Everything You Need to Know About Ethereum 2.0
Ethereum 1.0 is the current operational Ethereum blockchain developed by Vitalik Buterin. One of its renowned attributes is its ability to host smart contracts. Moreover, it bestows developers the room to create whatever decentralized apps (dApps) they want the blockchain to host. Any application, regardless of its programming language, can integrate with the blockchain with the Ethereum Virtual Machine (EVM) software.
The said “open source” attributes have made Ethereum popular with hundreds of applications all on a single platform. However, the blockchain runs on a Proof of Work (PoW) consensus mechanism. Unfortunately, the mechanism has severe restriction on supported workload. The answer is Ethereum 2.0.
One of the greatest motivations for the upgrade is scalability. Swapping Proof of Work (PoW) for Proof of Stake (PoS) is core in the planned upgrade. The swap will boost decentralization through easing validators entry. In this article you will learn everything about Ethereum 2.0 and the different phases.
Defining Ethereum 2.0 (ETH2)
Ethereum 2.0 or more colloquially “Serenity,” is a planned enhancement to Ethereum 1.0 (public Mainnet) with a vision to boost Ethereum’s operational capacity and thus attract as many users as possible.
The implementation of the enhancements will be in phases, with the first threshold expected in 2020.
Expected Upgrades Towards Ethereum 2.0
To conceptualize the vision behind Eth2, let’s dig deeper and pinpoint the areas slated for the change.
Phase 0: New Blockchain & PoW to PoS Shift
This initial phase scheduled for 2020 has two significant steps:
Establishment of The Beacon Chain
A new chain is the first threshold in the transformation journey of Ethereum 1.0. The phase, given the name “beacon chain,” gives the idea of a new Ethereum blockchain, the core step in the upgrade. The platform will be the control tower summing up the sub-chains(shards), expected in phase 1.
As we shall see, Eth2 will have parallel sub-chains (shards) partitions that will perform on their own and thus improve the entire system’s operation capacity.
Every sub-chain will have its share of validators, creating blocks and transmitting them to the beacon chain. However, the beacon chain will synchronize crucial data among the affiliated shards and make the entire Eth2 one robust but correlated blockchain.
At the very outset, the new chain will first register validators and manage their staked ETH. Its main task of ensuring consensus to the other parallel shard chains will follow in the next phase.
In the new chain, a validator will have to stake 32 ETH on the beacon chain to be eligible to generate new blocks and receive rewards in ETH. So in stead of mining, users can use staking to find blocks and earn Ethereum. With the current Ethereum price this will be an investment of around $ 12,000.
In this phase, the new chain will be inactive to the Ethereum users because the posting of transactions, connecting with dApps, and running smart contracts will be dormant functionalities. The beacon blockchain will merge with the old Mainnet blockchain in Phase 1.5.
Change from Proof of Work (PoW) to Proof of Stake (PoS)
The major transformation set for the phase is shifting from the Proof of Work (PoW) to Proof of Stake (PoS) mechanism.
The current Ethereum blockchain, Ethereum Mainnet, runs on PoW. In PoW, each miner has a node. The miners employ immense computational resources to solve mathematical puzzles in a race to outrun one another to mine the subsequent block. Just like miners do on the Bitcoin blockchain.
Due to the immense computing and power resources needed to place a block in a crypto chain, there’s a great deal of security on the blockchain. There’s a restriction to entry due to the immense amount of financial resources needed to join the mining team. Thus, compromising a PoW chain would almost be impossible. However, PoW blockchains suffer from capacity and accessibility issues.
The capacity of processing transactions more swiftly cannot be boosted because blocks are mined in a successive sequence, but not on a parallel basis. Thus, for a given unit of time, there’s only a given number of blocks that can be processed. This delay is one of the challenges that Phase 1 will seek to address.
Additionally, there are barriers to entry for individual miners who need to join the miner’s team due to the required resources.
In Eth2, validators replace miners who won’t need computing and power resources to join the team. However, they will need to make a financial commitment (stake) on the blockchain. The stake is 32 ETH per validator, and this will be quite fair compared to the previous scenario.
16,384 is the least number set of validators. The reason behind the significant number is to create an optimal level of security and decentralization.
Phase 1: Scalability Upgrade
Scalability in the blockchain realm refers to its capacity to achieve a faster transaction per second (TPS) rate through the re-alignment of its consensus mechanism or any other system setting.
The main hindrance to Ethereum’s 1.0 scalability is Proof of Work mining mechanism. The next block in the sequence cannot be mined until the current block’s mining process is complete. A single block is only able to carry a finite amount of data. The limited number of blocks processed in a given period affects the Transaction Per Second rate (TPS).
The current Ethereum blockchain’s capacity is about 30 TPS. The said capacity is relatively slow and regularly causes hold-ups and latency issues. Ethereum 2.0 will enhance the blockchain capacity to 10,000 TPS, more than five times the VISA transactions’ speed.
10,000 TPS is only possible by setting parallel sub-chains where the blockchain has several autonomous sub-chains (shard chains). The autonomous shards can process transactions simultaneously and transmit them to the beacon chain for synchronization with the rest of the blockchain system.
The setting up of PoW Shard chains in Eth2 will be completed in 2021 if all goes to plan. The plan is to set up 64 parallel shard chains but with perfect integration in real-time. The chains will share the transaction burden and boost transaction processing speeds. We expect this to be delayed, just like phase 0.
Phase 1.5: Merger of PoW and PoS
The current Ethereum 1.0 is still a PoW blockchain. It will continue with its PoW operations, even in the wake of Eth2’s beacon chain and sharding. It’s important to note that it will take time before Eth2 can process transactions and support smart contracts. However, the theoretical plan is to merge the old PoW Ethereum Mainnet with the new PoS Ethereum 2.0 by making the former one of the 64 shards in the modern parallel system plan.
Thus, it will lose its PoW attributes, and miners will no longer transact on the blockchain. The PoW-PoS merger is in the plan for phase 1.5 of the Ethereum 2.0 upgrade slated for 2021 after the previous one. If PoW’s scalability problem finds a solution, the blockchain would still suffer from inadequate decentralization.
Due to the immense computing power needed to mine, there’s the likelihood of monopoly formation since the resources might lay in possession of just a few. With PoS, validators are chosen based on the stake they hold. With PoS, a validator will be in a position to mine with the typical consumer PC.
Phase 2: Wholly Established Shards (2021-2022)
The implementation of shard chains lies in the previous step. However, the chains in the initial stages will only have the capacity to hold transactional data. The blockchain won’t be complete without bringing smart contracts on board.
This phase will transform the shards into fully-fledged units able to admit smart contracts. The development will also involve the introduction of Ether accounts and their transactional capabilities like “sending” crypto to other wallets.
The development of a system environment suitable for hosting the scalable dApps expected on the new Eth2 platform will also form part of this stage.
Growth in blockchain science faces three challenges. Boosting security and raising the degree of scalability are the primary concerns. Reducing centralization is the other concern. Ethereum 2.0 seems capable of handling all three, albeit in theory for now.
With an ambitious plan of adding more shards on top of the initial 64, Ethereum 2.0 promises an impressive scalability plan. The expected PoS minting system is secure because validators lock up their funds (stakes) with an expectation of mining a block. If they’re fraudulent, they risk losing their stakes and blocked from transacting. PoS validation technique based on the amount of stake will end the PoW monopolistic tendencies.
The Ethereum community remains mostly optimistic about the new “Serenity” era!