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The world’s second-biggest cryptocurrency is getting a major upgrade

While you’ve been watching the price of bitcoin soar to an all-time high, another cryptocurrency has been quietly staging a comeback of its own. Ether, the world’s second-largest virtual currency by market value, is up about 350% since the start of the year. Last week, it briefly passed $600 for the first time since June 2018 before slumping sharply, and touched that level again this week.

Now, ether investors are keeping an eye on a long-delayed upgrade to its underlying network known as Ethereum 2.0, which they say will make it faster and more secure. A key problem with the Ethereum blockchain today is scalability. In 2017, for example, the popularity of an Ethereum-based game called CryptoKitties caused the network to become heavily congested, significantly slowing trade.

But proponents of Ethereum 2.0 say that the planned upgrade could allow thousands more transactions to take place every second. Meanwhile, investors believe it could also lead to further adoption of ether as well as price appreciation.

For now, what’s happening is the introduction of a parallel Ethereum blockchain known as Beacon. This will be used to test the new proof of stake system ahead of a full migration to Ethereum 2.0. In the meantime, more and more ether is getting stashed away for a restrictive multi-year “lockup” period by token holders seeking to become validators of transactions on the new network.

That could throttle the supply of ether, potentially increasing the value of the asset if demand starts to outpace supply. Another big development the upgrade will introduce is something called “sharding.” This effectively splits the network into lots of parallel chains that can handle transactions to speed up the network.

“A sharded blockchain can be pictured as a round hair brush where each row of bristles are a shard behaving as a blockchain on its own and where the Beacon-chain links them all together as the hair brush handle does for the bristles,” Jerome de Tychey, co-founder and president of Ethereum France, told CNBC.

“The shards communicate with each other via the Beacon-chain, which also regularly finalizes the state of the shards. As time goes the hair brush lengthens as shards produce blocks and so does the Beacon-chain which keeps track of what happens in the whole network.”

Further down the road, crypto experts say Ethereum 2.0 should help the Ethereum network run at scale, processing lots more transactions at a faster pace and supporting apps with millions of users.

The world’s second-biggest cryptocurrency is getting a major upgrade — here’s what you need to know, CNBC, Dec 1

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