What is Ethereum 2.0?

So what is Ethereum 2.0? It is a term that describes a series of planned upgrades to the Ethereum blockchain. The term is also known as Serenity and its aim is to enhance the scalability and adoption of the Ethereum blockchain. Ethereum 2.0 will be launched in different phases. These phases come with their own improvement to the blockchain and they will help to enhance the network’s performance significantly.

The expected launch date of the first phase of this upgrade is 2020. It’ll begin with Phase 0 and move gradually to the last phase. However, further improvements will still be carried out on the blockchain after these phases. The end result is to have a blockchain that is better and faster.

What is Ethereum 2.0?

Ethereum 2.0 is a popular idea within the Ethereum ecosystem. There was a need for the upgrade to migrate the network from a Proof of Work (PoW) chain that is used by some cryptocurrencies.

Also, this update is among a string of planned upgrades to the Ethereum blockchain after the latter’s launch in 2015. In this case, four stages of the launch were scheduled for the Ethereum blockchain.

The first stage was called frontier, to denote the first build in July 2015. The second stage was named Homestead and it occurred in 2016. The next phase was Metropolis, subdivided into two parts. These parts were two hard forks including 2017’s Byzantium and 2019’s Constantinople. And now we have the final phase that will see to the launch of Ethereum 2.0. The latter will be completed in three phases between 2019 and 2021.

Further, Ethereum 2.0 will specifically address issues pertaining to scalability, mining, security, amongst others prevalent on the current Ethereum 1.0. It comes with solutions like Proof of Stake (PoS), sharding, and so much more. Therefore, transactions will be faster with provision for a better way to host decentralized applications (dApps) and smart contracts.

Difference Between Ethereum 1.0 and Ethereum 2.0

There are major differences between Ethereum 1.0 and Ethereum 2.0. These disparities lie in certain improvements that will be evident in Ethereum 2.0 but absent in Ethereum 1.0. These improvements are the Proof of Stake (PoS) and Shard Chains.

Proof of Stake

Ethereum 1.0 relies on a Proof of Work (PoW), which is a consensus mechanism. This mechanism uses the computing power of miners as well as electricity to add blocks to the distributed ledger technology. In contrast, there is a PoS mechanism, which is an upgrade to PoW.

PoS offers more enhanced scalability, security, and energy efficiency. It does not have a great dependence on computing power and electricity. Rather, it takes advantage of validators and stakes. Accordingly, Ethereum 2.0 as an upgrade to Ethereum 1.0 uses the PoS mechanism, which sets it apart from the latter.

Shard Chains

Shard chains are referred to as mechanisms that aid in scalability and they will be launched in the Ethereum 2.0 (Phase 1). These chains enhance the Ethereum’s blockchain throughput.

At the moment, one chain consists of successive blocks. This process helps to improve security while at the same time providing ease when verifying information. The downside is, it affects the speed at which transactions are processed especially in times of high activity in the blockchain. This is because each full node is required to verify each transaction in consecutive blocks.

Shard chains, on the other hand, offer a way to split the Ethereum blockchain thereby sharing data processing between several nodes. As such, transactions are processed in parallel instead of consecutively. There is also a finite amount of data each block can contain. Shard chains can be said to be an addition of another lane which upgrades the Ethereum blockchain to a highway with multi lanes instead of a single lane.

Issues Associated with Ethereum 1.0

Ethereum 1.0 is riddled with several issues that have called for updates. These updates would require a change in code and changes that need to be approved by the Ethereum community. These changes will also be layered on the existing network. Accordingly, the changes will combat the existing problems in Ethereum 1.0 and some of these problems are:

Scalability

Ethereum 1.0 has been said time and again to be slow due to the speed at which transactions are handled. This speed translates to five transactions being handled every second, which is still considered slow. And if the number of transactions pending is more than what a given block can contain, the pending ones have to be moved to the following block.

The same can be said about the speed at which it hosts decentralized applications and smart contracts. Much more, the Ethereum ecosystem is growing and this slowdown may continue. Scalability can, therefore, be said to be one of the major issues with Ethereum 1.0. And sharding is a mechanism that could potentially improve the network’s scalability.

