What Is Ethereum 2.0 And Why Does It Matter?
Table of Contents
Introduction
What is Ethereum 2.0?
Differences between Ethereum and Ethereum 2.0
The road to Ethereum 2.0
Closing thoughts
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What Is Ethereum 2.0 And Why Does It Matter?

What Is Ethereum 2.0 And Why Does It Matter?

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Published Nov 16, 2020Updated Sep 23, 2022
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TL;DR

Ethereum 2.0 is a long-awaited upgrade to the Ethereum (ETH) network that’s promised significant improvements to the functionality and experience of the network as a whole. Some of the more notable upgrades include a shift to Proof of Stake (PoS), shard chains, and a new blockchain at the core called the beacon chain. All of this and more is expected to be phased in through a carefully planned roadmap.

But that’s just the tip of the iceberg. With ether being one of the most popular cryptocurrencies on the planet, there are important details about what Ethereum 2.0 truly is and how it’ll impact the crypto-verse 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 greatly expanded. More importantly, many of these technologies have been built on top of the Ethereum network. Think of some of the biggest innovations of Decentralized Finance (DeFi) – a significant portion of them are running on top of Ethereum.

Unfortunately, scalability issues started to emerge. As the number of transactions increased on the Ethereum network, so did the cost of performing these transactions (which are paid in gas). If Ethereum is supposed to be the platform that ushers in the next generation of the Internet, the economics has to make sense. Otherwise, it becomes impractical to use.

That’s where Ethereum 2.0 comes in. The proposed ETH 2.0 upgrades to the Ethereum network are supposed to address, primarily, the scalability issue. These improvements will create a contrast to the existing version of Ethereum, all of which will be rolled out through a carefully planned roadmap.

What is Ethereum 2.0?

Ethereum 2.0 (aka Eth2 or "Serenity”) is the long-awaited upgrade to the Ethereum network that promises, among other things, to improve the network’s scalability. Through the implementation of several enhancements, speed, efficiency, and scalability should be improved without sacrificing security and decentralization.

This version of Ethereum has always been on the horizon, but it’s taken some years to roll out. The primary reason for this is that scaling a blockchain in a secure and decentralized way is a challenging task.

Thankfully, Ethereum 2.0 aims to solve this issue through the implementation of some very important features. These new features create several key differences between the Ethereum we know and the Ethereum we should expect.

Differences between Ethereum and Ethereum 2.0

The biggest differences between Ethereum and Ethereum 2.0 involve the use of the Proof of Stake (PoS) consensus mechanism, shard chains, and the beacon chain. Let’s take a look at these differences in more detail.

Proof of Stake

Proof of Work (PoW) is Ethereum’s (and many other blockchains’) way of keeping the network secure and up-to-date by rewarding miners for creating and validating blocks on the blockchain. Unfortunately, PoW is not scalable since it demands an increasing amount of computing power as the blockchain grows.

Proof of Stake (PoS) solves this by replacing compute power with “skin in the game.” That’s to say, as long as you have a minimum of 32 ETH, you can commit it (i.e., stake it), become a validator, and get paid by confirming transactions. If you’d like to get a deeper dive into how PoS and staking works, check out Proof of Stake Explained.

Sharding

Anyone who wants to access the Ethereum network must do so through a node. A node stores a copy of the entire network, which means the node has to download, compute, store, and process every single transaction since the beginning of Ethereum’s existence. While you as a user don’t necessarily have to run a node just to transact, this slows everything down.

Shard chains are just like any other blockchain, except they only contain specific subsets of one whole blockchain. This helps nodes by only having to manage a slice, or shard, of the Ethereum network. This should increase transaction throughput and Ethereum’s overall capacity.

The beacon chain

With shard chains working in parallel, something’s got to make sure they all stay in sync with one another. Well, the beacon chain takes care of that by providing consensus to all the shard chains running in parallel.

The beacon chain is a brand new blockchain that plays a central role in Ethereum 2.0. Without it, information sharing between shards wouldn’t be possible, and scalability would be nonexistent. For this reason, it’s been stated that it’ll be the first feature shipped on the road to Ethereum 2.0.

The road to Ethereum 2.0

The roll-out of Ethereum 2.0 won’t come all at once. Instead, it’ll be released in three phases, each of which accompanies distinct features to ensure the success of the new Ethereum.

Phase 0

The first phase, or phase 0, will be dedicated to the release of the beacon chain since it’s central to the functionality of shard chains. There won’t be shard chains just yet, but the beacon chain will begin accepting validators (i.e., stakers) through a one-way deposit contract.

It’s important to note that all registered validators who stake their ETH won’t be able to “unstake” until shard chains are fully implemented. That means ETH from validators will be locked up until the next phase.

The Beacon Chain was launched on the 1st of December 2020 and has been running parallel to the mainnet. Following its launch, the Beacon Chain has not been processing mainnet transactions. It has instead been running parallel, reaching consensus by agreeing on active validators and their account balances. 

Phase 1/1.5

The next phase is actually a mix of two phases: phase 1 and phase 1.5. Phase 1 introduced shard chains, which allow validators to create blocks on the blockchain through PoS. Phase 1.5 is when Ethereum’s mainnet will officially introduce the shard chains and begin transitioning away from PoW to PoS.

Phase 1/1.5 began rolling out in 2021.

The merge

The merge is an important step to Ethereum 2.0 and is the conclusion of the transition away from PoW. The merge will shift the Ethereum blockchain from a PoW consensus mechanism to a PoS mechanism. 

Merge involves transitioning the current Ethereum mainnet protocol to the Beacon Chain. This is a major change as now Ethereum transactions will be conducted on the new PoS network. New ETH tokens will be minted by nodes on the network, staking a fair amount of ether tokens into a pool to secure the network and validate transactions.

The merge is not like a hard fork which would result in two different versions of the blockchain. Ethereum will continue as a single blockchain, and all user transaction history will be merged. All transaction history currently stored on the mainnet will not be lost; therefore users don’t need to take any action to protect their assets.

Phase 2

The final phase will be 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 work with smart contracts as well, allowing developers of DApps and other technologies to integrate seamlessly with Ethereum 2.0.

Phase 2 is expected to roll out following the merge or later.

Closing thoughts

Ethereum 2.0 is an important upgrade to the Ethereum network for a number of reasons, especially when it comes to scalability. Without the new features of PoS, shard chains, and the beacon chain, Ethereum could eventually become unsustainable and no longer the leading smart contract platform in the crypto ecosystem.

The roll-out of Eth2 will take some time, and it may even take longer than expected. The good news is it’s already well underway, and Ethereum developers are dedicated to seeing it through.