TL;DR
Ethereum 2.0 is a long-awaited update to the Ethereum (ETH) network that promises significant improvements to the functionality and experience of the network as a whole. Some of the most important updates include the move to the Proof of Stake (PoS) mechanism, shard chains, and a new central blockchain called the beacon chain. All of these implementations must occur through a carefully planned roadmap.
But that's just the tip of the iceberg. As Ethereum is one of the most popular cryptocurrencies on the planet, there are important details about what Ethereum 2.0 will actually be and how its changes will impact the crypto world in general.
Introduction
Since the launch of Ethereum, the development of new technologies in the form of decentralized applications (DApps) and other blockchains has expanded significantly. Most importantly, many of these technologies were built using the Ethereum network as a foundation. Think about some of the biggest innovations in Decentralized Finance (DeFi) – most of them run on the Ethereum network.
Unfortunately, scalability issues began to emerge. As the number of transactions increases on the Ethereum network, the cost of carrying out these transactions (which are paid in Gas) also increases. Ethereum is supposed to be the launchpad for the next generation of the Internet, so its economics must be adequate. Otherwise, it becomes impractical to use it.
That's where Ethereum 2.0 comes in. The proposed ETH 2.0 upgrades for the Ethereum network should mainly solve the scalability problem. These improvements will create a contrast to the existing version of Ethereum and will be implemented through a carefully planned roadmap.
What Is Ethereum 2.0?
Ethereum 2.0 (also known as Eth2 or "Serenity") is the long-awaited update to the Ethereum network that promises, among other things, to improve the network's scalability. With the implementation of several enhancements, speed, efficiency, and scalability are expected to improve without sacrificing network security and decentralization.
This new version of Ethereum has always been in the team's plans, but it took a few years to plan. The main reason for this is that scaling a blockchain in a secure and decentralized way is a challenging task.
Fortunately, Ethereum 2.0 aims to solve this problem by implementing some very important features. These new features create significant differences between the Ethereum we know today and the Ethereum of the future.
Differences between Ethereum and Ethereum 2.0
The main differences between Ethereum and Ethereum 2.0 involve the Proof of Stake (PoS) consensus mechanism, shard chains and the beacon chain. Let's see more details about these differences.
Proof of Stake
Proof of Work (PoW) is the mechanism used by 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 offer scalability, because as the blockchain grows, the mechanism requires increasingly greater computational power.
Proof of Stake (PoS) solves this problem, replacing computational power with the “skin in the game” approach. In this context, the expression denotes the commitment of the participants responsible for validating the network's transactions and blocks. In other words, as long as you have a minimum balance of 32 ETH, you can stake it, become a validator, and get paid for confirming transactions. If you want to know more about how PoS works and the staking process, check out the article on Proof of Stake.
Sharding
Access to the Ethereum network must be done through a node. A node stores a copy of the entire network, that is, it downloads, stores and processes each transaction since the beginning of Ethereum's existence. This slows down the entire process, even though the user does not necessarily need to run a node to carry out a transaction.
Shard chains are like any other blockchain, except they only contain specific subsets of an entire blockchain. With this tool, nodes must manage only a part, or shard, of the Ethereum network. This increases transaction throughput and the overall capacity of the Ethereum network.
A beacon chain
With shard chains working in parallel, you need to ensure that they all remain in sync with each other. This is the role of the beacon chain, which provides consensus to all shard chains running in parallel.
The beacon chain is an entirely new blockchain that plays a central role in Ethereum 2.0. Without it, sharing information between parties (shards) would not be possible and scalability would be non-existent. For this reason, the beacon chain will be the first feature implemented in Ethereum 2.0.
The path to Ethereum 2.0
The launch of Ethereum 2.0 will not happen all at once. It will be implemented 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 launching the beacon chain, as it is a fundamental tool for the functionality of shard chains. There will be no shard chains 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 staking ETH will not be able to “unstake” until shard chains are fully implemented. This means that validators' ETH balance will be locked until the next phase.
The Beacon Chain was launched on December 1, 2020 and is running parallel to the mainnet. Since its launch, the Beacon Chain is not processing mainnet transactions. Instead, it is working in parallel, achieving consensus by agreeing on active validators and their respective account balances.
Phase 1/1.5
The next phase is actually a mixture of two phases: phase 1 and phase 1.5. Phase 1 introduced shard chains, which allow validators to create blocks on the blockchain through PoS. In phase 1.5, the Ethereum mainnet will officially introduce shard chains and begin the transition from PoW to PoS.
Phase 1/1.5 began to be implemented in 2021.
The Merge
The Merge upgrade is an important step towards Ethereum 2.0 and represents the completion of the PoW transition. It will change the Ethereum blockchain from a PoW consensus mechanism to a PoS mechanism.
The Merge upgrade involves transitioning 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 PoS network. New ETH tokens will be issued by nodes on the network by staking a reasonable amount of ether tokens in a pool, to secure the network and validate transactions.
Merge is not a hard fork, which would result in two different versions of the blockchain. Ethereum will remain as a single blockchain and all users' transaction history will be unified. All transaction history currently stored on mainnet will not be lost; therefore, users do not need to take any measures to protect their assets.
Level 2
Phase 2 will be the final phase when Ethereum 2.0 will support fully implemented shards and become the official Ethereum network. Shard chains will also be able to work with smart contracts, allowing developers of DApps and other technologies to integrate with Ethereum 2.0.
Phase 2 should be implemented after the Merge, or later.
Final considerations
Ethereum 2.0 is an important update to the Ethereum network for a number of factors, especially when it comes to scalability. Without the new PoS, shard chains and beacon chain features, Ethereum could eventually become unsustainable and lose its position as the leading platform for smart contracts in the crypto ecosystem.
Implementing Eth2 will take some time and may even take longer than expected. The good news is that the update is already well underway and Ethereum developers are committed to developing the project.