Security

Another notable issue with the Ethereum network is the problem of security. A 2019 survey, for instance, outlined 44 vulnerabilities the network may be susceptible to. There were 26 vulnerabilities centered on the application layer, which is relied upon by DApps and smart contracts for their development. Notable among these were vulnerabilities tied to the design of the Ethereum blockchain and its implementation.

Mining Difficulty

There are cases where developers have to move from PoW mining to PoS mining. It increases the mining difficulty which in turn slows down the mining rewards. No solution has been provided to handle this issue, and as such, it is still a bone of contention in the ecosystem.

Costs

In 2019, Vitalik Buterin, Ethereum’s co-founder noted that using the Ethereum network is expensive. Buterin outlined that the network is almost full. As such, a major organization looking to join would be deterred since they’ll have the impression of competing with others for transaction space. Besides, an entity opting to use the network would only be increasing its cost.

Ethereum Proof of Stake

Proof of Stake (PoS) is a major change in Ethereum 2.0 since it brings about a significant change in the reward structure for miners on the Ethereum blockchain. Currently, a Proof of Work (PoW) mechanism is used on Ethereum, and with other blockchains like Bitcoin and Litecoin. PoS will be launched in Phase 0 of Ethereum 2.0.

PoW centers on miners running nodes and using computational power to solve mathematical problems. These miners compete to solve these problems in order to mine a block. Miners are also offered block rewards for using their resources to verify transaction data.

It is also worth noting that PoW is secure since several computational power would be needed for an individual to compromise such a network. And such computational power would cost a lot of money, or maybe entirely impossible to get. Despite the secure nature of PoW, they have several issues ranging from accessibility and scalability. These limitations brought about the need for the PoS mechanism.

PoS eliminates the miners and electricity required in the PoW mechanism. These two major components have been replaced with validators and stake. Here, validators take the place of miners and they are individuals who maintain the network’s state. They also receive rewards for choosing the next block. This, therefore, differs from PoW, which requires miners to use electricity in generating physical energy to confirm blocks.

Rewards are calculated using the state of the network at epoch completion. The reward rates on an individual basis rely on the validator number and the validator’s percentage uptime. Much more, the reward a person receives when they are selected to become a validator could differ from what they finally receive.

Ethereum 2.0 Roadmap

Ethereum 2.0 has been split into three major phases to give a clear roadmap to be followed. Here’s a detailed outline of each of these phases.

Phase 0: Phase 0 is the initial stage of Ethereum 2.0 and its launch was set for 2020. This phase will lead to the release of the beacon chain, where PoS will be evident. The beacon chain will also aid in the management of validators whose role is to confirm blocks.

However, there is a criterion for the advent of the genesis block of the beacon chain. The requirement is for a base amount of 524,288 ETH to be staked and divided between at least 16,384 validators. The minimum number of validators were not chosen at random but were decided on for their role in ensuring a secured and decentralized network. Also, staking rewards will only be distributed at the completion of the threshold.

It is also worth noting that PoS may not prove useful to the ecosystem at this phase. Here, Phase 0 will be unable to host dApps, and neither will it process transactions. This is because of the high-level testing required even before users carry out millions of transactions on the blockchain.

Over and above that, PoW will still be evident even after the beacon chain is live with the launch of PoS. Consequently, Ethereum 1.0 will still be active even after the release of the new blockchain to ensure the Ethereum ecosystem is not impacted negatively. Here, the old blockchain will run alongside Ethereum 2.0, but updates will be made to the original network in Phase 0. It is in Phase 1.5 a merge will occur between both blockchains to create a single network.

Phase 1: There are uncertainties about when Phase 1 will take place since a date has not been fixed yet. There are, however, expectations that it will be launched after the beacon chain and a year after the latter’s launch. On the other hand, Phase 1 will feature shard chains whose aim is to help the network scale more. Here, the blockchain will be sectioned into 64 chains and these chains will operate parallel to each other.

Much more, these shard chains will ensure that 64 blocks are handled each time thereby improving transaction speed. This splits the data burden amongst blocks since chains are running alongside each other at the same time. The latter differs from Ethereum 1.0 that processes a block at a time. And more transactions waiting in line will remain there till when a block has finished processing before these transactions are confirmed.

