What is Ethereum 2.0 or Eth2?

On December 1st, 2020, Phase 0 of Ethereum 2.0 Beacon Chain was successfully launched. Now that the Ethereum 2.0 Beacon Chain is here, let’s discuss what this development means for Ethereum going forward. 

So what is Ethereum 2.0 exactly?

Eth2 is an upgrade to the current Ethereum blockchain, with the aim to increase security, scalability, speed, and transactions while also introducing staking for Ethereum. The actual launch of Eth2 encompasses several phases until its completion, which could take anywhere from a year to several years.

Phase 0 – December 1st, 2020

Phase 0 is the launch of the Eth2 Beacon Chain. For now, the Beacon Chain is a separate chain from Ethereum where all the updates and upgrades will be implemented. 

The Beacon Chain also introduces staking to Ethereum instead of PoW. This means that cryptocurrency mining machines will no longer be required to find new blocks. People can stake their Ethereum to create a node that will help verify transactions. For an in-depth explanation of the difference between proof of stake and proof of work, check out our article on the topic:

Staking is the main component of Phase 0. At this stage, there are no smart contracts or accounts yet. The proof of stake consensus mechanism will be tested, which manages the registry of validators (users that stake ETH). Over time, the Beacon Chain will be upgraded and start performing more tasks and functions. 

In order for the Beacon Chain to be launched, over 500.000 ETH had to be staked in an Ethereum contract. Those depositors then became the first validators on Eth2. This amount was greatly exceeded by the launch date, with over 850.000 ETH being staked. 

Anyone with Ethereum can become a validator. It takes 32 ETH to become a validator.

Phase 1 – Somewhere in 2021

This is the second phase of Eth2 and will include the introduction of shard chains. Shard chains will help improve scalability.

Sharding will divide the nodes on Eth2 into smaller groups of validators. These different groups will validate different kinds of transactions instead of all validators validating all transactions. This can greatly increase transaction speed and quantity per second. 

Sharding will also include roll-ups, which is a technique to keep transaction data compressed on the blockchain while the computation will be off-chain. Roll-ups roll up transactions into a single transaction off-chain, create a cryptographic proof, and then submit that proof to the chain. 

Sharding and roll-ups will help solve scalability issues, something the Ethereum community has been working hard on addressing.

Sharding will also benefit validators. Instead of having to store and run all the data, sharding makes it so validators only have to store and run part of the data. This reduces hardware requirements.

To begin, shards will only add extra data to the network, and won’t handle smart contracts or transactions.

Phase 1.5 – ’The Docking’ – 2021/2022

Initially, the upgrades to the Eth2 protocol will only be shipped on the Beacon Chain, which is separate from the current Ethereum main blockchain. In Phase 1.5, the Ethereum blockchain will dock with the Beacon Chain, merging Ethereum into the Beacon Chain and creating one Ethereum blockchain (2.0). 

At this point, PoW will start to cease completely. How it will work is that the current Ethereum blockchain will become ‘a shard’ in the Beacon Chain alongside all the other shards. That way, all the information, transactions, and current smart contracts will automatically all move over to Eth2 without users having to do anything.

Phase 2 – 2021/2022

Version 2 of sharding will allow code execution and storing/execution of smart contracts. However, it is not yet clear if (all) shards require code execution, due to the significant increase in transaction speed. Currently, there is still an ongoing debate on what to do with version 2 of sharding and what it will look like exactly. Some of the main alternatives that could potentially happen are:

1. State execution not needed

Shards don’t have the capability to handle smart contracts and instead just handle data storage.

2. Have some execution shards

Some shards would have smart contract execution capabilities and others will not have this capability. This would be a compromise between having no shards with smart contract executability and having all shards with smart contract executability.

3. Wait until Zero-Knowledge (ZK) snarks

Revisit the debate over when ZK snarks are ready. ZK snarks could help bring truly private transactions to the network. They likely will require smarter shards, but that is still being researched.

Conclusion

The start of Eth2 is here. It might still take several years to fully complete all its phases and it will also still be a while before the current Ethereum blockchain merges with the new technology. 

But, the Beacon Chain is live and further technological advancements in the form of sharding and other upgrades could significantly improve the Ethereum blockchain.

Additionally, the swap from PoW to PoS is especially important for miners. After phase 1.5, people cannot mine ETH anymore. At that point, nodes will have to be run instead of mining machines. 

All in all, it is an exciting time for Ethereum and it will be very interesting to see how Eth2 will develop in the future.

(source coindesk, graphic by @trent_vanepps,https://www.coindesk.com/ethereum-2-0-beacon-chain-goes-live-as-world-computer-begins-long-awaited-overhaul

Written by Nathan van de Ven