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Ethereum 2.0 is a long-awaited update to the Ethereum (ETH) network that will bring significant improvements to the functionality and operation of the network as a whole. The most important innovations are the transition to a proof-of-stake (PoS) algorithm, shard chains, and a new blockchain called Beacon Chain. All of them will be implemented in stages according to a carefully planned roadmap.
However, this is just the tip of the iceberg. Since ETH is one of the most popular cryptocurrencies, it is important to understand what the Ethereum 2.0 update is and how it will affect cryptocurrencies in general.
Introduction
Since the release of Ethereum, the development of new technologies in the form of decentralized applications (DApps) and other blockchains has progressed significantly. Moreover, many of these technologies were built on top of the Ethereum network, and a significant portion of innovative decentralized finance (DeFi) projects also run on this platform.
Unfortunately, over time, scalability problems began to arise. As the number of transactions on the Ethereum network increased, so did the cost of executing those transactions (which are paid for in gas). And if Ethereum is to usher in a new era of the internet, it needs to create a more balanced economy. Otherwise, its use will be inappropriate.
First of all, the Ethereum 2.0 update is designed to solve the scalability problem. These improvements, implemented according to a carefully planned roadmap, will stand out significantly from the existing version of Ethereum.
What is Ethereum 2.0
Ethereum 2.0 (aka Eth2 or Serenity) is a long-awaited update to the Ethereum network that, among other things, aims to improve the scalability of the network. These innovations should also improve speed, efficiency, and scalability without sacrificing security or decentralization.
This version of Ethereum began to be developed a long time ago, but it took several years to deploy it. The main reason is that scaling a blockchain in a secure and decentralized manner is quite a challenging task.
Ethereum 2.0 aims to solve this problem by introducing some important features that will make the old and updated Ethereum fundamentally different.
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 mechanisms, shard chains, and Beacon Chains. Let's look at them in more detail.
Proof of ownership
Proof of work (PoW) is used by Ethereum (and many other blockchains) to maintain the security of the network, as well as reward miners for creating and validating blocks on the blockchain. Unfortunately, PoW cannot be scaled as it requires increased computing power as the blockchain grows.
Proof of ownership (PoS) helps solve this problem by replacing computing power with a monetary investment. That is, if you have a minimum of 32 ETH, you can stake it, become a validator and get paid for confirming transactions. You can learn more about how PoS and staking work in the article What is Proof of Stake (PoS).
Sharding
The Ethereum network can only be accessed through a node. The node downloads, calculates, stores and processes every transaction since the beginning of Ethereum, that is, it stores a copy of the entire network. Although the user does not have to run a node to complete a transaction, it does slow down the process significantly.
Shard chains differ from regular blockchains in that they only contain specific subsets of one entire blockchain. This simplifies the operation of nodes since they only have to manage a portion of the Ethereum network, which helps increase transaction throughput.
Beacon Chain
When shard chains operate in parallel, it is necessary to ensure that they are synchronized with each other. This task is performed by Beacon Chain, providing consensus for all chain shards working in parallel.
Beacon Chain is a completely new blockchain and a critical part of the Ethereum 2.0 update. Without it, information exchange between shards would be impossible, and scalability would suffer. For this reason, Beacon Chain is considered the main element of the Ethereum 2.0 update.
The Path to Ethereum 2.0
The Ethereum 2.0 update will not happen immediately, but will be rolled out in three stages, each of which will be supplemented with different features.
Stage 0
The first phase, or Phase 0, will focus on the release of Beacon Chain, as it is key to the functionality of shard chains. Even before their launch, Beacon Chain will begin to accept validators (stakers) through a one-way deposit contract.
All registered validators who have staked ETH will not be able to withdraw tokens until shard chains are implemented. In other words, validators' ETH will be locked until the next stage.
Beacon Chain was launched on December 1, 2020 and runs parallel to the mainnet. It does not process its transactions, but exists in parallel and achieves consensus by agreeing on active validators and their account balances.
Stage 1/1.5
The next period combines stages 1 and 1.5. Phase 1 introduced shard chains, which allow validators to create blocks on the blockchain using PoS. At Stage 1.5, the Ethereum mainnet will officially introduce shard chains and begin the transition from PoW to PoS.
Phase 1/1.5 deployment began in 2021.
Merger
The merger is an important step towards Ethereum 2.0 and the end of PoW. As a result of the merger, the Ethereum blockchain will move from a PoW consensus mechanism to a PoS mechanism.
The merger involves the transition of the current protocol on the Ethereum mainnet to Beacon Chain. This is a major change as Ethereum transactions will now be conducted on the new PoS network. New ETH tokens will be created by network nodes, which will begin to contribute a certain amount of ether to the pool to protect the network and confirm transactions.
This merger is not a hard fork and will not split the blockchain into two different versions. Ethereum will remain a single blockchain into which the entire user transaction history currently stored on the main network will be transferred. Since transaction history will not be lost, users do not need to take any action to protect their assets.
Stage 2
Stage 2 will be the final stage: in it, Ethereum 2.0 will begin to support fully formed 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 seamlessly integrate them with Ethereum 2.0.
Phase 2 is expected to begin after the merger.
Summary
Ethereum 2.0 is an important update to the Ethereum network for a number of reasons, including improved scalability. Without new PoS, shard chain and Beacon Chain capabilities, Ethereum may become unstable and cease to be the leading smart contract platform in the crypto ecosystem.
Eth2 deployment may take longer than expected. However, the process is already in full swing, and Ethereum developers will soon bring it to an end.
