ETH vs ETH2: What is Ethereum 2.0 and will The Merge change it?

What is ETH2 and how does it relate to ETH?

Ethereum 2.0                                 
What does ETH2 mean in relation to ETH and Ethereum 2.0? – Photo: Shutterstock
                                

Contents

In certain parts of the crypto internet, you may see references to an ETH2 coin. If you are wondering what that is, we will tell you, and also explain why an ETH vs ETH2 battle will, ultimately, end in a draw, even if Ethereum has found itself at the heart of the proof-of-work vs proof-of-stake debate.

Ethereum: The mainstream alternative

In the world of cryptocurrency, Bitcoin reigns supreme. In any meaningful sense, the first crypto, created by Satoshi Nakamoto, dominates the world of blockchain-based finance to the extent that any other coin on any other blockchain is known as an altcoin – because its most distinguishing feature is that it is not Bitcoin.

As far as altcoins are concerned, the largest one by some distance is Ether. This coin is the native token of the Ethereum blockchain. What makes ETH so notable is that, while Bitcoin is pretty much purely used as a store of value, Ether helps power its own blockchain, which does a lot more things than the Bitcoin blockchain.

For instance, Ethereum allows for smart contracts, computer programs that execute automatically when certain conditions are met. As a result, it is a key player – perhaps the key player – in decentralised finance (DeFi), which is the idea that it should be possible for people who do not have bank accounts to access traditional banking services. As a result, there are many ecosystems and networks on Ethereum, each having their own separate crypto token. Therefore, it could, potentially, be argued that, while Bitcoin’s size makes it the most important cryptocurrency, Ethereum’s diversity makes it the most important blockchain.

Changing Ethereum

Having said that, Ethereum has managed to change a fair bit since Vitalik Buterin launched it in December 2013. Recently, the most notable change to Ethereum has been an ongoing one, and it has been all about how people add blocks to the blockchain, thus minting ETH, which they were paid in.

Traditionally, Ethereum had used something called a proof-of-work (PoW) consensus method, much like Bitcoin. This means that in order to add blocks to the blockchain, people had to solve increasingly complex mathematical equations using their computers. This process – known as crypto mining – ultimately proved to be somewhat controversial. First, the use of increasingly powerful computers meant that blockchains have used a lot of energy. For instance, according to the Cambridge Bitcoin Electricity Consumption index, Bitcoin uses 91.91 TWh of electricity a year, more than the Philippines. Furthermore, proof-of-work can be a relatively slow process. This is not so much of a problem for Bitcoin, a blockchain that basically does just one thing, but it can prove a problem for Ethereum. Because Ethereum has a variety of uses, this means that the slowness of PoW can slow down transactions, and in turn makes them more expensive.

The solution to this problem is to switch the consensus mechanism, the method whereby blocks are added to the blockchain, to something called the proof-of-stake (PoS) consensus. This involves people being selected to add to the blockchain on the basis of how much of the chain’s native token they hold. This requires far less electrical power that, at least in theory, means it should be more environmentally friendly – which, among other things, will lead to it attracting more potential investors. It also means that it should be quicker that in theory should bring down the price of transactions on the blockchain – the so-called ETH gas fee – as well as allowing Ethereum staking to involve the native token.  

In December 2020, Ethereum announced that it was going to transfer from its original PoW to a new PoS method. This change was, at the time, called Ethereum 2.0. While the work has not yet been completed, and it is not entirely known when this work will be ready and done, it has had an impact. 

Ethereum 2.0
Ethereum 2.0 might be around the corner – Photo: Shutterstock.com

ETH and ETH2

Anyway, the upshot of all this is that, at the time of writing (4 July 2022), there are effectively two Ethereum blockchains. The first one is the main Ethereum chain, which does all the things that people have come to expect. This carries ETH in its traditional form and utilises proof-of-work. There is, however, another Ethereum blockchain. This is called the Beacon Chain and it utilises proof-of-stake, and it carries the ETH2 cryptocoin.

The main and, in truth, only real difference is that ETH is the version of Ether that works on the original, proof-of-work Ethereum blockchain, also known as the execution layer or mainnet. And ETH2 operates on the new, proof-of-stake Beacon Chain, also known as the Ethereum testnet. The two cryptos do the same thing and maintain the same price and, as soon as the organisation behind Ethereum is ready to start operating fully on proof-of-stake, the two will merge and the coin, ETH, will also merge, which means that you do not have to worry about losing out if you have one form of the coin rather than both; ETH can become ETH2 by being staked.

Although ETH2 first appeared in late 2020, it would be wrong to talk about an ETH2 launch date, because it is really the same Ether as first showed up on the open market. If you want to know about the Ethereum 2.0 release date – or, as it is called now, the Ethereum consensus layer – that is still unconfirmed, but in July 2022 Vitalk Buterin said that he expected The Merge to take place in August, if everything went well. By that point, the so-called Ethereum difficulty bomb should have exploded, making it impossible to mine profitably on the original chain and allowing the new version of the chain to take over. Once The Merge is complete, Ethereum will go through a series of rhyming updates called The Surge, The Verge, The Purge and finally The Splurge. The Surge will improve scalability, The Verge allows it to become more efficient, The Purge will clear the system of unnecessary historical data and The Splurge will tidy up everything else. 

It is worth noting that, for the most part, crypto exchanges do not differentiate between ETH and ETH2. This is, at least in part, down to the fact that the coins operate with the same system, have the same utility, and do the same thing. One exchange that does differentiate between the two is Coinbase.

So that is the difference, or perhaps the lack of differences, between ETH and ETH2. If you do want to invest in one form of Ether, or even both, you must remember to do your own research, remember that prices can go down as well as up, and never invest more money than you can afford to lose. 

FAQs

No date has been given, although Ethereum founder Vitalik Buterin has suggested it might come out in August.

Ethereum 2.0 was the original name given for the transfer of Ethereum from a proof-of-work (PoW) blockchain to a proof-of-stake (PoS) one.

This is a question that does not really have an answer because ETH and ETH2 are, to all extents, the same thing. ETH2 – which only really exists as a listing on a minority of crypto exchanges – will merge with ETH.

You can stake ETH on Coinbase, which transfers it into ETH2. In terms of how to stake so-called ETH2, then you will have to wait for The Merge to take place. By then, though, ETH2 will have rejoined ETH. 

It might do, it might not do. It will partially depend on whether the crypto market is on the way to recovery or not. It is also worth noting that ETH could go up after the merge, but the reasons for the rise have nothing to do with the post-merge system. We also should remind you that it could just as easily go down, so be careful, do your own research, and never invest more money than you can afford to lose. 

Further reading

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