Brief content
Ethereum 2.0 is a long-awaited update to the Ethereum (ETH) network that promises significant improvements to the functionality and operation of the network as a whole. Some of the most notable updates are the move to Proof of Stake (PoS), sharding, and the new Beacon Chain blockchain. All this and much more is expected to be realized as part of a carefully planned road map.
But this is only the tip of the iceberg. Since ether is one of the most popular cryptocurrencies on the planet, there are important details about what Ethereum 2.0 actually is and how it will affect the crypto world at large.
Introduction
Since the launch of Ethereum, the development of new technologies in the form of decentralized applications (dApps) and other blockchains has expanded significantly. More importantly, many of these technologies were built on top of the Ethereum network. Consider some of the biggest innovations in Decentralized Finance (DeFi) – much of it powered by Ethereum.
Unfortunately, scalability problems began to appear. As the number of transactions on the Ethereum network increased, the cost of performing these transactions (which are paid in gas) increased. If Ethereum wants to be the platform that unlocks the next generation of the Internet, then the economics have to make sense. Otherwise, the use becomes impractical.
This is what Ethereum 2.0 is for. The proposed ETH 2.0 updates to the Ethereum network should primarily address the issue of scalability. These improvements will contrast with the existing version of Ethereum, and all will be implemented according to a carefully planned roadmap.
What is Ethereum 2.0？
Ethereum 2.0 (aka Eth2 or "Serenity") is a long-awaited update to the Ethereum network that promises to improve network scalability, among other things. By implementing several improvements, speed, efficiency and scalability will increase without compromising security and decentralization.
This version of Ethereum has always been on the horizon, but it took several years to roll out. The main reason for this is that scaling a blockchain in a secure and decentralized manner is challenging.
Fortunately, Ethereum 2.0 aims to solve this problem by implementing some very important features. These new features create several key differences between the Ethereum we know and the Ethereum we expect.
Differences between Ethereum and Ethereum 2.0
The biggest differences between Ethereum and Ethereum 2.0 are the use of Proof of Stake (PoS) consensus mechanism, shard chains and Beacon chain. Let's look at these differences in more detail.
Proof of Stake
Proof of Work (PoW) is a way for Ethereum (and many other blockchains) to keep the network secure and up-to-date by rewarding miners for creating and validating blocks on the blockchain. Unfortunately, PoW does not scale as it requires more and more computing power as the blockchain grows.
Proof of Stake (PoS) solves this problem by replacing computing power with "stake in the game". That is, if you have at least 32 ETH, you can commit (ie stake) it, become a validator and get paid by confirming transactions. If you want a deeper understanding of how PoS and staking work, check out Proof of Stake Explained.
Sharding
Anyone who wants to access the Ethereum network must do so through a node. A node keeps a copy of the entire network, which means it has to download, calculate, store and process every transaction since the beginning of Ethereum. Although you, as a user, do not have to run a node for transactions, this procedure slows things down.
Chain shards are similar to other blockchains, except that they contain only specific subsets of one entire blockchain. This helps nodes as they only need to manage a part or shard of the Ethereum network. This should increase transaction throughput and the overall competence of Ethereum.
Beacon chain
When shard chains run in parallel, there must be a guarantee that they will all be synchronized with each other. The Beacon Chain takes care of this by providing consensus for all shard chains running in parallel.
Beacon Chain is a completely new blockchain that plays a central role in Ethereum 2.0. Without it, the exchange of information between shards would be impossible, and scalability would not exist. Therefore, this will be the first feature introduced on the way to Ethereum 2.0.
The road to Ethereum 2.0
The implementation of Ethereum 2.0 will not happen immediately. Instead, it will be released in three phases, each with different features to ensure the success of the new Ethereum.
Phase 0
The first phase, or phase 0, will be dedicated to the launch of the Beacon chain, as it is central to the functionality of the chain shards. There will be no chain shards yet, but the Beacon chain will start accepting validators (i.e. stakers) through a one-way deposit contract.
It is important to note that all registered validators who stake their ETH will not be able to "unstake" until the shard chains are fully implemented. This means that validators' ETH will be blocked until the next stage.
Beacon Chain was launched on 12/01/2020 and the network runs parallel to the main network. After launch, Beacon Chain did not process mainnet transactions. Instead, it worked in parallel, reaching consensus by matching active validators and their account balances.
Phase 1/1.5
The next phase is a mix of two phases: phase 1 and phase 1.5. Phase 1 introduced shard chains that allow validators to create blocks on the blockchain via PoS. In Phase 1.5, the Ethereum mainnet will officially add shard chains and begin the transition from PoW to PoS.
Phase 1/1.5 started in 2021.
Merger
The merger is an important step towards Ethereum 2.0 and the completion of the transition from PoW. The merger will change the PoW consensus mechanism to a PoS mechanism for the Ethereum blockchain.
The merger involves transitioning the current Ethereum mainnet protocol to Beacon Chain. This is a major change as Ethereum transactions will be conducted on the new PoS network. New ETH tokens will be minted by nodes on the network, who will stake enough ether tokens into a pool to secure the network and verify transactions.
A merger is not like a hard fork, which would result in two different versions of the blockchain. Ethereum will remain a single blockchain, and all user transaction history will be unified. All transaction history stored today on the mainnet will not be lost; therefore, users do not need to take any action to protect their assets.
Phase 2
The final phase will be Phase 2, when Ethereum 2.0 will support fully formed shards and become the official Ethereum network. Shard chains will also be able to work with smart contracts, allowing dApp developers and other technologies to seamlessly integrate with Ethereum 2.0.
Phase 2 is expected to be rolled out after the merger or later.
Results
Ethereum 2.0 is an important update to the Ethereum network for several reasons, especially when it comes to scalability. Without the new features of PoS, chain shards and Beacon chain, Ethereum may eventually become unviable and cease to be the leading smart contract platform in the crypto ecosystem.
Eth2 deployment will take some time, and may take even longer than expected. The good news is that everything is already in full swing and Ethereum developers are eager to see this thing through.
