A long-planned update for the Ethereum platform has already launched on December 1, 2020. On top of that, Ethereum developers plan to carry out the first Ethereum 2.0 hard fork this summer.
What changes will happen to the network after the update, and how will it affect the validators? And what is more important, how will the update influence the current cryptocurrency? Find all the answers to these questions in our article.
Will Ethereum 2.0 be a New Coin?
Since the Ethereum updates, many users ask themselves a question: will Ethereum 2.0 be a brand-new coin, and what will happen to current ETH holdings? And the answer is simple – Ethereum 2.0 is not new but an improved version of an existing coin. Changes to ETH 2.0 are yet to come, the team of developers promised to modify ETH 2.0 as well, but its launch was postponed to the subsequent upgrade phases. It will take, according to experts, up to 2 years to finalize all update processes and change ETH to ETH 2.0.
Network Scalability and Capacity Improvements
Scalability is one of Ethereum’s fundamental issues that the upcoming update aims to fix. At the moment, the altcoin blockchain is capable of conducting up to 15 transactions per second. This figure is more than two times higher than that of Bitcoin. But unfortunately, even these indicators cannot meet the needs of a rapidly increasing number of users.
The development of Optimistic Rollup will help to solve the scalability problem. Vitalik Buterin, the creator of Ethereum, said that its implementation would take place after the altcoin network is updated. This will increase its capacity up to 1000 transactions per second.
Also, a global change that contributes to the improvement of the platform is the transition from mechanism Proof-of-Work (PoW) to Proof-of-Stake (PoS). The use of the Proof-of-Work algorithm hinders the growth of the Ethereum network bandwidth since the PoW requires the high computing power of the computer. It was this specific issue that made the developers look for a solution in the first place. And this decision turned out to be a transition to PoS. Unlike PoS, it does not require the use of the computing power of computers to validate blocks.
One of the main solutions to the scalability problem is the transition to a sharding system. For the platform, this means that the blockchain will be divided into independent, interacting blocks – shards, each of which will process its own transactions and smart contracts. This innovation will expand and strengthen the network a thousand times.
Hodling vs. Staking
The world of cryptocurrencies is developing rapidly, and today even mediocre investors can get high income. Over time, cryptocurrency owners begin to think about what kind of system will allow them to get the maximum benefit and leverage from virtual coins. There are two systems that can help in this: HODL and Staking.
- HODL – this is one of the strategies for working with cryptocurrencies. Its essence lies in the acquisition of tokens for long-term storage instead of constantly trading them. This approach assumes that, despite the ups and downs, the coin will cost more in the future in any case.
- Staking – it is a strategy that allows you to approve transactions on the blockchain using the Proof-of-Stake consensus. For the provision of these services, stakers are rewarded with virtual coins.
As you can already understand from the description of these two strategies, they are united by one goal – to increase the user’s profit over time. The only difference is in the ways to achieve this goal. Here are comparative characteristics of these two strategies:
- Hodling is a more long-term strategy (some hodlers keep their money for up to 10 years, without withdrawing it and receiving huge income as a result), whereas staking is a short-term one.
- Staking a more complicated strategy, compared to HODL. You need to understand how the Proof-of-Stake consensus works to receive coins clearly. But with hodling you only need to immobilize your coins to receive profit in the future.
- One of the global differences between the two strategies is security. For HODL users, the money remains in the cold wallets, which are available only directly to the user—in contrast, staking uses “hot” wallets, which can be open to third parties.
- You will not increase the amount of cryptocurrency that you own when hodling, but if the price of a cryptocurrency goes up you will get profit. On the other hand, the price of coins in staking can decrease. But the user will get more coins due to commission, which will lead to a more expensive cost.
But despite all the differences between these strategies, they are both effective methods for users to multiply existing coins.
Is the ETH to ETH 2.0 Conversion Taxable?
This question is of interest to many Ethereum users: those who already own the ETH, as well as those who are just going to invest in this cryptocurrency. According to the opinion of crypto experts on Redot crypto exchange, ETH 2.0 will completely replace the original ETH. After a global platform update, the completion of which is planned in a few years, the system will completely update the coin as well. Due to currently existing information, there is no taxable event to be reported in order to convert ETH to ETH 2.0 tokens.
The transition to Ethereum 2.0 is an exciting and scary event at the same time for all users of this platform. Many questions have been asked by the ETH owners in connection with this transition. But as you can see, the developers are constantly updating users with new information about the Eth2, and they debunk the myths that have already appeared. It is only a matter of time and subsequent update phases about how smooth the transition from ETH to ETH 2.0 will be.
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