Ethereum (ETH), the second most widely used blockchain platform in the world, aims to be everything that its predecessor was.
Some of the limitations of Bitcoin are holding back Ethereum, such as its insistence on a Proof-of-Work (PoW), consensus algorithm, and lack of scaling. The multi-phased upgrade to Ethereum, which includes the Beacon Chain and the Merge, Shard, and Shard Chains will improve the security and scalability of the network by making several infrastructure changes. Most notable is the switch from a proof-of-work (PoW), consensus method, to a Proof-of-Stake (PoS), model. Both offer varying differences in the protocol.
Vitalik Buterin, the creator of Ethereum, proposed a blockchain platform that would support apps and provide other benefits that weren’t necessarily related to finance. Buterin imagined a world in which developers could harness decentralization’s power to create governance systems, lending platforms, and databases, as well as physical assets in digital spaces.
Buterin views Ethereum as a global supercomputer. However, the network is unable to validate more than a few hundred transactions within a reasonable timeframe. For transactions of small amounts, users must pay fees and additional costs up to 100%. Ethereum, a platform that aims to revolutionize how the world interacts over a network is built on questionable technology.
Buterin, other network developers, and the Ethereum Foundation are all aware of the limitations of the project. The Ethereum team understands that Ethereum’s limitations in blockchain technology prevent institutional investors from adopting Ethereum.
Buterin and the ETH crew created an upgrade to Ethereum 2.0. This is the solution to Ethereum’s scaling problems. Although Ethereum 2.0 will make a significant impact on the way Ethereum works, it will be difficult to implement. Ethereum developers have been working tirelessly since 2020 to bring the upgrade to life, in hopes of making Ethereum more accessible, faster, and more secure than ever before.
Breakdown of Ethereum 2.0
The Ethereum 2.0 update marks a major shift in the consensus algorithm of the network. Ethereum 2.0 is a significant shift in the network’s consensus algorithm. Instead of Ethereum running an energy-intensive Proof-of-Work algorithm, the Eth2 upgrade will allow Ethereum to switch to a Proof-of-Stake algorithm.
PoS algorithms have many advantages over PoW ones. They adjust various aspects of the network such as security, accessibility, and scalability.
Proof-of-stake vs. Proof-of-work
Proof-of-work, the first method for blockchain consensus, was used by Bitcoin (the world’s first cryptocurrency). PoW miners are users who lend their computing power, such as central processing units and graphics processing units (GPUs), to solve complex algorithms and validate blocks. A block holds a limited number of transactions within a blockchain network. Once a block has been filled, miners validate it and log it on the blockchain.
To prevent duplicate transactions or double-spending, each block must be proved unique. Each block is assigned a 64-digit hexadecimal number that proves its uniqueness. However, miners must locate this code. It is the power of miner computers that is used to solve the code. This is why the proof-of-work moniker was given. Computers use real power to solve blocks and do work.
Mining for blocks isn’t exactly eco-friendly. Mining for blocks consumes a lot of power, which can significantly increase a miner’s electricity bills. Mining cryptocurrency for profit is an intense business. One graphics card mining is not enough to compete with operations that have hundreds, if not thousands of cards. The reward in Bitcoin is paid to the first miner to find the code. This limits users who don’t have the money to buy a mining rig. Although mining is not the only option, there are other options, such as joining a pool to mine, where the mining reward can be split among many participants.
However, proof-of-stake solves many of the problems inherent to a PoW consensus algorithm. Proof-of-stake works in a similar way to mining, where transactions must be validated. Participants in a PoS network, however, are known as validators. Users who lock in cryptocurrency to the network are called validators. These users sign up to become validators to lock in funds. The more validators stake funds, the greater the rewards they receive for their participation.
Users are responsible for validating transactions on the network that they participate in as validators. Once a validator has validated a transaction, it’s sent to the blockchain and the validator receives a reward. PoS is easier to use than PoW, since anyone can participate, provided they have the funds and do not require expensive hardware.
As more people connect to the network and validate transactions, it leads to greater scalability. A network with more users can be validated by the network, which leads to greater security and decentralization. A PoS network has more stability than one point that bad actors can attack. PoS networks are less harmful to the environment than PoW networks, which require less power.
