Ethereum 2.0: Beginner's Guide
A simplified guide to the interconnected set of upgrades that make up Ethereum 2.0
This has been probably one of the most anticipated upgrades to the Ethereum blockchain. Ethereum is the biggest smart contract platform that currently exists but let’s not kid ourselves, it has tons of issues and is currently unusable for the average person. Gas fees are too high, transaction times are slow, and the network is extremely congested. It is very evident that Ethereum in its current state is not ready for wide-spread adoption. The team at the Ethereum Foundation knew that this problem would occur years before it actually did because the solutions that come under the banner of ETH 2.0 have been under research and development for years (since around 2014). Fun fact: these solutions were initially called Serenity.
Broadly, ETH 2.0 aims to fix 3 main issues. Scalability, Security, and Sustainability. They are doing this through a set of inter-connected upgrades that will launch in succession.
Scalability
This is arguably the most important solution because network congestion is currently killing Ethereum. There is too much demand to have a transaction included in the next block, and each block has a maximum limit on the total amount of gas that can be spent by all the transactions that are included in the block. This means it has a capped supply with unlimited demand and this drives up the gas fees for each transaction to extremely high levels. So what can Ethereum do? Most people would say, just increase the gas limit so more transactions can be included. While this sounds easy in theory, in practice what this does is it makes it more expensive for the miners to mine a block, it makes their hardware requirements to run a node more expensive. Eventually, down the line this will lead to the network becoming more centralized since only a few miners will be able to participate as the barriers to entry will increase. The aim is to have more nodes and reduce congestion simultaneously. So the solution is an extremely clever one. Something called shard chains.
Currently Ethereum is just one ledger. This means all the load of the network is managed by this one ledger. To spread out this load without compromising on decentralization, you can split the ledger horizontally. By splitting the chain, you now have multiple versions of the chain that you can offload transactions to thereby reducing the load on the main chain. In the case of ETH 2.0 the chain will be split into 64 shards and the current Ethereum Mainnet will run as 1 of the 64 shard chains. With this architecture change, the nodes (or miners) are only responsible for running and maintaining their specific shard rather than the entire network which means that the barriers to entry will be reduced. So, you can now have more nodes which makes the system more decentralized. Key takeaway: shard chains allow more nodes and less congestion through one solution.
Security
Ethereum right now uses a Proof-of-Work consensus mechanism (Miners use advanced computers to put in a certain amount of computational effort to mine a block and add it to the chain by solving a type of complex cryptographic puzzle) to secure the blockchain. This means that it is theoretically prone to coordinated attacks. This is extremely difficult and unlikely yet possible. Hence, the solution is to gradually transition to a Proof-of-Stake consensus mechanism (Users stake their ETH to become a validator and are then responsible for ordering transactions in a block and validating them, and they also check if blocks submitted by other validators are valid or not). The reason PoS helps increase security is because since the nodes/validators have to stake their ETH in order to take part in the consensus process and secure the chain, if they try and attack the network all their ETH will instantly be burned forever making it extremely unprofitable to launch a coordinated attack. A shift to PoS also plays into the shard chain upgrade because since validators will only have to secure their own shard and can do it through simply staking their ETH, it reduces the barriers to becoming a validator by a lot. You can possibly end up just using your phone or laptop to be a validator which will make the chain incredibly decentralized and resistant to any attack. But how is this solution implemented?
Well, it’s actually already underway. The first part is the Beacon chain which is currently live and already has proof-of-stake on it with around 8,000,000 ETH staked at the time of writing. The beacon chain is responsible for randomly assigning validators to different shards and coordinating them in a way that makes coordinated attacks nearly impossible. There is currently nothing happening on the Beacon chain because it hasn’t been connected with the mainnet as yet. This will be done in Q2 2022 through a process dubbed ‘the merge’. The merge is quite simply the coming together of the beacon chain with the Ethereum Mainnet to officially complete the transition to PoS. After the merge is successful, Ethereum will implement the shard chain architecture.
An important side note on shard chains. There will be two versions. The first version is one where the sharded chains will not have any smart contract or any other functionality other than simply increasing data availability. When this is combined with rollups it can exponentially increase the transactions per second because rollups work on reducing the data that is sent to the main chain. The second version is one where all the shards have smart contracts and other functions but the ongoing debate in the Ethereum community is regarding whether the second version is needed. With ZK rollup & optimistic rollups combined with the shard chains increasing data availability, the main problems of network congestion and gas fees are solved so is there a need to move to the second version? I guess we will see in due time what happens.
Sustainability
If you’ve kept up with mainstream media at any point this year, then you will see a popular narrative of cryptocurrency mining being bad for the environment. Their claims are often exaggerated and cryptocurrency mining isn’t half as bad in terms of environmental damage compared to most of the technology we use. However, their narrative is grounded in some fact. PoW mining does lead to environmental damage because of the heavy hardware requirements. Hence, the shift to PoS can also be looked at as a shift to a more sustainable blockchain for years to come. It is estimated that the shift to PoS will reduce the environmental impact of the Ethereum Blockchain by around 99.5%. That is a massive reduction from current levels and given that damage was already rather low, we will now reach absolutely negligible levels.
In conclusion, keep your eyes on Ethereum next year. Many alternate smart contract platforms like Solana, Avalanche, Luna, Fantom, and Binance Smart chain have seen tremendous success on the back of the flaws of Ethereum but let’s see how well they hold up against ETH2.0. Things are going to get very interesting.
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