Challenges with Ethereum
Only a few users and projects were running on the Ethereum network when it first began. The concept was revolutionary to the blockchain community, which was still tiny then.
Smart contracts were new even for the blockchain industry, so people required time to recognize the concept’s potential, as well as understand the limitations Ethereum was facing. Back then, transactions were fast and cheap, and there was little to no congestion.
However, in June 2020, Ethereum saw a spike in its gas fees relative to ETH. Gas fees are calculated in Gwei, a denomination of Ether (ETH); 1 ETH = 1,000,000,000 Gwei. Before this, the average gas fee would range from 30 to 50 Gwei.
But in June 2020, this rose to a whopping 709 Gwei — almost 15 times the standard rate. At the time, gas fees were based on an auction system, leading to significant price volatility as the network grew in popularity.
Introducing Ethereum 2.0
Ethereum’s scalability is a well-recognized problem. As blockchain technology — and smart contracts in particular — became more mainstream and increasing numbers of applications were being built on Ethereum, it became clear the network needed to be able to process hundreds of thousands of transactions per second (TPS) and therefore, required scaling.
The scalability issue is the result of Ethereum mining, which limits transactions to 7 to 15 TPS, compared to VISA’s network, which is capable of 45,000 TPS. The need for every node (computers participating in the network) to verify every transaction hampers Ethereum’s scalability.
A transaction on the Ethereum network takes roughly 30 seconds to be broadcast onto the blockchain, whereupon miners will start solving ‘puzzles’ to verify the transaction. Only when the ‘puzzles’ are ‘solved’ will the network confirm the transaction.
Depending on the platform to which you are sending your ETH, you may need a minimum of 10 confirmations, though some transactions require more — this is where the process becomes highly time-consuming.
Most transactions can be confirmed and completed within a few minutes. However, if there is high traffic (or other issues occur on the chain), transfers can take hours or even days to complete.
Most of this is due to Ethereum’s PoW system, where increasing amounts of computing power are required to verify and approve transactions. Miners will then require more hardware to support the network and verify transactions, which naturally leads to a surge in the prices of GPUs, the mining hardware used on Ethereum.
The original PoW design is inefficient at scale. There are concerns over its significant energy consumption and subsequent environmental impact. The more hardware is needed to handle transactions, the more electrical energy is consumed.
The other drawback is the tension between security and efficiency. PoW blockchains works best when a large enough pool of computers is connected to the network. With more computers connected, the chances of suffering a 51% attack are much lower. However, a larger pool of miners also means more energy and more hardware are needed for transactions.
Scalability through PoS
The introduction of Ethereum 2.0 will shift the network from PoW to PoS, whereby users stake their ETH to become validators on the network via a process known as sharding.
Validators operate like miners by doing the following:
1. Ordering transactions
2. Creating new blocks
A PoS mechanism will bring about improvements like better energy efficiency, as less energy will be required to mine blocks. One can easily join a staking pool to become a validator on the Ethereum network.
With more nodes joining the network, this means there’s still a lower chance of a 51% attack or an individual owning 51% of the nodes needed to verify transactions.
In this mechanism, validators will be ‘attesting’ and proposing new blocks instead of mining blocks. When a validator attests a block, they are essentially saying, “This block looks good.” However, if a validator attests a malicious block, they will lose their stake.
On the road to Ethereum 2.0, the Ethereum network has introduced the Beacon Chain, a staking validation platform that acts as a central coordination mechanism for validation on the Ethereum 2.0 network. As a result, ETH holders can stake their tokens to earn staking rewards.
Staking as a service on Huobi Global
Joining a staking pool might carry some risk, depending on the pool provider, lock-in period and level of security.
With Huobi ETH 2.0 staking, you will be able to earn HPT and BETH. BETH is now available for trading on Huobi Global with BETH/USDT and BETH/ETH.
How does ETH2.0 staking work on Huobi Global?
1. Click on [Finance], then [ETH2.0] on the Huobi Global main page.
2. Click on [One-click Exchange].
3. Choose the ETH amount you want to stake (you will see the corresponding BETH amount in the box below). Confirm the settlement once you understand the ETH2.0 agreement and the warnings.
4. Click [Submit] to start staking.