Ethereum (ETH) 2.0 – Decentralization & Scalability

In late 2013, Vitalik Buterin, a programmer and cryptocurrency researcher, proposed Ethereum. The project’s development was funded by an ICO (Initial Coin Offering), which took place between July and August 2014. The project was launched on July 6, 2014, by a non-profit organization called the Ethereum Foundation. The organization which was registered in Zug, Switzerland, is in charge of the Ethereum project. However, the system went live on July 30, 2015, with 72 million coins minted.

One of the core objectives of Ethereum is to provide a decentralized replicated virtual machine known as the Ethereum Virtual Machine (EVM). It is the EVM that executes scripts using an international network of public nodes 2. The EVM makes the process of creating blockchain applications efficient and more comfortable than before. Instead of starting afresh to build an entirely original blockchain for new applications, Ethereum allows for the development of potentially thousands of different applications all on one platform. 

Ethereum is an open-source, decentralized blockchain that features smart contract functionality. The native cryptocurrency of the Ethereum platform is the Ether. After Bitcoin, Ethereum is the second-largest cryptocurrency by market capitalization. 

While there is severely limited ability of all blockchains to process code, Ethereum is entirely different. Instead of giving a set of limited operations, Ethereum permits developers to create any operation they want. It means that developers can build thousands of various applications that go way beyond anything that we have witnessed before. With Ethereum, developers can build and deploy decentralized applications. The decentralized applications have many functions; for example, Bitcoin is a Dapp that provides users with a p2p electronic cash system that allows for online Bitcoin payments. And since decentralized Apps are designed with codes and runs on the blockchain network, it is not controlled by anybody. 

Limitations of Ethereum 1.0

Despite a lot of advantages on the Ethereum network, the decentralized applications also have their limitations. Since humans wrote smart contracts, they are as good as the people that wrote them. There might be some code bugs that can lead to problems. Suppose there is a mistake in the code. In that case, there is a limited chance of preventing an attack or exploitation unless a network consensus is obtained and the underlying code is rewritten. 

Additionally, like the Bitcoin network, the Ethereum blockchain also follows the Proof-of-Work (PoW) consensus algorithm. However, proof of work mechanism has its downsides such as consuming enormous amounts of electricity, vulnerability to 51% attacks, a rise of centralized mining farms, etc. 

Further, the current processing power of Ethereum only allows up to 15 transactions per second, severely limiting the scope of scalability. Since the rise of DeFi applications built on top of Ethereum, the scalability issues and transaction fees are rising exponentially.

Therefore, there was a need for revamping, a better consensus algorithm, a scalable network, a brave new world. That’s why – Ethereum 2.0.

Ethereum 2.0

After a long wait, Ethereum 2.0 is now on the horizon. The primary aim of Ethereum 2.0 is to address the scalability and security of the network concerns through changes to its infrastructure. Ethereum 2.0 will also be bringing the fundamental swift of the consensus algorithm from Proof-of-Work (PoW) to Proof-of-Stake (PoS).

What is Ethereum 2.0?

The Ethereum 2.0 is also called Eth2 or “serenity” as the next upgrade to the regular Ethereum blockchain. The multiple “Phases” of the Ethereum 2.0 will be released starting from 2020 with Phase 0. Each of the phases are designed to improve upon the performance and functionality of Ethereum. One of the notable improvements includes; revamping the speed, efficiency, and scalability of the Ethereum network. So that more transactions can be processed on the system while easing stress. 

Ethereum 2.0 will limit energy consumption while processing more transactions with increased security. Ethereum 2.0 will also unveil shard chains while opting for a Proof-of-Stake blockchain. Thus, bring massive changes with considerable benefits to the Ethereum market.

Ethereum 2.0 Features

The Ethereum 2.0 is planned to be unveiled in at least three phases – Phase 0, 1, and 2.

Phase 0 is set to be launched in 2020, while the other phases will be launched in the subsequent years to come.