Phase 1.5: Phase 1.5 focuses on creating a single Ethereum network by merging the old and new blockchains. Thus, it can be called a merge between the PoW and the PoS chain. The combination will be carried out by moving the Ethereum 1.0 to Ethereum 2.0 and the original blockchain will become a 64 shard chain working with the beacon chain.

The merge between both blockchains also comes with the advantage of allowing holders of the native asset to use it on Ethereum 2.0. For this reason, there’s no need for them to swap their token just to use it on the new chain. There’s also no risk of their current tokens to become obsolete or unusable. On the contrary, there will be a continued existence of PoW history, even though there will be no need to maintain the PoW mechanism. The latter will act as one of the PoS shards on the new blockchain.

Phase 2: There is still a level of uncertainty about the developments or improvements that will occur in Phase 2. Nonetheless, the little bit of information provided reveals that the phase will bring about transactions, execution of smart contracts, transfers, withdrawals, etc.

After Phase 2: Successful completion of phase 2 will lead to further updates to the Ethereum blockchain. Hence, the phase will not mark an end to these developments. After the stage, there could potentially be more chances to improve the functions and usage of the network.

Ethereum 1.x: Ethereum 1.x is a planned phase where Ethereum 1.0 will exist until phase 1 of Ethereum 2.0. Moreover, 2.0 will be fully functional in Phase 2, and before then, there will still be improvements to Ethereum 1.x. Hence, a shared focus will be given to either blockchain since the ecosystem still needs to be maintained while work is carried out on the PoS chain.

Staking on Ethereum 2.0

Validators have to stake a minimum of 32 ETH before they can validate transactions on Ethereum 2.0. What’s more, the 32 ETH is deposited into a deposit contract created by Ethereum Foundation.

Over and above that, validators need to use the Ethereum 2.0 client software. Once the software has been run, these validators will be chosen randomly to confirm blocks on the blockchain. Validators that propose and confirm these blocks correctly earn ETH, which is a percentage of what they had staked.

There is also an incentive for validators to be online consistently and perform their computational responsibilities. This is because validators that go offline and do not perform these responsibilities have a moderate reduction in their block reward. Also, a validator can lose part or all of their stacked ETH if they attempt to be dubious. Here, they could try to validate a wrong data history that could compromise the network.

Risk of Failed Attack

There is a clear difference between the result of a failed attack on a PoW and PoS mechanism. In PoW, the risk of such an attack would be equivalent to the cost of electricity needed to achieve the required hash power.

Alternatively, the risk of launching such an attack in the PoS mechanism is the loss of the staked ETH. What’s more, there’s a higher potential for an individual to be conscious of the fact that they may lose their staked ETH by launching an attack compared to a cost of electricity, which may not be certain from the onset.

Consequently, there is a higher incentive for a miner to adhere to the guidelines and try not to launch an attack on the network in PoS. As such, the network is stronger and even more secure than the PoW mechanism.

Entry Barrier

The entry barrier on PoW and PoS both have their advantage and disadvantage. For instance, a miner in PoS does not need to setup up expensive mining rigs or get hardware or constant electricity to mine. However, not everyone can afford a minimum of 32 ETH (around $6,000) that is the minimum to become a validator.

Furthermore, learned individuals who may also be interested in running and managing client software without downtime and reduction in funds is yet to be ascertained. Nonetheless, there are expectations that Eth2 will eliminate some of these entry barriers on PoS.

There’s also the offer of staking services by a number of companies. This means that one does not need technical knowledge to run their own client. These companies manage the operation for their clients and the clients stakes their 32ETH. However, a fee is charged for the service.

And is often the case with PoW, an individual can join a staking pool. They can do so if they are unable to meet the minimum 32 ETH that is required. In this case, the rewards they will get will be equated to the total contribution.

Conclusion

Ethereum 2.0 comes with different phases and a promise to eliminate the scalability and security issues prevalent in Ethereum 1.0. PoW will be replaced with PoS, and the high cost of mining and potential for fraud will be reduced. At a later time, both blockchains will be merged to form a single blockchain. The goal is to promote the Ethereum ecosystem and increase the adoption of blockchain technology.