Ethereum 2.0 is an ambitious project that is long overdue. Unfortunately, the release was pushed back due to the novel coronavirus, and it is now expected to release by the end of the year. It aims to take Ethereum to the next level by making crucial changes that will improve scalability and replace the existing Proof of Work mechanism with a Proof of Stake mechanism.
Bitcoin is the king of the crypto world. There's no denying this fact; even though it has a significant amount of flaws, it still tops the market capitalization charts. A lot of other blockchain implementations have solved some of Bitcoin's flaws, but they still cannot even come close to Bitcoin. Ethereum is the exception here. It stands right below Bitcoin, and with the release of Ethereum 2.0, it might as well dethrone Bitcoin.
Ethereum 2.0 (also known as Serenity) brings two primary improvements to the table: Proof of Stake and Shard Chains.
Proof of Stake
The move from Proof of Work (PoW) to Proof of Stake (PoS) is a welcoming change as it proves stronger in terms of security, scalability, and energy efficiency.
Unlike PoW, which uses computing power to validate transactions, PoS relies on staking. The user becomes the validator who has to deposit an amount of ether. The user with the highest stake of ether will be chosen to validate the transactions and will earn rewards as transaction fees.
Nowadays, normal people find it almost impossible to mine on these blockchains given the existence of mining farms. These farms hold the highest computing power, and this model reduces the fairness in the system. This could lead to security issues given that the power is only with a few of these mining farms. The shift to PoS will prove to be extremely safer than PoW.
Energy consumption has been an issue lately, and guess what? Bitcoin mining utilizes almost half the world's electricity consumption. This is alarming, and PoS addresses this problem very well. It completely eliminates the need for computing power and instead depends on the amount of ether a user stakes—cheers to a greener alternative.
Shards chains are introduced to improve scalability and allow more transactions per second. These are multi-lane highways rather than a single-lane roads. It promotes parallel processing to achieve higher throughput. The currently existing single-chain blockchain is secure but is too slow since it requires the full node to validate transactions in consecutive blocks. Sharding splits the Ethereum blockchain into multiple chains to provide faster transaction speeds and hence improve scalability.
To become a validator in the chain, one must stake at least 32 ETH. This can be done in two ways:
The validators can lose these funds if they are offline and do not fulfill their responsibilities. The penalty might be as much as the rewards received. A validator is required to be participating for at least half the time. The staked funds are in danger only if the user is subject to slashing. Slashing is the act of giving severe penalty and ejection from the chain. It will happen if the user publishes contradictory information about the chain. The funds lost might range from 1 ETH to the entire stake amount.
Ethereum 2.0 was supposed to debut in January 2020, but the release kept getting pushed back due to unavoidable reasons. Vitalik Buterin (creator of Ethereum) has now promised that Ethereum 2.0 will be launched by the end of 2021. The seed has been sowed with the release of the final public testnet, Medalla.
The release is planned in three phases: Phase 0 (Beacon Chain), Phase 1, and Phase 2.
Phase 0 (Beacon Chain)
To allow a seamless transition from the Proof of Work to the Proof of Stake mechanism, a Beacon chain with a PoS mechanism will run in parallel with the existing chain. In the initial stage of Phase 0, mining will continue.
Phase 1 (Sharding)
This is expected to launch somewhere in 2021. It aims to split the Ethernum chain into 64 chains that will run alongside the beacon chain. There is a phase 1.5 as well where the mainnet will become a shard and will ultimately adopt the Proof of Stake mechanism.
Phase 2 (Fully functional Shards)
Phase 2 strengthens the sharding process, and shards will now be capable of interacting with smart contracts. Withdrawals and transfers are made accessible. Applications can be built on top of them, and cross-shard transfers will be possible. eWASM will officially become the successor of EVM. Phase 2 might potentially release after 2021.
Ethereum 2.0 will be released in phases to make a seamless transition from the first version. People who own ETH needn't worry as the assets will be migrated to the new chain as the phases progress. A brand new coin is not going to be created, but it is expected that with the release of Ethereum 2.0, the value of Ethereum will reach new heights.
The release of the public testnet Medalla has proven to be a step in the right direction. Ethereum Foundation's Hudson Jameson confirmed that the expected number of peers had joined the testnet to consider it workable. This is the first official public testnet, and the developers did not unanimously choose the validators. Almost 650,000 ETH is staked, courtesy of over 20,000 validators (this is not real ETH and is only used for testing purposes). Medalla was joined by five clients, including ChainSafe's Lodestar, PegaSys' Teku, Status' Nimbus, Prysmatic Labs' Prysm, and Sigma Prime's Lighthouse.
Ethereum 2.0 has been in the making for over five years. Scalability is one of the biggest issues in the blockchain and is tackled cleverly in Ethereum 2.0. Ethereum is massive, and it is evident from the amount of crypto assets locked in Defi. DApps built upon Ethereum are looking forward to the launch as it will help them scale their apps. The transaction fees are also expected to go down, which might lure more people into the crypto market. It is quite interesting to see how the supply of ETH will change as there is no cap on it, but it is to be noted that ETH supply will be lower in the new blockchain when compared to the existing chain.
The upgrade is not going to happen in the blink of an eye. It will take a lot more time for Ethereum 2.0 to be perfectly polished, given its complexities.