Summary

Ethereum 2.0 is a long-awaited upgrade to the Ethereum (ETH) network that promises significant improvements to the overall network functionality and experience. Some of the more important improvements include changes to Proof of Stake (PoS), shard chains, and a new blockchain called beacon chain. These and other improvements are expected to be implemented in stages through a carefully planned roadmap.

However, that's not all. With Ethereum's position as one of the most popular cryptocurrencies in the world, there are important details about the true meaning of Ethereum 2.0 and its impact on the crypto world as a whole.

Introduction

Since the release of Ethereum, the development of new technologies in the form of decentralized applications (DApps) and other blockchains has expanded significantly. More importantly, much of this technology has been built into the Ethereum network. Think about some of the biggest innovations of Decentralized Finance (DeFi). Most run on Ethereum.

However, scalability issues started to emerge. The number of transactions increases on the Ethereum network, and so do transaction fees (which are paid in the form of gas). If Ethereum is intended to be the platform that delivers the next generation of the Internet, the economics have to make sense. Otherwise, Ethereum becomes impractical to use.

This is where Ethereum 2.0 comes into play. The proposed ETH 2.0 upgrade on the Ethereum network is intended primarily to address scalability issues. These improvements will make a big difference compared to the current version of Ethereum. All improvements will be rolled out via a carefully planned roadmap.

What is Ethereum 2.0?

Ethereum 2.0 (aka Eth2 or “Serenity”) is a long-awaited upgrade to the Ethereum network, one of which promises network scalability. Through the implementation of several enhancements, speed, efficiency, and scalability will be improved without compromising its security and decentralized nature.

This version of Ethereum has been discussed for a long time, but it took several years to launch. The main reason is that developing blockchain capacity in a secure and decentralized manner is a very challenging task.

Fortunately, Ethereum 2.0 aims to solve this problem through the implementation of several very important features. These new features create some key differences between the Ethereum we know today and the Ethereum of the future.

Difference between Ethereum and Ethereum 2.0

The biggest difference between Ethereum and Ethereum 2.0 lies in the use of Proof of Stake (PoS) consensus mechanisms, shard chains, and beacon chains. Let's take a closer look.

Proof of Stake

Proof of Work (PoW) is a way for Ethereum (and most other blockchains) to keep the network secure and updated by rewarding miners who create and validate blocks on the blockchain. However, PoW is not scalable because it requires increasingly large amounts of computing power as the blockchain develops.

Proof of Stake (PoS) replaces computing power with “skin in the game” principles to solve this problem. What this means is that as long as you have a minimum of 32 ETH, you can allocate it (i.e. stake) to become a validator and get paid by confirming transactions. If you want to learn more about how PoS and staking work, read Proof of Stake Explained.

Sharding

Anyone who wants to access the Ethereum network must do so through nodes. Nodes store a copy of the entire network. This means that nodes have had to download, compute, store, and process every transaction since the beginning of Ethereum's existence. While users don't have to run a node just to transact, the presence of a node slows things down.

Shard chains are just like other blockchains. The difference is that a shard chain only contains a certain subset of one complete blockchain. This can help nodes by managing only a slice or shard of the network, thereby increasing transaction throughput and overall Ethereum capacity.

Beacon chain

With shard chains functioning in parallel, someone has to ensure that everything stays in sync with each other. Beacon chains handle this by providing consensus to all shard chains running in parallel.

Beacon chain is a new blockchain that plays an important role in Ethereum 2.0. Without it, sharing information between shards would not be possible and scalability would be impossible to achieve. Therefore, beacon chains are widely referred to as the first feature to be launched in Ethereum 2.0.

Towards Ethereum 2.0

The launch of Ethereum 2.0 will not come all at once. Instead, the upgrade will be released in three phases, each of which comes with different features to ensure the new Ethereum's success.

Phase 0

The first phase, or phase 0, will be dedicated to releasing the beacon chain as it plays an important role in the shard chain functionality. Before the shard chain comes into existence, the beacon chain will start accepting validators (i.e. stakers) through a one-way deposit contract.

Please note that all registered validators staking ETH will not be able to “unstake” until the shard chain is fully deployed. This means that ETH from validators will be locked until the next phase.

Beacon Chain was launched on December 01, 2020 and has been running parallel to mainnet. Since its launch, Beacon Chain has not processed mainnet transactions. Beacon Chain actually runs in parallel and reaches consensus by agreeing on active validators and their account balances.

Phase 1/1.5

The next phase is actually a combination of two phases: phase 1 and phase 1.5. Phase 1 introduces shard chains that allow validators to create blocks on the blockchain via PoS. Phase 1.5 is when the Ethereum mainnet will officially introduce shard chains and start switching from PoW to PoS.

Phase 1/1.5 begins rolling out in 2021.

The Merge

The Merge is an important step towards Ethereum 2.0 and represents the end of the transition process from PoW. The Merge will change the Ethereum blockchain consensus mechanism from PoW to a PoS mechanism.

The Merge covers the transition from the current Ethereum mainnet protocol to the Beacon Chain. This is a big change as Ethereum transactions will now take place on the new PoS network. New ETH tokens will be minted by nodes on the network by staking a number of ether tokens into the pool to secure the network and validate transactions.

The Merge is different from a hard fork which will result in two different versions of the blockchain. Ethereum will continue to be one blockchain and all user transaction history will be combined. All transaction history currently stored on mainnet will not be lost, so users do not need to take any action to protect their assets.

Level 2

The final phase is phase 2, which is when Ethereum 2.0 will support fully formed shards and become the official Ethereum network. Shard chains will be able to be used with smart contracts as well, so developers of DApps and other technologies can integrate with Ethereum 2.0 seamlessly.

Phase 2 is planned to be launched after The Merge or later.

Closing

Ethereum 2.0 is an important upgrade to the Ethereum network for a number of reasons, especially in terms of scalability. Without new PoS, shard chain, and beacon chain features, Ethereum will ultimately be unsustainable and will no longer be the leading smart contract platform in the crypto world.

The launch of Eth2 will take perhaps longer than expected. The good news is that the process is already underway and Ethereum developers are dedicated to working on it.