If you are in crypto, these days you have probably heard something about Ethereum 2.0.
Here we will take a look what is this all about and present the basics of it. Not in depth dev talk, just the basics.

Ethereum 2.0 will be deployed in phases in around two years time. The first phase started on December 1, 2020.

Scalability

As most of you know Ethereum, as its big brother BTC, is a Proof of Work chain (PoW). All transactions are confirmed by miners. Everyone with a good enough equipment can become an ETH miner. Being profitable is a different thing though 😊.

Proof of work is not the fastest way to confirm transactions. Countless of miners can run the network. Having a massive number of miners and no entry barrier (except for the minimum equipment) is making the network slow (beside some other things).

Ethereum can now support around 30 transactions per second. Visa for example can handle more than 65k transactions per second, but they are handling a bit less than that, somewhere around 2k. BTC has 4.6 tps 😊.

The scalability problem is nothing new in crypto and it has been looming around the industry for years. Because of this, a new type of blockchains have emerged like the Proof of Stake (PoS) and delegated proof of stake (DPoS).

From Proof of work to Proof of stake

Starting from December 1, 2020, Ethereum has begun its journey of transformation from PoW to PoS. This means that if someone want to be able to confirm transactions on the network, he will need to have 32 ETH staked. At the current ETH prices this is around 20k USD.

Some might think this is a lot, but if we take into consideration the Ethereum market cap and the ETH in circulation (113M), this is actually quite a low entry capital.

What this means that the Ethereum network is raising the bar for network participants, but not to high. They still want a lot of people to be able to participate in the network and confirm blocks.

The transition will take some time

The PoW to PoS tranastion for Ethereum will take some time. As described, there will be 3 phases for a complete transition and probably somewhere around 2 years.

When ETH2 will be fully implemented it is expected the Ethereum network to be able to handle 100k transactions per second.

If you take a look at the current numbers of 30 tps, this is a massive increase in speed. It is also more than a visa level amount of transactions.

The three phases:

Phase 0, Beacon chain
Phase 1, Shards
Phase 2, Smart contracts in shards

Starting from the first phase (zero in this case 😊).

Phase 0 | Beacon Chain

PoS in a way is sacrificing decentralization for speed. It cuts off everyone right to participate in the network. You need to have some capital in order to do it. In this case a 32 ETH, that as mentioned above is not that big of a capital when you compared to the total amount of ETH in circulation.

The condition that is put in the contract for validators (new name for miners) is a minimum of 16,384 registered validators each with 32 ETH staked. A total of 524k ETH (0.5% of the ETH in circulation). Again, compared with the total circulation of 113M ETH, 0.5M ETH is not a lot.

Setting up such a big number of validators (16k) is needed for the security of the chain. As mentioned, proof of stake does sacrifice decentralization and maybe some security (up to debate). To prevent this, this condition for a large number of validators (new name for ETH miners) was set.

For comparison, the existing delegated proof of stake chains, like EOS, TRON, HIVE, that are much faster than the PoW, usually have somewhere around 20 block producers (validators). So, a 16000 to 20.

The minimum of 16k validators condition was met. At the moment of writing this there is more than 30k registered validators, and the number is growing each day. This is very important for the security of the network.

The main role of the Phase 0 is to create a registry of validators and deploy the Proof of stake consensus mechanism. This is also referred as a Beacon Chain. In meanwhile the current version of the PoW ETH network will continue to run and operates as normally. These two will run in parallel. As time progress the new PoS infrastructure will take over all the operations from the PoW network.

Phase 1 | Shards

Phase 1 is reserved for implementation of Shards. It should happen somewhere in 2021. Sharding stands for splitting the Ethereum network into multiple portions. Each portion represent a shard. What this means is having a multiple chains running beside each other. This should increase the speed of the network and improve scalability.

In the phase 1 shards should launch on the ETH2 network. As reported, there should be a 64 shards at first. 64 times the speed of ETH 1 😊. At first shards wont support smart contrats.

Later in this phase, all the ETH 1 (Proof of work) network should transit to the new PoS network and become a shard.

Phase 2 | Smart contract in Shards and everything else

Phase 2 is set for late 2021 or 2022. Having the experience how things can be delayed it will probably happen somewhere in 2022. In this last phase of the transition Shards should become fully functional with smart contracts on them. Also, they should be able to talk to each other, with cross shards transfers, contracts etc.

At this point the door for scalability should be opened and dApps can be built on top of the network utilizing fast and secure transactions.

As we can see there is still a long path for the ETH2 network. The December 1st, event was just the begging. In 2021 shards should be implemented on the new PoS network and the PoW network should transfer there as one shard. Afterwards somewhere in 2022 most likely, a fully functional ETH2.0 network should exist with multiple shards with smart contract enabled, all working in sync with each other.

The road seems long but its real. All of this was just talks in the past and wishful thinking. Now we are seeing things actually starting to happen on the ETH network. Meanwhile a lot of ETH killers were created but none of them was able to come even close. ETH had a huge delays in transactions, massive fees etc. Now we are seeing the beginning of a new phase. Most likely there will be challenges, as this is something that is done for the first time. With the implementation of this new phase and ETH2 closer and more tangible then ever there will be very hard or almost impossible for competitors to come close to the network.

On the other hand, having a cryptographic network with smart contracts that is secure, proven, reliable and scalable is a win for all crypto. More builders will jump on board, build new things, leading to greater crypto adoption. For the exciting projects, having some integration with the Ethereum network is probably not a bad thing to do :).

All the best @dalz

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