Editor's Note: This article comes fromBlockchain Camp (ID: blockchain_camp)Editor's Note: This article comes from
Blockchain Camp (ID: blockchain_camp)
Blockchain Camp (ID: blockchain_camp)
, Author: Kirill, Translator: Huohuojiang, reproduced by Odaily with authorization.
Launched in 2015, Ethereum (ETH) is currently the second-largest cryptocurrency by market capitalization and, like cryptocurrencies such as Cardano (ADA) and Kusamo (KSM), has a very high developer activity.
These changes will make it easier for people to transact using Ethereum. If successful, it may give Ethereum (currently trading at $385) a new impetus - in my opinion, success is a foregone conclusion.
The increased use of DeFi (decentralized finance) is propelling Ethereum towards the next phase, the so-called Ethereum 2.0 or ETH 2.0 phase. This will start a new era for Ethereum, therefore, the fundamentals of Ethereum price are also further bullish.
Ethereum has been bullish since April, partly due to these aforementioned developments, while long-term technical analysis of ETH also points to a future uptrend for Ethereum. Next, we'll take a closer look at what ETH 2.0 means.
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DeFi transactions soar
Fundamentally speaking, decentralized finance DeFi is the opposite of centralized finance. Centralized finance is subject to central banks and intermediaries, while DeFi refers to automatically executed contracts or agreements, which are executed through smart contracts without intermediaries such as banks or lawyers.
It conducts transactions through online blockchain technology. As mentioned above, since transactions are conducted peer-to-peer, there is no need to rely on any platform from other companies or institutions.
DeFi transfers are also known as "Lego Money" because they can be taken apart and the parts can then be put back together to create something different, like another batch of different orders.
Another unique aspect of decentralized finance is that smart contracts are publicly available and highly interoperable. These financial smart contracts, decentralized applications (DApps), and protocols are all built on top of Ethereum in the form of decentralized networks, or mainly run on Ethereum.
As an important function of DeFi, lending can be realized by locking Ether Dai. Due to its fixed price against the USD, Ether Dai is a very stable currency. The most popular platform right now is MakerDAO.
DeFi also provides a 2-Layer payment channel network. The Layer 1 payment network provided by Ethereum and Bitcoin enables instant payment transfers.
Ethereum 2.0
But the ability of the blockchain to process transactions is very limited, so the number of transactions at a given time is also limited. The second layer (Layer 2) payment channel is built on top of these existing blockchains. Compared with the separate first layer payment channel, although its security is reduced, the transaction speed is greatly improved. This is also the result of a trade-off between speed and security.
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As DeFi transactions increase, the usability of the blockchain network decreases for such transactions. As of November 2020, its total transaction volume has exceeded US$11 billion. Since most DeFi is built on the Ethereum blockchain network, the increase in contracts also results in increased processing time and costs.
In response to the popularity of DeFi transactions, Ethereum has brought the Ethereum 2.0 hard fork, which will bring the encrypted market (or at least part of the market through Ethereum) to another new dimension.
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Bitcoin's high pricing limits its scalability. To some extent, Ethereum has a similar problem. But in ETH 2.0, this problem can be solved by fragmentation. Sharding is a way of processing data that can improve scalability, make it more efficient, and have a wider range of applications.
In the next few years, the price of Ethereum is favored by traders compared to Bitcoin, as its usability in daily life will be greatly improved. In ETH 1.0, data must be verified by all participating nodes, which lengthens the entire processing process - the slowest participating node shall prevail.
Sharding can divide data into smaller batches, each node will be processed individually.
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From Proof-of-Work to Proof-of-Stake
The reason why the mining process is so complicated is to prevent others from attacking the network. After all, the energy required to attack is too high, and the hardware cost required for operation is also too high. However, this also greatly reduces the working efficiency of the entire system, but ETH 2.0 will solve this problem, because Ethereum has realized the transformation from proof-of-work to proof-of-stake (PoS).
The PoS process is simpler and requires less energy, so it costs less. But the reduced complexity also makes it more vulnerable. However, this can also be solved by increasing costs.
In short, the mining process of PoW is more difficult, but the miners who find the correct answer will be rewarded; while the mining process of PoS is relatively simple, but the miners who find the wrong answer will be punished. This means that the attacker will pay for every attempt and failure. Therefore, for the hacker, launching an attack is not worth the loss, thereby improving network security.
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Transactions Per Second (TPS)
Transaction speed is very important when making payments or receiving funds through crypto markets, and even though Ethereum 1.0 is one of the most popular blockchain networks, it still cannot compete with mainstream competitors when it comes to transaction speed.
