Ethereum volume blocked for transaction validation in Ethereum 2.0 trial version it exceeds 3 times Brazil’s gold reserves held by the Central Bank.
According to Etherscan data, there are currently cabout 6.657,794 ETH blocked in the ETH 2.0 contract which promises to be the main update in the history of the second largest cryptocurrency on the market because, among others, will change its consensus algorithm from proof-of-work (PoW) to proof-of-stake (Pos).
At the time of writing, the total amount in Blocked Ethereum represents about US$21,425,646,605.22, more than three times the amount of gold reserves held by the Central Bank of Brazil estimated at US$ 6,873 billion.
With its 121 tons of gold, Brazil is far from the largest holders of the metal in the world. The US tops the list with 8,133 tons. Next come Germany (3,359 tons), International Monetary Fund (2,184 tons), Italy (2,451 tons) and France (2,436 tons). 2021
The amount of money blocked in ETH 2.0 (which is not yet in the final version) also exceeds the total reserves of nationals from countries like El Salvador, Cuba, Nicaragua, Bolivia, Ecuador, Costa Rica, Honduras, Paraguay, Panama, Venezuela, Dominican Republic, among others, according to data from the World Bank.
But what is Ethereum 2.0?
Ethereum 2.0, also known as Serenity or ETH 2.0, is an upgrade to Ethereum at various levels. Its main objective is to increase Ethereum’s transaction capacity, reduce fees and make the network more sustainable.
To achieve this, Ethereum will change its consensus mechanism from proof-of-work (PoW) to proof-of-stake (Pos).
In this new type of consensus on Ethereum, users will need to ‘bet’ 32 ETH to become a validator. Validators are randomly chosen to create blocks and are responsible for verifying and confirming blocks they did not create.
In this way, the user’s ‘betted’ (locked) Ethereum is also used as a way to encourage the good behavior of the validator. For example, a user can lose a part of his bet for things like going offline (failure to validate) or his entire ethereum bet by trying to defraud the network.
In addition, the PoS model allows Ethereum holders to “bet” their stakes on “wager pools” that will earn rewards and increase their stakes over time.
In this case, Etherscan data reveals that the betting pools that dominate the market are those of Kraken (12.3%), Lido (11.1%) and Binance (8.89%). The portfolios, in total (both exchanges and those dedicated exclusively to staking), represent 46.9% of the activity. The other 53% correspond to independent validators, which can be individuals or institutions.
With ETH 2.0 Ethereum will also implement sharding which is a way to partition a database into smaller pieces that are more manageable. With a PoW blockchain, most nodes, or computers on the network, have an entire copy of the transaction history.
All this history can take up a lot of space, especially for older cryptocurrencies with a long transaction history.
With fragmentation, the block chain is split into parallel sections and nodes are assigned to a section instead of having to contain all the data in the chain. This allows more transactions to be processed simultaneously, greatly increasing throughput and transaction speed.
And how will this help Ethereum?
If ETH 2.0 is successful, it can solve the problems of network congestion and high transaction fees that make many decentralized finance (DeFi) protocols unfeasible.
At the moment, Ethereum can only process around 30 transactions per second. Vitalik Buterin, one of the founders of Ethereum, claimed that 2.0 could eventually scale up to 100,000 transactions per second using fragmentation and other tactics.
“ETH2 scaling for data will be available before ETH2 scaling for general computing. This implies that rollups will be the dominant scaling paradigm for at least a few years: first ~ 2-3k TPS with eth1 as the data layer, then ~100k TPS with eth2 (phase 1)”, said Buterin in a 2020 tweet.
Upgrading to Ethereum has been happening in phases. The first phase, “phase 0”, is already active. Phase 0 introduces the beacon chain.
The beacon chain is essentially a new PoS blockchain that the current Ethereum chain will eventually merge with. The beacon chain introduces the PoS and configures Ethereum for stake and fragment chains and is a sort of test network for the future PoS version of ethereum.
The second phase, or “phase 1”, is called merge. The merger represents the official move to the PoS consensus model, where the existing Ethereum network will merge with the beacon chain.
Ethereum developers also refer to the fusion as “the snap” and expect this to occur sometime in late 2021 or 2022. After the fusion, Ethereum will be a PoS blockchain that allows Ethereum holders to bet their ETH and win rewards, currently around 6%.