The Ethereum network is one of the largest and most widely used blockchain networks in the world. Since its launch in 2015, the development of new technologies in the form of decentralized applications (Dapps) and other blockchains has expanded significantly and many of these technologies have been erected on top of the Ethereum network. In fact, a significant portion of decentralized finance (DeFi) runs on top of it. Ethereum has been making progress in its goal of becoming a global virtual distributed computer, which could eventually replace a large part of the centralized applications that exist today. What is Ethereum 2.0?
From its origins, the development of the project was planned with a roadmap structured in 4 phases defined by the so-called “Ethereum Improvement Proposals” (EIP). These proposals are presented to the Ethereum community for approval and thus, define the guide that Ethereum developers must follow. Their goal is to achieve continuous improvement and growth of the network, and also to solve scalability issues that began to emerge. As the number of Ethereum network transactions grew, so did the cost of running them (which must be paid in gas).
Chronology of the 4 stages of Ethereum development:
1st stage of Ethereum: FRONTIER
It was the first version of the network, launched in 2015. It could be considered as a first version for developers where they could experiment with the platform, extract Ether and design Dapps (Distributed Apps).
2nd stage of Ethereum: HOMESTEAD
At the beginning of 2016, the first productive version of the Ethereum network was released. It included several protocol improvements and the foundation on which to build the next updates.
3rd stage of Ethereum: METROPOLIS
The third and current stage was structured in two parts – Byzantium and Constantinople. With Byzantium, released in October 2017, improvements were made to several aspects of the network:
- Faster and safer
- More predictable gas prices
- Improved privacy by enabling zero-knowledge verification: In short, it allows checking the veracity of an assertion without the need to reveal any data about the knowledge to be revealed. For example: validating that a person is of legal age, without needing to know their date of birth or age.
- Mining bomb: a mining algorithm adjustment important for evolution, which exponentially increases the difficulty of solving the proof of work.
Constantinople, released in February 2019, continued to build on the improvements introduced with Byzantium, as a foundation to the introduction of the fourth (and currently final) stage of Ethereum development known as Ethereum 2.0 or “Serenity”.
The proposed ETH 2.0 upgrades to the Ethereum network should solve the scalability issue.
What is Ethereum 2.0?
Ethereum 2.0 (or “Serenity”) is a long-awaited upgrade to the Ethereum network. Through the implementation of various improvements, speed, efficiency and scalability should increase, without sacrificing security and decentralization. This version of Ethereum has always been in the spotlight, but its deployment has required a few years of development.The reason? As we have discussed in previous articles, scaling a blockchain in a decentralized and secure way is a real challenge.
This is the most ambitious overhaul of the network so far and involves improvements in almost every aspect. The main points it solves would be:
- Scalability: This is possibly the biggest challenge Ethereum faces today. Adding new nodes to the network does not increase the capacity to process transactions, as each node is going to verify each transaction. Increasing the use of the Ethereum network leads to a continuous increase in the time and cost of executing transactions. The approach to solving these problems would be on two fronts: sharding, in which the chain would be divided into more manageable fragments, and off-chain scalability solutions similar to Bitcoin’s Lightning Network.
- Speed and usability: This refers to the bottleneck introduced by the network itself, which is responsible for executing the code deployed on the network and maintaining the network state.
Differences between Ethereum and Ethereum 2.0 What is Ethereum 2.0?
The fundamental difference between Ethereum (1.0) and Ethereum 2.0 is in the consensus mechanism that allows new blocks to be added to the blockchain. While the previous version uses a Proof of Work (PoW), now a Proof of Stake (PoS) will be used.
Proof of Work vs. Proof of Stake
Proof of Work (PoW) is the way Ethereum (and many other blockchains) keep the network secure and up-to-date by rewarding miners for creating and validating blocks. However, this model is not scalable since it requires a large amount of energy, which is increasing as the blockchain grows.
Proof of Stake (PoS) solves this problem: as long as you have a minimum of 32 ETH, you can put them in staking, become a validator, and be rewarded for confirming transactions. In the new PoS system there are no miners, but transaction validators who must have a certain stake in order to verify transactions. These validators are selected when proposing a block based on their participation in the cryptocurrency and how long they have been investing in it. When enough validators confirm that block, it can be added to the blockchain, and the validators are rewarded, a process known as “forging” or “minting”. In this way, traditional mining disappears. The fundamental advantage of PoS is that it is much more energy efficient than PoW and also considerably improves the security of the network.
Solutions for scalability
As we mentioned earlier, one of the biggest problems in Bitcoin and other blockchain solutions has been that of scalability. Transaction demand has grown much faster than blockchain solutions have been able to expand and adapt to new technologies. Ethereum 2.0 aims to change this and, to this end, three solutions have been designed in this update to improve mining: Plasma, Raiden and Sharding.
Plasma is an additional layer built on top of Ethereum that can be used to transact without the need to record each transaction. Actors can transfer ETH between each other and the only thing that is verified through the blockchain are the final balances.
Raiden is a similar solution and also relies on trust between parties without relying on the blockchain.
The third scalability solution is called Sharding, shard chains or fragmented chains. They contain only specific subsets of an entire blockchain, which helps nodes by having to manage only a portion or fragment of the Ethereum network. This should increase transaction throughput and network scalability.
With fragmented chains working in parallel, something must ensure that they all remain synchronized with each other. This is taken care of by the so-called Beacon Chain, by providing consensus to all the sharded chains running in parallel. The beacon chain plays a central role in Ethereum 2.0. Without it, information exchange between shards would not be possible and scalability would be non-existent. For this reason, it has been said that it will be the first feature on the road to Ethereum 2.0.
Road to Ethereum 2.0
The launch of Ethereum 2.0 will not happen all at once, but will be launched in three phases, each with distinct features to ensure the success of the new Ethereum:
- Phase 0: The new Beacon Chain that stores and manages the validator registry and the PoS consensus mechanism is implemented. At the moment the original Ethereum 1.0 PoW blockchain is still active for data continuity.
- Phase 1: this new stage is expected to be reached in 2021 when the new network starts to be deployed, initially with 64 times the capacity and transactions per second of the current network. Later (also expected in 2021) this network will become fully effective and the final transition to the PoS consensus will be made.
- Phase 2: by the end of 2021 or perhaps as early as 2022 the new blockchain is expected to be fully functional and compatible with smart contracts. This will make it possible to add ETH accounts, enable cryptocurrency transfers and withdrawals.
Ethereum has faced increased pressure from the rise of DeFi and the increased issuance of stablecoins. However, if all goes well, the new Ethereum will be much faster and more secure than the previous version. This would finally mean that Ethereum could in the future fulfill its promise as a system for smart contracts. Without the new PoS, fragment chain and beacon chain features we previously analyzed, Ethereum could eventually cease to be the leading smart contract platform in the crypto ecosystem and become unsustainable. Eth2 implementation will take some time, maybe even longer than expected, but it is already underway and developers are dedicated to seeing it through. What is Ethereum 2.0?