Article by Forbes: Biser Dimitrov
Enterprises that are building on Ethereum have a reason to celebrate, as the new-and-improved Ethereum 2.0 is moving forward. Just a couple of weeks ago, the largest Ethereum development event, DevCon 5, was held in Osaka and more details about the upcoming protocol upgrade were announced. The changes are significant and will improve important properties like transaction speed, scalability, and finality. However, they also present some risks related to building on open-source technology developed by multiple teams.
What exactly is Ethereum 2.0, why is it necessary, and can this risk of breaking existing applications and wiping out the current $19B market cap be avoided?
The current Ethereum protocol, while considered successful so far, has been prone to several major issues. Specifically, its increasing storage requirements and performance degradation are raising red flags on CIOs’ decision charts.
The newly proposed Ethereum 2.0 upgrade will eliminate many of the existing shortcomings. For example, once fully deployed, Ethereum 2.0 will have 64 shards (sets of partitions) that will function simultaneously and have an independent transaction history and state. New execution environments can be created as a separate segregation mechanism on top of it, providing enhanced utility and features through WebAssembly (WASM). Moreover, with the introduction of proof of stake as a consensus protocol in the new Ethereum 2.0, the transactions will be considered final and will not be subject to the same 51% attack reversal tactic as in proof of work.
However, despite the obvious positives and the financial and technological opportunities that will become available, the new protocol maintains several key risk areas that must be addressed soon.
- The necessary work is extremely technical and not many people are qualified to turn a complex research paper into a practical solution.
- Currently, all the work is being done by several teams located in different parts of the world, with different agendas and different timelines. Everyone is working towards the same goal but the inherited friction of having distributed teams is present.
- The transition to Ethereum 2.0 is so complex that it involves wrapping up the current network and placing it inside the new chain so that they will run together for a period of time.
- There is a significant chance that certain existing functionality and smart contracts will break.
- There is the potential for a hard-fork split, as Ethereum 1.0 and Ethereum 2.0 will co-exist and the transition might not be successful, with some node operators choosing to run the old chain.
So, what does this mean for enterprises that build on Ethereum?