Ethereum 2.0

Source — https://our.status.im

Ethereum revolutionized the blockchain system by introducing the concept of smart contracts in 2015. It was a global, open-source blockchain platform for decentralized applications (DApps). The ultimate aim of introducing Ethereum was to expand upon Bitcoin’s decentralized finance system while introducing other powerful and complex applications like DApps powered by smart contracts.

However, the issues related to scalability, transaction cost, transaction speed, and interoperability have paved the way for a major upgrade in the Ethereum network. As a result, ETH 2.0, commonly known as ETH 2 or Serenity, was introduced. ETH 2 aims to address the major flaws of Ethereum by upgrading the existing Ethereum network (base layer) to make it more scalable, secure, and sustainable. Proof-of-Stake (POS) and sharding are the 2 main changes to be introduced in the upgrade. Another key feature in the update is the requirement of a large set of validators (approximately 16,384), making ETH 2 more decentralized and secure.

Proof-of-Stake (POS)

In the 1st and 2nd generation of blockchains, the consensus mechanism was based on the Proof-of-Work concept. Users (miners) had to rely on heavy computational power in order to mine new blocks. This was an energy-intensive process and was very slow. In ETH 2’s POS consensus mechanism, the validators (a role similar to miners of POW-based network) have to propose new blocks, provide computing power, storage, network bandwidth to validate the transactions. Validators have to stake a portion of their coins in order to participate in the process (hence the name Proof-of-Stake) and in turn, they are given periodic payouts for being an essential part of the network.

Any dishonest validators are punished by forfeiting their respective staked coins (fully or partially), thus motivating the validators to always act in an honest manner. This process is known as ‘slashing’.

In order to carry out a 51% attack, the attackers should take control over 51% of the network validators. This requires the attackers to own over 51% of the total staked ETH, which translates up to a massive amount. At present, 32 ETH are required as a stake in order to be a validator, making it extremely harder for an attacker to take control over 51% of the network due to high capital requirements.

Sharding

Sharding splits the blockchain into multiple blockchains known as shards. Here, the workload is distributed among the validators making the entire network more efficient. Validators are shuffled in between shards regularly to prevent any sort of manipulations. This random assignment of the validators into different shards is handled by the beacon chain. Shard chains will speed up the network minimizing the congestion while allowing for easy scalability.

Beacon chain

Beacon chain is another new feature introduced in the ETH 2 upgrade. It is used for communication and coordination purposes between the shards by storing the registry of validators and deploying the POS mechanism.

Roll-ups

Roll-ups allow bundling transactions off the chains. Cryptographic proofs of these transactions are submitted to the shards. With shards and roll-ups, ETH 2 will be able to handle up to 100,000 transactions per second, where Ethereum can process only up to 30 transactions per second. With this model, the current Ethereum chain is also expected to be one of the shards and it will be the only chain capable of running smart contracts and handling transactions. There is also the option for the individual shards to be upgraded in order to function similarly to the Ethereum chain.

Docking

The process by which Ethereum 1.0 becomes one of the shards of ETH 2 is known as the docking process. This is expected to happen as an interim update (phase 1.5) in the Ethereum roadmap and this will mark the end of the POW model on the Ethereum network. Docking will enable running smart contracts on the POS system. The process will retain the full history and the current state of Ethereum 1.0 allowing a smooth transition for all of the ETH holders.

Validators

A validator performs 3 main functions within the ETH 2 network,

1. Propose and add blocks to the beacon chain or the shards
2. Validate the beacon chain and the shards
3. Report on malicious/dishonest validators

Layer 2 Scaling

Layer 2 scaling is a set of solutions to be introduced onto the existing Ethereum network. This will improve the capabilities of layer 1 by handling transactions off-chain. The ultimate aim is to improve the transaction speed and the transaction throughput while reducing the gas fees. Layer 2 will be built and scaled upon the base layer, utilizing its inbuilt security. Some of the main features included in the layer 2 scaling are as follows.

1. Channels — users can carry out transactions off-chain and submit the final state to the main chain
2. Plasma — a framework for building scalable applications. This will allow the creation of an unlimited number of child chains using the concepts of smart contracts and Merkle trees.
3. Side-chains — Ethereum compatible independent blockchains running on their own consensus models and block parameters.
4. Roll-ups — bundles the transactions of the side chains

ETH 2 will be using these layer 2 scaling features to improve further.

Roadmap

The full rollout of ETH 2 will happen in 3 main phases.

• Phase 0 (Was launched in 2020) — implementation of the Beacon chain
• Phase 1 (will be launched in 2021) — integration of shard chains (64 expected)
• Phase 1.5 (interim update) — Docking (Ethereum 1.0 will become one of the shards)
• Phase 2 (2021/22) — shards will become fully functional and compatible with smart contracts

View the full roadmap of ETH 2 by Ethereum co-founder Vitalik Buterin — Twitter

As of now (03/06/2021), Ethereum has the second-largest market capitalization with its token ETH trading around $2,840.38 and is expected to rise as the stakeholders have to lock up their ETH until the end of phase 1.5 (this will decrease the ETH in circulation causing the price to push up).

With the ongoing upgrades on the base layer (ETH 2.0) and on layer 2 (roll-up, plasma, channels, and side-chains), ETH will surely get the attention of new investors. Backed by cutting-edge technologies and strong management, ETH will surely be a revolution in the near future.

By Shasika Udayanga

Read more about the upgrades to Ethereum on https://ethereum.org/en/eth2/