Phase 0: The first phase, known as phase 0, will feature the implementation of the “Beacon Chain.” The Beacon Chain is responsible for the storing and management of the registry of validators, and it will implement the proof of Stake (PoS) consensus mechanism for Ethereum 2.0. However, the Ethereum Proof of Work will continue to operate alongside the new Ethereum PoS chain while ensuring the continuity is not broken. 

Phase 1: This phase will likely be rolled out in 2021. The significant difference between this phase and phase 0 will be the integration of shard chains. The shard chain is a scalability mechanism that allows the Ethereum blockchain to “Split” into 64 different chains and allows for a parallel transaction, storing, and processing of information. It is designed to handle several hundred times more data than Ethereum 1.0.

Phase 2: This phase will mostly be unveiled in 2021 or 2022. There is not much information about this phase presently. However, it will involve adding ether accounts and allowing transfers and withdrawals, implementing cross-shard transfers and contract calls. It will also allow for the building of the execution environments so that the Ethereum 2.0 top will be able to host scalable applications and bring the Ethereum 1.0 chain into the Ethereum 2.0. In this way, the Proof-of-Work can, at last, be turned off.  

The Ethereum Foundation also plans to bring further improvements after phase 2 development. You can read more information from Vitalik in this tweet:

Overcoming the Current Limitations

Even though the system was designed as an upgrade to Ethereum 1.0, there are still some limitations in speed, energy, and opportunity. 

As mentioned earlier, Ethereum 1.0 can only handle 15 transactions per second. Besides the transaction speed, there are also concerns surrounding the mining process.  With the current infrastructure, the Proof-of-Work mechanism is attributed to enormous energy consumption.  

With Ethereum 2.0 upgrade, the network will eventually do away with the PoW mechanism and will be opting for the PoS instead. In this technique, instead of solving complex mathematical problems, nodes will be validating transactions by making a deposit on the network. Additionally, these nodes will be called validators instead of miners. To become a validator, users would have to stake a minimum of 32 ETHs on the network as a security deposit. Subsequently, the size of their stake will determine the probability of being chosen to validate a transaction or forge a new block.

Solving the Trilemma – Decentralization, Consistency, & Scalability

Even though blockchain networks such as Tron or EOS offer better processing power with low transaction fees and high transaction speeds, they compromise on the most important aspect – decentralization. 

Similar to all blockchain systems, Ethereum blockchain also struggles with the trilemma of decentralization, consistency, and scalability. The trilemma is a problem of achieving these three aspects on the network without compromising a single element. 

The Eth2 upgrade is designed to solve this trilemma by implementing shard chains or sharding. However, sharding will be implemented only by phase 1, and still a long way to go.

Some Notable Questions About the Ethereum 2.0 

How Does Ethereum 2.0 differ from Ethereum? 

The Ethereum 2.0 will use the Proof of Stake (PoS) while the Ethereum uses Proof of Work (PoW). Eth 2.0 will also be implementing sharding in order to achieve faster transactions, lower fees, and achieve scalability.

What is the difference between Proof-of-Stake and Proof-of-Work? 

Proof of Work (PoW) needs a tremendous amount of energy – with the miners using power-consuming processors in a race to mine a new block. In comparison, Proof-of-Stake (PoS) is a climate-friendly mechanism powering the blockchain network, making use of the concept of staking.

How can Ethereum 2.0 Perform Better than Ethereum 1.0?

One of the core objectives of the upgrade is scalability. In Ethereum 1.0, the network only supports around 15 transactions per second. Whereas with the new Ethereum 2.0, the network might support up to 100,000 transactions per second. It will remove delays and congestions currently encountered on Ethereum 1.0. 

Can Ethereum 2.0 be more secure than Ethereum 1.0? 

Indeed, while doing away with the PoW mechanism, Eth 2.0 network will be impenetrable to 51% attack.

The upgrade will also set the network on a path to a truly decentralized world. The majority of PoS networks come with a smaller number of validators causing a more centralized system. Whereas Ethereum 2.0 will require more than 16,000 validators, thereby making it much more decentralized and thus, secure. 

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Written by:  Narender Charan

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