What is Ethereum 2.0?

WHAT IS THE MERGE?

Merge is the highly anticipated upgrade to the Ethereum network. The upgrade, also known as ETH2.0 or “Serenity”, aims to enhance speed, efficiency and scalability of the blockchain so it can avoid network congestion and process more transactions.

Ethereum Foundation refers to the Merge as an upgrade rather than the launch of a new network. ETH1.0 is now known as the “execution layer” where smart contracts and rules for the network exist, while ETH2.0 is referred to as the “consensus layer” where the blockchain ensures that devices and applications contributing to the network act in accordance to its rules.

WHAT IS HAPPENING?

With the ‘Merge’, Ethereum network is upgrading its consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS).

PoW

Ethereum currently uses a Proof-of-Work consensus mechanism to validate transactions. In this system, miners use the processing power of their devices to solve complex mathematical problems in order to validate transactions on the network.

The first miner to solve the puzzle will create a new block and add it to the blockchain. The miner will be rewarded with ETH for their contribution. However, the processing power used by miners to validate transactions is energy-intensive and the energy created by miners who didn’t solve the puzzle goes to waste.

PoS

In a proof-of-Stake mechanism, the network does not have to rely on miners to validate a transaction, and instead, users can stake the blockchain’s native token and become validators. PoS validators are selected on the basis of how many native tokens of the network they have staked and how long they have staked it for.

Validators attest when they witness a transaction happen, and if there are enough witness attestations to the transaction, a block is created and added to the network. All validators are rewarded for creating the block in a process known as ‘minting’. The main advantage PoS system has over PoW is its energy efficiency. The mechanism takes away the need for heavy computing power usually required to secure the blockchain.

HOW IS ETH2.0 DIFFERENT FROM ETH1.0?

1.Scalability

The Ethereum network currently supports only around 30 transactions per second, causing network delays and congestion while processing transactions. With the upgrade to ETH2.0, the network is expected to process up to 100,000 transactions per second. This is achieved by sharding.

In sharding, the blockchain will split its network into smaller portions called ‘shards’. This enables the network to process transactions on a chain parallel to the main network, resulting in faster transaction speeds and more salability.

2.Security

PoS networks usually have a small set of validators, making the blockchain more centralized with decreased security. ETH2.0 upgrade will require Ethereum to have a minimum of 16,384 validators, making the blockchain more decentralized and secure.

TIMELINE

The network upgrade from ETH1.0 to ETH2.0 is a gradual, multi-phase transition that follows a timeline:

1.Beacon Chain

Beacon Chain, launched in December 2020, was established to store a registry of validators and run a chain parallel to the Ethereum mainnet on a PoS mechanism. During this phase Ethereum continues to operate on PoW consensus.

2.The Merge

In this phase, the PoW mainnet will merge with the PoS Beacon Chain. Once the merge is complete, Ethereum will discontinue its PoW operations. The Merge is expected to take place in late 2022 or early 2023.

3.Sharding

After the Merge, the network will integrate shards. Initially, shards will only handle data and in its advanced stage, shards will support smart contract executions and accounts. Each shard will have capabilities equivalent to the mainnet.