Ethereum 2.0 is a decentralized blockchain network that also offers its native crypto coin ‘Ether’ along with a crypto wallet for the cryptocurrency storage facility.
Ethereum’s foundation was laid out in 2013 by programmer Vitalik Buterin, and it went live in the midst of 2015.
Ethereum works by utilizing smart contracts that facilitate developers to deploy decentralized apps (Dapps) without the involvement of third parties.
What is Ethereum 2.0?
Ethereum 2.0 is a transition effort to upgrade its whole mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoW) to make it more secure, scalable, and sustainable.
The term Ethereum 2.0 is an unofficial name given by general users and media to the merger of Ethereum and the official name is ‘Serenity’.
Furthermore, the merger was to be done when Ethereum was running two blockchains side-by-side, namely ‘Ether Mannet’, which is still running on legacy proof-of-work, and the newly launched ‘Beacon Chain’, which switched to new proof-of-stake.
This transition wasn’t a one-day activity but took several years to implement and kickstarted in December 2020 with phase 0, ‘Beacon Chain’.
Key Benefits of the Ethereum 2.0 Merger
Old Ethereum vs Ethereum 2.0 Comparison
- Energy Efficient: By ditching proof-of-work and switching to proof-of-stake, Ethereum 2.0 became 99% more efficient in electricity consumption, consequently diminishing its carbon footprint.
- More Secure: Validators must have 32 ETH in balance and also have to put their crypto assets at stake, which will destroy as a penalty if they engage in fraudulent activities.
- Fee Reduction: By utilizing the ‘Layer-2 Solution’ that helps to reduce fees by diverting transactions off-chain, for example, if you want to send 2 ETH to your friend, you would need to pay a gas fee of around $20, but with Ethereum 2.0, it will be around $2 because the cost of running nodes is also saw a decline.
- Fast: The pace will be much faster because PoS can validate transactions considerably quicker than PoW.
- Decentralization: Blockchain will be more decentralized and won’t give an advantage to more powerful mining pools, as was the case earlier with PoW.
Why Shift to Ethereum 2.0
The blockchain network needed an upgrade to overcome the bottlenecks and issues related to security, scalability, and sustainability that were caused by the old proof-of-work.
Security: Ethereum 2.0 is much more secure than the previous proof-of-work mechanism it used to work on because the current proof-of-stake is quite difficult to hack.
There have been no known hacks since merger. There were several hacks when Ethereum used to work on Proof-of-Work.
Scalability: Developers are aiming to make Ethereum 2.0 able to carry out more than 100,000 transactions per second, up from its former paltry number of 15–30 transactions per second.
This is much higher than Visa’s current capacity of 65,000 transactions per second.
Sustainability: After switching to proof-of-stake, the requirement of using energy-intensive computers doesn’t exist anymore, therefore, reducing energy consumption by 99%.
This is a major advantage for Ethereum 2.0 against market-dominant Bitcoin, which still relies on proof-of-work.
Three Phases of Transition in Ethereum 2.0
Three phases were laid out for Ethereum’s transition, of which the counting starts at zero.
Phase Zero: Beacon Chain
The foundation phase, where the introduction of proof-of-stake came into effect in December 2020, ensured that PoS was working as intended alongside PoW.
The beacon chain is the core of the network, responsible for keeping shards in sync and also managing rewards and penalties.
Phase One: Sharding
Shard means the partition of the database or network blockchain into smaller streams to improve network performance by reducing congestion.
Earlier, Ethereum only used to work on one single network, which proved to be a bottleneck if the number of users engaged in the network increased.
Phase Two: Merge
As the name suggests and is also known as ‘Docking’ when proof-of-stake and legacy proof-of-work, which ran parallel to each other, now finally merge into one using PoS by dropping support for PoW.
The Future of Ethereum 2.0
The future of Ethereum 2.0 is exciting and feature-rich which focuses on improving user experience by constantly researching and implementing new dynamic features.
The Shapella Upgrade
The Shanghai upgrade in combination with Capella upgrade also known as ‘Shapella’, brought significant measures to improve the liquidity of Ether coin by allowing partial withdrawals from stakes meaning users can withdraw their rewards in small amounts.
Similarly, users can now withdraw from stake anytime they want, both of these weren’t the case earlier when merging was still happening.
Network Efficiency
There are several ways to reduce the size of the network node to improve its performance and efficacy. That is why Ethereum is planning to implement the following features in the future.
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- State Expiry – Allows state data to go inactive when not in use and can become active anytime.
- History Expiry – Enables deletion of old state data older than a particular period.
- Strong Statelessness – Nodes are not essential to access state data at all to validate blocks.
- Weak Statelessness – Only one block is sufficient to store state data to validate the block.
Proto Danksharding
First activity to achieve full danksharding, rollup data that is permanently store on the Ethereum server is expensive to maintain and to reduce the cost, Ethereum is implementing an upgrade where rollup data can move to ‘Blob Storage’.
These blobs are cheaper in maintenance because they are removed once no long in need. It becomes the user’s responsibility if they want to store this rollup data for the long term.
Summary
This article covers the description, key features, along with the number of phases it took to implement Ethereum 2.0 and the importance to do so.
Also mentioning potential upgrades that could implement in the future, along with frequently asked questions.
FAQs
Q1: What is Ethereum 2.0?
A1: Ethereum 2.0 is a much-required upgrade to the existing Ethereum network, aiming to improve scalability and security. It introduces a new mechanism called Proof of Stake and shard chains to process transactions more efficiently.
Q2: Why is Ethereum 2.0 neccessary?
A2: Ethereum 2.0 was the need of the hour because the old Ethereum network was inefficient which prompted scalability issues, slowing down transaction processing and increasing fees. It aims to fix these problems by introducing new features and technologies.
Q3: How does Ethereum 2.0 improve scalability?
A3: Ethereum 2.0 improves scalability by introducing shard chains. These smaller streams allow parallel processing of transactions resulting in increasing the network’s capacity to handle a multiple number of transactions simultaneously.
Q4: What is Proof of Stake in Ethereum 2.0?
A4: Proof of Stake is a new mechanism that is implemented in Ethereum 2.0. Unlike the current Proof of Work, it requires validators to hold and lock up a certain amount of Ethereum, ensuring the network’s security and reducing energy consumption.
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