What is Ethereum 2.0
|– ETH 2.0 is a much anticipated upgrade designed to significantly improve the Ethereum blockchain’s scalability and security.|
– The upgrade will be released in multiple phases to ensure continuity in a seamless migration to the new public mainnet.
– The first phase of the upgrade will see Ethereum shift to a proof of stake consensus mechanism.
Why Ethereum 2.0?
Since its 2015 launch, the Ethereum blockchain has grown into the most used decentralised network facilitating the exchange of value, the building of Dapps, and creation of other open permissionless systems. This increased interest has stretched Ethereum’s capacity to its limits. With demand expected to increase, there was a need for a rethink and redesign of the network’s architecture to ensure it fulfils its potential of serving the whole of humanity. Enter ETH 2.0.
ETH 2.0 is the result of long term planning in the Ethereum roadmap, aimed at enabling the network to process more transactions while increasing security and enhancing decentralisation. This is a huge undertaking requiring great innovation and significant changes to create novel solutions that offer more benefits to the users.
Ethereum 2.0 Features and Their Advantages
One of the major changes to be implemented in ETH 2.0 is a shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus mechanism. This will change how the network operates in multiple ways. It will change the mechanism of validating transactions from mining to staking, a move that will make the network more secure. Validators will be required to stake 32 ETH (around $12,500 at the time of writing) in order to run a node. The validators will be selected at random and rewards issued for every successfully verified block added to the network.
In the same vein, penalties will be imposed on stakers that attempt to harm the network. This is expected to boost security as bad actors can lose a portion or all of their stake for their efforts.
Also, block rewards for validators are slashed if they fail to stay online consistently. This is aimed at incentivising them to keep their nodes live throughout thus keeping the network secure.
A move to the PoS consensus mechanism will also reduce the network’s energy consumption as validators do not need enormous amounts of computing power to participate. This is a welcome bonus considering the ever growing concerns about the huge energy consumption of PoW networks like Bitcoin.
ETH 2.0 will introduce shard chains that are expected to boost its capacity and scalability significantly. Shard chains act as additional lanes that enable simultaneous rather than consecutive processing of transactions. This functionality will allow Ethereum to handle more transactions per second (TPS) through parallel processing. The network’s throughput will surge dramatically from its current 15 transactions per second (TPS) as 64 shard chains are scheduled for deployment in ETH 2.0.
When would it be released?
ETH 2.0 will be released gradually in three phases. The first Phase 0, known as Beacon Chain, is scheduled for 2020 and entails the introduction of PoS alongside the existing PoW mechanism. This is designed to minimise the disruption of normal chain activities during these early stages of the transition.
Shard chains will be introduced in Phase 1 that is scheduled for 2021 to accelerate the network’s journey towards scalability.
Phase 2, which is the proposed third implementation, is planned for some time in 2022 and will unlock the other functionalities of the Ethereum blockchain. It will enable transfers and withdrawals, cross-shard transfers and the ability to build applications. The PoW mechanism will be retired in Phase 2 with Ethereum 1.0 data absorbed in ETH 2.0 public mainnet.
Why it matters
Even though the ETH 2.0 upgrade has been long planned, its implementation could not have come at a better time. Ethereum has become the most popular network for building a diverse range of DApps from gaming to the financial services thanks to its smart contract capabilities. The increased adoption and use of Ethereum has created additional demand, sometimes straining the network. For instance, the network has struggled to accommodate the explosive DeFi sector with transaction fees skyrocketing recently. This has been a timely indicator that Ethereum, as is currently designed, is not sustainable. ETH 2.0 will solve these problems by substantially boosting the network’s capacity thus lowering transaction fees and enabling the creation of more novel solutions.
There is great anticipation among the greater crypto community for the ETH 2.0 launch following a series of postponements this year. As such Ethereum developers are very cautious, therefore, the launch is pending till a full audit of the code is complete. As things stand, the Ethereum community will have to wait for much longer to make the transition to ETH 2.0. Given the magnitude of this upgrade, the wait is worthwhile. Or as the saying goes, good things come to those who wait.