ethereum will merge with the beacon chain, and through the difficulty bomb, PoW miners will be phased out — potentially even impacting GPU manufacturers and to some extent alleviating the global chip supply shortage. The so-called Ethereum difficulty bomb refers to a sudden increase in mining difficulty at a certain block height, designed to prevent miners from continuing to use the proof-of-work mechanism for mining after transitioning to PoS.
Second, as the leading public chain and the second-largest player in the crypto world, this upgrade is certain to have a significant impact on the entire crypto landscape.
So, why is the Ethereum upgrade urgent? When exactly will the Ethereum upgrade arrive? And what kind of impact will this upgrade have on the entire industry?
1. The Ethereum Upgrade: Why Is It Urgent?
When you develop a keen interest in questions like "Why is the Ethereum upgrade urgent?", you are essentially asking "What exactly causes Ethereum's sluggish performance and sky-high fees" — in other words, what problems is Ethereum currently facing.
It must be said that Ethereum is facing "crises" in four areas.
First, ultra-high Gas fees . As many high-performance public chains such as Solana, Avalanche, Cosmos, Terra, Polygon, and Polkadot rise rapidly, Ethereum's persistently ultra-high Gas fees seem quite out of place. We have good reason to believe that if Alipay had consistently charged "1,000 yuan per transaction," it would never have made a significant impact on the banking industry around 2015, let alone transformed the financial industry.
For Ethereum, Gas fees are used to pay miners to incentivize them to provide computational power for the entire network. With limited computational resources, the higher the Gas fee a user offers, the faster their transaction gets executed. This "highest bidder wins" logic driven by scarce resources has turned Ethereum into a de facto exclusive community for the wealthy. After all, sometimes the Ethereum Gas cost exceeds the value of a particular transaction — for example, the Gas fee for purchasing a low-cost NFT may be higher than the price of the NFT itself.
Second, high energy consumption. Under the trend of energy saving, emission reduction, and low-carbon environmental protection, continuing to execute PoW on Ethereum seems out of step with the times. As the Ethereum ecosystem grows larger and its value increases, network computational power also keeps rising, which means Ethereum's energy consumption keeps climbing — clearly not aligned with societal development trends. Furthermore, as the Ethereum network continues to grow, the accumulation of historical data will keep raising the operating costs of new nodes, thereby limiting Ethereum's development toward greater decentralization.
Third, inefficiency. Ethereum's inefficiency slows down the execution of smart contracts and limits the possibility of the Ethereum network running highly complex applications.
Fourth, the impact on GPUs. Ethereum's PoW consensus means that the Ethereum network's demand for GPUs keeps increasing, which could lead to GPU shortages and drive up graphics card prices. High GPU prices have had a tremendous impact on GPU-related industries.
For example, on overseas e-commerce platforms such as Amazon and Newegg, graphics cards are almost completely sold out. On websites like eBay and Xianyu, the prices of second-hand GPUs are several times higher than their suggested retail prices — causing tremendous hardship for professionals who rely on graphics cards in their daily work, such as multi-computer enthusiasts, multimedia professionals, and gamers.
The Ethereum community generally believes that these issues hinder the broader development of Ethereum applications. The upcoming upgrade is an important step in the Ethereum community's efforts to improve Ethereum's fee structure, which will have four impacts on the crypto world.
2. The Four Impacts of the Ethereum Upgrade
As the leading public chain and the second-largest player in the crypto world, every major Ethereum upgrade has a significant impact on the entire crypto world. Take the EIP-1559 upgrade that occurred in August 2021 as an example — at that time, led by ETH, the entire crypto market hit bottom and rebounded. In the subsequent rally, Bitcoin broke through its previous high, reaching a peak of $69,000.
So, what impacts will this Ethereum upgrade bring?
First, according to the Ethereum upgrade roadmap, the beacon chain merging with the current Eth1 will ultimately arrive in mid-2022, with the difficulty bomb activated simultaneously, PoW miners will be phased out, and the Ethereum consensus mechanism will transition to PoS.
Under the combined effect of EIP-1559's burn mechanism and PoS, ETH will become deflationary. Since Ethereum executed the EIP-1559 proposal in August 2021, the amount of ETH burned has reached 1.797 million, while the amount of ETH generated through mining rewards during the same period was 2.524 million — a net reduction of ETH across the entire network reaching 71.2%.
With the Ethereum upgrade and the transition from PoW to PoS, the rewards that originally belonged to miners will be eliminated, and the Ethereum token will enter a真正意义上的通缩 (true deflationary phase).
Second, the Ethereum upgrade will also benefit high-performance public chains. It is generally believed that as Ethereum transitions to PoS, performance will improve significantly — which seems like a major bearish signal for high-performance public chains. But in reality, this is a misconception at the cognitive level. Transitioning to PoS does not improve Ethereum's performance, and with the arrival of PoS, Ethereum's performance may even decline.
Recently, Ethereum founder Vitalik stated during communication with the community that although blockchains under PoS do not produce uncle blocks (Uncle Block), under PoS, each block confirmation requires thousands of multi-signatures, and 12 seconds is still a conservative estimate.
The implication is that Ethereum's block time under PoS may even exceed that under PoW. Currently, Ethereum's stable block time is 12 to 13 seconds. PoS can neither increase block speed nor improve performance. Therefore, this Ethereum upgrade may still have a positive impact on high-performance public chains.
Third, it benefits PoW projects using the EthHash algorithm. When the difficulty bomb is activated, Eth1 will merge with the PoS-based beacon chain, and PoW consensus along with computational power will all be abandoned. These computational resources are very likely to seek new PoW projects based on the EthHash algorithm.
Finally, if the Ethereum upgrade can be executed smoothly, it will inevitably have a positive impact on the entire crypto market. Take the EIP-1559 upgrade that occurred in August 2021 as an example — at that time, led by ETH, the entire crypto market hit bottom and rebounded. Driven by the subsequent "Bitcoin futures ETF" catalysts, Bitcoin broke through its previous high, reaching a peak of $69,000.
As for when the upgrade will arrive, in October 2021, Ethereum officials delayed the difficulty bomb execution time to June 2022. As for whether the upgrade can be successfully executed this June, we wait with bated breath.
In summary, in the foreseeable future, as Ethereum continues to upgrade, both its monetary properties and underlying application attributes will continue to strengthen.
Disclaimer
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