Cointelegraph Report: Ethereum Struggles to Migrate to a Brighter Future

Ethereum 2.0 has been a highly anticipated development in the crypto industry. A recent research report by Cointelegraph asked whether Ethereum was still on track to defend its crown as the primary network supporting the world of decentralized finance.

This report dispels common misconceptions that investors may hold and provides a comparative analysis of Ethereum and its competitors. Meanwhile, the Ethereum Foundation changed its name to the Eth2 project earlier this year. Is it trying to manage expectations or educate?

New Discussion on Consensus and Execution Layers

In a January blog post, the Ethereum Foundation stated that developers have been moving away from the Eth1-Eth2 term since the end of 2021. Instead, Eth1 will now be referred to as the "execution layer," while Eth2 will be the "consensus layer." It's not a small shift to a more specialized language. Due to a common misconception, this is an attempt at expectation management.

For those of you who are only superficially familiar with Ethereum, the Eth2 name could mean that there will be a big update, by switching from the energy-intensive Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS), the magic problem solving and notoriously high gas costs. However, this is a dangerous oversimplification

The Freedom to Scale report published by Cointelegraph Research provides a comprehensive overview of Eth2. It provides details on planned technical updates and what they mean for ethereum's developers, competitors and investors. The report is freely accessible on the Cointelegraph reporting terminal.

Download the full report, including graphs and infographics, here.

The complexities and risks of migrating multibillion-dollar blockchain projects from one consensus mechanism to another meant the rollout of Eth2 was slower than expected, with the Ethereum Foundation initially giving no clear timeline surface. Meanwhile, emerging competitors with scalable projects have been vying for ethereum's market share.

The report also assesses these challenges in detail. Across 74 pages, it provides a comparative analysis of major players trying to grab the top spot in DeFi, such as Solana, Polkadot, Algorand, and Radix. Curated by our team of industry-leading researchers, it offers a comprehensive view and manages to cut through the noise of social and everyday media.

Eth2 — understanding subtle realities

The transition from Eth1 to Eth2 is better thought of as an elaborate series of upgrades that will slowly transition the blockchain into its envisioned future. The main chain of Eth2, the PoS beacon chain, was launched in December 2020, and the merger of Eth1 and the beacon chain is expected to be completed in the second or third quarter of 2022.

While to a casual observer this might mean that all of ethereum's problems will be resolved, it's unlikely that an update later this year will have a significant impact on gas fees or network capacity. While PoS will significantly reduce Ethereum’s energy consumption, it will only improve scalability when data sharding is introduced in 2023. Sharding was initially going to happen before the merge, but was delayed under the new schedule. The official reason for this is that scalability is now a secondary priority now that layer 2 solutions are already available.

The new terminology of "consensus layer" and "execution layer" is intended to dispel discussion of the mythical point in time when Ethereum's problems will disappear immediately. Strictly associating Eth1 with the consensus layer and Eth2 with the execution layer also shifts the focus away from a third so-called data availability layer, which will suffer from delayed data shard updates.

With the merger planned for later this year, one might think that the days of alternative decentralized finance (DeFi) blockchains are numbered. However, it's important for investors not to jump to conclusions. Since Eth2 will not be an instant magic fix, it will remain invaluable to keep track of the competitive landscape.