A network with more decentralization can also help prevent what’s known as a 51% attack. This attack is common on PoW networks and involves a bad actor who takes control of 51% of nodes and validates ill-intended transactions. Proof-of-stake is a method to prevent a 51% attack. This is because you must hold 51% of all tokens to attempt one. It seems impossible to hold 51% of all tokens in a PoS network. This would mean stealing hundreds of Ethereum wallets simultaneously.
After the upgrade is completed, Ethereum will enjoy all the proof-of-stake benefits. PoS will make Ethereum more accessible, scalable, and secure, which will make it more eco-friendly. It is not an easy task to transition Ethereum to a 2.0 network. This requires a lot more input from users and a lot of time to make changes.
Transition to Ethereum 2.0
The transition of Ethereum into 2.0 has been broken down into several stages.
The Beacon Chain is introduced in Phase 0 of Ethereum 2.0’s upgrade. The Beacon Chain was launched on December 1, 2020. It marks the transition to PoS. Users can stake (lock away) their Ethereum, and become validators. The Beacon Chain is still part of Ethereum’s mainnet, but Phase 0 doesn’t affect it. Both the mainnet and Beacon chains will eventually be connected. It is the goal to “merge” Mainnet into the Beacon Chain’s coordinated proof-of-stake system.
Potential validators may still register their interest by purchasing 32 Ethereum. It is difficult to ask users to stake 32 Ethereum. 32 Ethereum is worth tens of thousands of dollars. Also, stowed funds will be kept for at least two years and then released once Ethereum 2.0 is launched. The high entry requirements are due to early validators who are likely to be committed to the future of the project.
Phase 1 was supposed to launch in mid-2021, but it was delayed to early 2022. Developers cited unfinished work and code auditing for the delay. The next stage will combine the Beacon Chain and the mainnet, officially switching over to a PoS consensus algorithm. Eth2 will be the home of Ethereum’s entire transaction history and support smart contracts on PoS networks. It will become operational in Phase 1. As Ethereum 2.0 takes mining out of the network, validators, and stakers will officially take action. Many miners are expected to take their holdings and stake them to become validators.
Developers meant Phase 1 of Ethereum 2.0’s upgrade to add sharding at its inception. Sharding refers to the process of dividing up a database or, in this case, the Blockchain, into smaller chains called shards. Eth2 will have 64 Shards, i.e., it will spread the network’s load over 64 new chains. Shards reduce the hardware requirements and make it easier to run a node. After the mainnet merges with the Beacon Chain, this upgrade will take place.
Validators and other users can run their own shards with Ethereum 2.0. This allows them to validate transactions and keep the mainchain free from congestion. For shard networks to be able to safely enter the Ethereum ecosystem, they must use a proof-of-stake consensus process. The Beacon Chain will introduce stake, setting the stage for the later shard chain updates.
The introduction of Ethereum WebAssembly, or eWASM, will be Phase 2. WebAssembly is a World Wide Web Consortium invention that is intended to make Ethereum more efficient than it is currently. Ethereum WebAssembly, a proposed subset of WebAssembly that is deterministic for the Ethereum smart contracts execution layer, is called Ethereum WebAssembly.
An Ethereum Virtual Machine (or EVM) is currently available for Ethereum. An EVM allows Ethereum to function as a supercomputer worldwide. This computer can be accessed by users worldwide. They can run smart contracts and interact with decentralized apps (DApps). The EVM stores all the code required to execute commands on Ethereum. It also facilitates wallet addresses and calculates transaction (gas) fees for each transaction.
The EVM supports multiple actions simultaneously, including knowing if a Smart Contract needs to be terminated (it uses too much gas), if a DApp can be deterministic (if it will always use the same inputs or outputs), and if a Smart Contract is isolated (if something goes wrong that contract’s fault won’t impact the wider Ethereum network). The Ethereum network is becoming a bit too crowded. The EVM is slower because of the many transactions that are happening simultaneously. Ethereum’s EVM is also difficult to upgrade considering it was written in a specific, difficult-to-understand code, Solidity. The eWASM was created to replace the EVM. It would be implemented in Phase 2.
The eWASM compiles code faster than the EVM, which speeds up network processes. The eWASM makes Gas work more efficiently and is compatible with many traditional coding languages such as C++ and C++. The eWASM is intended to make Ethereum development easier.