Ethereum 2.0 Might Impact Dapps and DeFi with PoS Implementation

Ethereum, the second-largest cryptocurrency in terms of volume after Bitcoin, has opened up new possibilities in the cryptocurrency world. But, it is not without its limitations. Its large blockchain size, congested network, low transaction time, and the need for excessive electricity for its mining have plagued its users for long, just like the users of Bitcoin. But unlike Bitcoin that was developed by an anonymous person and then was left to the community in large to develop it further, Ethereum is the result of a hard-working team with futuristic plans. Even though the plans have seen some delays in terms of getting rid of the problems faced by the users of Ethereum, the team is working towards removing the different issues Ethereum has with each of its updates.

Among the different updates Ethereum has been receiving from time to time, the latest update Serenity or Ethereum 2.0 is quite essential. This update is going to bring some of the most important and highly needed updates for the community and the network. Some of the updates that users can expect with the Ethereum 2.0 are sharding updates and also proof of stakes. There has been a lot of speculation on how the Ethereum 2.0 will impact the DeFi and the DApps ecosystem.

What Updates will be Included in Ethereum 2.0?

Ethereum 2.0 is expected to be launched in the second half of 2020 and is based on the foundation of two important stages. The first stage of the update called “Phase 0,” where the Beacon chair will be launched. It is the blockchain where the PoS of the Ethereum consensus model will be implemented. The next “Phase 1“ will see the inclusion of shard chains to the platform so that they can be used simultaneously. These stages will, however, not be merged with the Ethereum 1.0 until the third stage “Phase 1.5” is rolled out. The “phase 2” of Ethereum 2.0 is expected to the last stage of the implementation, which is to be expected to be rolled out in 2021. Till then, the proof-of-work consensus model will support to provide a stable basis for DeFi and Dapps before they are shifted from the single-chain PoW to the multi-chain PoS system.

What are the Advantages and Drawbacks of Ethereum 2.0?

The launch of Ethereum 2.0 will bring about a whole lot of changes in the DApps, especially those in the DeFi space where the ETH transactions and DApps are most likely to compete for space with other Blockchains. The sharding feature will increase transaction speed and output. Users will have the ability to spend it on several chains. Ethereum 2.0 is set to increase security and scalability, but it also comes with a few problems that might need to be addressed in the next updates. The lack of understanding and the new complex model can cause theft or loss of withdrawal if proper procedure is not followed for fund transfer.

Will DApps be Able to Adapt to These Changes?

When the Phase 0 of the update is launched, users will be required to send their Ether to a one-way network which will be used only once the Phase 1.5 merger stage comes into play.  It will be available for use only once the PoS and the chain sharding features become operational. Even though most users will likely wait to transact until the merger happens, it will not affect the DeFi space hugely. Even though there might be a few technical issues here and there, no major problems in activity are expected during the transition period.

How Will Staking Really Affect DeFi?

Sharding and PoS updates offer a number of advantages to the Ethereum community, but it is set to change the way the community produces Ether.  Anyone with 32 or more ETH will be able to earn a new one through staking. It also has a penalty system for anyone making malicious attempts and a system to reward those who follow the process properly. It will allow the users to lock their ETH and earn interest on it. However, it is to be left upon the Dapps developer to find a way to combine Ethereum 2.0 staking mechanics with the DeFi apps for the users.

It will be interesting to see how Ethereum 2.0 will roll out, and Dapps and DeFi adapt to it. It needs to be done perfectly to ensure that the DeFi space ecosystem is not affected negatively.

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