Ethereum 2.0 — also known as Serenity — is the long-awaited upgrade to the Ethereum blockchain.
What Is Ethereum 2.0?
In a nutshell, Ethereum 2.0 will result in the blockchain shifting from a proof-of-work consensus mechanism (also used by Bitcoin) to proof-of-stake. This is going to be a marked departure from a tried-and-tested protocol that’s been used for five years.
This won’t result in a brand-new cryptocurrency being created — your ETH will be exactly the same. Instead, most of the changes are going to be at the backend, technical enhancements you probably won’t even notice.
The ETH 2.0 blockchain network has been in the works since 2015, and it won’t be implemented overnight. One of the main goals is to boost capacity, meaning that transactions can be executed faster. An explosion in open-source DApps, not to mention the decentralized finance sector, have overwhelmed this blockchain network.
For an example, just look at what happened when CryptoKitties launched in the heady days of 2017, when Ether and Bitcoin were heading to all-time highs. Demand for these collectible cats reached such a peak that there were tens of transactions stuck and waiting to be processed.
Future-proofing the mainnet to ensure that it is scalable could end up being crucial to its survival. Without it, crypto enthusiasts could end up taking their business somewhere else.
How Is Ethereum 2.0 Different From Ethereum 1.0?
Blockchain technology company ConsenSys has a neat way of describing how ETH 2.0 is different to its predecessor ETH 1.0.
Imagine that Ethereum 1.0 is a busy road with a single lane going in each direction, meaning all of the cars have to crawl through at a slow pace when there’s congestion.
Ethereum 2.0 is going to introduce sharding (more on that in our next question,) which has the effect of turning the blockchain into a motorway with dozens of lanes. All of this will boost the number of transactions that can be handled concurrently.
The shift from PoW to PoS is going to be extremely significant, not least in terms of energy efficiency. Proof-of-work uses a jaw-dropping amount of power — so much so that a single transaction on the Bitcoin blockchain has a carbon footprint that’s equivalent to 667,551 VISA transactions. One payment on Ethereum 1.0 ends up using more electricity than the typical U.S. household does in a whole day.
Estimates from the Institute of Electrical and Electronics Engineers (that’s IEEE for short) suggest that the ETH 2.0 upgrade will cut energy usage by a whopping 99%. This means that, as well as contributing to the quest for financial freedom, the blockchain won’t be calamitous for the environment.
What Are Shard Chains?
Sharding is the technology that will make Ethereum 2.0 scalable. It effectively involves splitting the blockchain mainnet into loads of tiny shard chains that run alongside each other. Instead of transactions being executed in a consecutive order, they’ll be handled simultaneously — and this is clearly a much cleverer use of computing power.
As the ConsenSys team explained: “Each shard chain is like adding another lane to upgrade Ethereum from a single lane road to a multiple lane highway. More lanes and parallel processing leads to much higher throughput.”
Now, you may be thinking “This is genius! Why wasn’t this done from the start?!” — the answer, to be blunt, is that life isn’t that simple.
One of the biggest downsides of sharding is how it can compromise security if it’s done poorly. Because fewer validators will be tasked with keeping each of these mini shard chains secure, there is a risk that they could be overtaken by malicious actors. It all harks back to that classic trilemma that has baffled cryptography enthusiasts for years: scalability, decentralization and security — you can pick two. (Source:https://coinmarketcap.com/alexandria/article/a-dive-into-ethereum-2-0)
Today’s Problems According to Ethereum
Clogged network
Ethereum needs to reduce network congestion and improve speeds to better service a global user base.
Disk space
Running a node is getting harder as the network grows. This will only get harder with efforts to scale the network.
Too much energy
Ethereum uses too much electricity. The technology that keeps the network secure needs to be more sustainable.
The challenge of decentralized scaling
A naive way to solve Ethereum’s problems would be to make it more centralized. But decentralization is too important. It’s decentralization that gives Ethereum censorship resistance, openness, data privacy and near-unbreakable security.
Ethereum’s vision is to be more scalable and secure, but also to remain decentralized. Achieving these 3 qualities is a problem known as the scalability trilemma.
The Eth2 upgrades aim to solve the trilemma but there are significant challenges.
Eth2 upgrades and decentralized scaling
The Eth2 upgrades will make Ethereum scalable, secure, and decentralized. Sharding will make Ethereum more scalable by increasing transactions per second while decreasing the power needed to run a node and validate the chain. The beacon chain will make Ethereum secure by co-ordinating validators across shards. And staking will lower the barrier to participation, creating a larger – more decentralized – network. (https://ethereum.org/en/eth2/vision/)
What Are the Main Phases of ETH 2.0?
As you’d imagine, the Ethereum Foundation wants to tread very lightly with the upcoming upgrade. Because of this, the process of switching to ETH 2.0 is perhaps best compared to continuing to live in a house while it is being renovated.
In a nutshell, there are three main phases: Phase 0, Phase 1, and Phase 2. The existing Ethereum 1.0 blockchain will continue to be operational at each stage.
Here’s what each step entails:
- Phase 0 will herald the launch of the Beacon Chain, which is going to be responsible for managing validators and delivering the PoS consensus mechanism — as well as dishing out penalties and rewards. This was scheduled to happen in January 2020.
- Phase 1 adds sharding to the mix, dividing the Ethereum network into 64 different chains. Although it’s logical to think that this would multiply capacity by 64, it could actually mean that ETH 2.0 can handle hundreds of times more transactions per second than its predecessor. This part of the roadmap was penciled in for 2021.
- Phase 2 will mark the arrival of ETH transfers and withdrawals, along with smart contract functionality, eventually leading to the Ethereum 1.0 blockchain being turned off once and for all. It is hoped that this would be live by 2022.
- (https://coinmarketcap.com/alexandria/article/a-dive-into-ethereum-2-0)