What is Ethereum 2.0 and why is it important?

Summary
Ethereum 2.0 is a long-awaited update to the Ethereum (ETH) network that promised significant improvements to the overall network's functionality and experience. Among the most notable improvements are the transition to Proof of Stake (PoS) consensus, the incorporation of shard chains and the creation of a new central blockchain called Beacon Chain. All of this and more is expected to be implemented in phases according to a carefully planned roadmap.
However, this is just the tip of the iceberg. As Ether is one of the most popular cryptocurrencies on the planet, there are important details about what Ethereum 2.0 really is and how it will affect the cryptoverse as a whole.
IntroductionSince the launch of Ethereum, the development of new technologies such as decentralized applications (DApps) and other blockchains has expanded greatly. More importantly, many of those technologies were built on top of the Ethereum network. Think about some of the biggest innovations in Decentralized Finance (DeFi): a large portion of them run on Ethereum.
Unfortunately, scalability issues began to arise. As the number of transactions increased on the Ethereum network, so did the cost of carrying out those transactions (which are paid for in gas). If Ethereum is supposed to be a platform that guides or escorts the next generation of the Internet, the economics must make sense, otherwise its use becomes impractical.
And this is where Ethereum 2.0 comes into play. The ETH 2.0 upgrades proposed for the Ethereum network are supposed to solve the scalability problem first and foremost. These improvements will contrast with the existing version of Ethereum, and will be deployed through 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, among other things, to improve its scalability. By implementing various improvements, both speed, efficiency and scalability should be increased, without sacrificing security and decentralization.
This version of Ethereum has always been on the horizon, but its deployment has taken a few years. The main reason is that scaling a blockchain in a secure and decentralized way is a real challenge.
Fortunately, Ethereum 2.0 aims to solve this problem by implementing a series of very important functionalities. These new features generate certain key differences between the Ethereum we know and the one expected.
Differences between Ethereum and Ethereum 2.0The main differences between Ethereum and Ethereum 2.0 include the use of the Proof of Stake (PoS) consensus mechanism, shard chains, and the Beacon Chain. Let us proceed to analyze these differences in greater detail.
Proof of StakeThe Proof-of-Work (PoW) mechanism is how Ethereum (and many other blockchains) keep the network protected and up-to-date, rewarding miners for creating and validating blocks on the blockchain. Unfortunately, PoW consensus is not scalable, requiring an increasing amount of computing power as the blockchain grows.
The Proof of Stake (PoS) mechanism solves this by replacing computing power by also bearing the risks. That is, as long as you have a minimum of 32 ETH, you can allocate it (i.e. stake it), become a validator, and receive payments when confirming transactions. If you want to know a little more about how the PoS and staking mechanism works, see Proof of Stake explained.
Fragmentation or "sharding"Anyone who wants to access the Ethereum network must do so through a node. A node stores a copy of the entire network, meaning the node has to download, compute, store and process every transaction since the beginning of Ethereum's existence. Although it is not necessary for you as a user to run a node for the transaction, this makes everything slower.
Shard chains are like any other blockchain, except they only contain specific subsets of a complete blockchain. This helps nodes by only having to manage a portion or fragment of the Ethereum network. This should increase the transaction processing capacity and overall capacity of Ethereum.
Beacon ChainWith shard chains working in parallel, something must ensure that everything stays in sync with each other. Beacon Chain takes care of that by providing consensus to all shard chains running in parallel.
Beacon Chain is a new blockchain that plays a central role in Ethereum 2.0. Without it, information could not be shared between the shards and scalability would not be generated. For this reason, it is set to be the first feature released on the road to Ethereum 2.0.
The road to Ethereum 2.0The launch of Ethereum 2.0 will not happen all at once. Instead, it will be launched in three phases, each of which will accompany different features to ensure the success of the new Ethereum.
Phase 0The first phase, or phase 0, will be dedicated to the launch of the Beacon Chain, as it is crucial for the functionality of shard chains. There will be no shards yet, but Beacon Chain will begin accepting validators (i.e. stakers) via 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 shard chains are fully implemented. This means that validators' ETH will be locked until the next phase.

Beacon Chain launched on December 1, 2020 and has been running parallel to the mainnet. Following its launch, Beacon Chain has not been processing mainnet transactions. Instead, it has been running in parallel and has achieved consensus thanks to the agreement of active validators and their account balances.
Phase 1/1.5The next phase is, in fact, 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 using the PoS mechanism. Phase 1.5 is when the Ethereum mainnet will officially introduce shard chains and begin the transition from PoW to PoS mechanism.
Phase 1/1.5 began rolling out in 2021.
The MergeThe Merge is an important step on the path to Ethereum 2.0 and is the conclusion of the transition away from the PoW consensus mechanism. The Merge will change the Ethereum blockchain from the PoW consensus mechanism to PoS.
This merger involves the transition of the current Ethereum mainnet protocol to Beacon Chain. This is a major change as new Ethereum transactions will take place on the new PoS network. The new ETH tokens will be minted by nodes in the network, staking a fair amount of Ether tokens in a pool to secure the network and validate transactions.

The Merge is not like a hard fork that results in two different versions of the blockchain. Ethereum will continue as a single blockchain and all user transaction history will be merged. All transaction history currently stored on the mainnet will not be lost. Therefore, users do not need to take any action to protect their assets.
Level 2The final phase will be Phase 2, which is when Ethereum 2.0 will support fully formed shards and become the official Ethereum network. Shard chains will be able to work with smart contracts, as well as allow developers of DApps and other technologies to integrate with Ethereum 2.0 seamlessly.
Phase 2 is expected to be implemented following The Merge or later.
ConclusionsEthereum 2.0 is a major upgrade to the Ethereum network for several reasons, especially when it comes to scalability. Without the new features of PoS, shard chains and the Beacon Chain, Ethereum could eventually become unsustainable and cease to be the leading smart contract platform in the crypto ecosystem.
Deploying Eth2 will take some time and may even take longer than expected. The good news is that it is already underway and Ethereum developers are dedicated to completing the implementation.