In brief
Ethereum 2.0 is a long-awaited upgrade to the Ethereum (ETH) network, promising to significantly improve the functionality and experience of the entire network. Some notable upgrades include a change to the consensus mechanism to Proof of Stake (PoS), sharded chains, and a new blockchain at the core called the beacon chain. All these and many more upgrades are expected to be implemented in phases through a carefully planned roadmap.
But that's just the tip of the iceberg. With Ethereum being one of the most popular cryptocurrencies on the planet, it's important to understand what Ethereum 2.0 really is and how it will affect the entire cryptocurrency sector.
Introduce
Since the emergence of Ethereum, the development of new technologies in the form of decentralized applications (DApps) and other blockchains has expanded greatly. More importantly, many of these applications and technologies have been built and deployed on the Ethereum network. Think of some of the biggest innovations of the Decentralized Finance (DeFi) sector – a significant number of these projects are operating on Ethereum.
Unfortunately, scalability issues started to appear. As the number of transactions increases on the Ethereum network, the cost of conducting these transactions (paid in gas) also increases. If Ethereum is supposed to be the platform that ushers in the second-generation Internet, it must also be economically sound. Otherwise, it will become impractical to use.
That's why Ethereum 2.0 appeared. The proposed upgrades to the Ethereum 2.0 network are expected to largely address scalability issues. These improvements will contrast the current version of Ethereum and will all be rolled out according to a carefully planned roadmap.
What is Ethereum 2.0?
Ethereum 2.0 (also known as Eth2 or "Serenity") is a long-awaited upgrade to the Ethereum network, promising to improve the network's scalability. Through the implementation of several enhancements, the speed, efficiency, and scalability of the network will be improved without sacrificing security and decentralization.
This version of Ethereum has always been in development, but it took a few years to launch. The main reason for this is that scaling blockchain in a secure and decentralized way is inherently a challenging task.
Thankfully, Ethereum 2.0 has solved this problem through the implementation of some very important features. These new features create key differences between the Ethereum we know and the new Ethereum we are looking forward to.
Difference between Ethereum and Ethereum 2.0
The biggest difference between Ethereum and Ethereum 2.0 involves the use of Proof of Stake (PoS) consensus mechanism, shard chain and beacon chain. Let's look at these differences in more detail.
Proof of stake
Proof of Work (PoW) is the consensus mechanism of Ethereum (and many other blockchains) that keeps the network secure and up to date by rewarding miners for creating and validating blocks on the blockchain. Unfortunately, PoW is not scalable because as the blockchain grows, it requires increasing amounts of computing power.
Proof of Stake (PoS) solves this problem by replacing computing power with a “putting money into the game” mechanism. That means, as long as you have a minimum of 32 ETH, you can pledge (i.e. stake), become a validator, and get paid by confirming transactions. If you want to learn more about how PoS and staking work, read the article What is Proof of Stake (PoS)?.
Sharding
Anyone who wants to access the Ethereum network must go through a node. Each node stores a copy of the entire network, meaning the node has had to download, calculate, store, and process every transaction since Ethereum began its existence. This slows everything down.
Shard chains are just like any other blockchain, except that they only contain specific subsets of the entire blockchain. This helps nodes because they only have to manage a part or segment of the Ethereum network. This helps increase Ethereum's transaction throughput and overall capacity.
Beacon chain
With chains of shards operating in parallel, something is needed to ensure that they all stay in sync with each other. The beacon chain will solve this problem by providing consensus for all shard chains running in parallel.
The beacon chain is a brand new blockchain that plays a central role in Ethereum 2.0. Without it, information sharing between shards would not be possible and scalability would not exist. For this reason, it has been stated that it will be the first feature to appear when moving to Ethereum 2.0.
Ethereum 2.0 development progress
All Ethereum 2.0 implementations will not happen and be completed at the same time. Instead, it will be released in three phases, each coming with distinct features to ensure the success of the new Ethereum blockchain.
Stage 0
The first phase, or phase 0, will be dedicated to releasing the beacon chain - as it is the functional heart of the shard chain. Without a shard chain, the beacon chain will start accepting validators (i.e. staking participants) through a one-way deposit contract.
It is important to note that all registered validators staking their ETH will not be able to “unstake” until the shard chains have been fully deployed. That means the ETH coming from validators will be locked until the next phase.
The Beacon Chain was launched on December 1, 2020 and is already running in parallel with the main network. After launch, the Beacon chain does not process transactions on the main network. Instead, it ran in parallel, reaching consensus on active validators and their account balances.
Phase 1/1.5,
The next stage is essentially a blend of two stages: stage 1 and stage 1.5. Phase 1 introduced shard chains, allowing validators to create blocks on the blockchain via PoS. Phase 1.5 is when the Ethereum mainnet will officially introduce sharded chains and begin the transition from PoW to PoS.
Phase 1/1.5 begins implementation in 2021.
Consolidation
The merge is an important step towards Ethereum 2.0 and the end of the transition away from PoW. The merger will convert the PoW consensus mechanism into a PoS mechanism on Ethereum.
The merge involves moving the current Ethereum mainnet protocol to the Beacon chain. This is a big change as Ethereum transactions will now be carried out on the new network using PoS. New ETH tokens will be minted by participating nodes that stake a reasonable amount of ether tokens into a pool, participate in network security, and validate transactions.
A merger is not the same as a hard fork which will result in two different versions of the blockchain. Ethereum will continue to be a single blockchain and all user transaction history will be merged. All existing transaction history stored 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, which is when Ethereum 2.0 will support fully formed shards and become the official Ethereum network. The sharded chain will also enable smart contracts to operate, helping developers of DApps and other technologies seamlessly integrate with Ethereum 2.0.
Phase 2 is expected to be implemented after the merger or later.
summary
There are many reasons to say Ethereum 2.0 is an important upgrade to the Ethereum network, especially scalability. Without the new features of PoS, sharded chains, and Beacon chains, Ethereum could eventually become unsustainable and no longer be the leading smart contract platform in the cryptocurrency ecosystem.
Deploying Eth2 will take some time and may even take longer than expected. The good news is that the updates are already well underway and Ethereum developers are monitoring those developments.
