img

An Introduction to Ethereum 2.0

Posted on 6/16/2021 by Andras

Some people think Ethereum 2.0 will never ship. Could they be right? Who knows, but what we do know is that we’ve never been closer to the rollout of Ethereum 2.0.

Thanks to the launch of the Beacon Chain in December 2020 with more than 5 million ETH staked on it already, the impending merge to proof of stake, and many other developments finally coming together, Ethereum has never been closer to achieving its original goals set out at its launch.

What is Ethereum 2.0?

Eth2 is a set of upgrades that aim to enhance the capabilities of Ethereum. Once all the components are implemented, Ethereum should handle many orders of magnitude more throughput, be more secure, and more sustainable.

You see, Ethereum is somewhat old technology in blockchain land. Initially introduced by Vitalik Buterin in 2013 and launched in 2015, much has changed in the technology landscape since then. While many of the upgrades of Eth2 were already outlined then, the research needed a lot of time to be ironed out to be ready to be safely implemented in a live system. 

The fact that the technology was developed while Ethereum has been churning along in parallel is an advantage but also a detriment. At this point, it’s fair to say that Ethereum has built up some strong network effects, especially when it comes to infrastructure and developer tooling. On the other hand, it’s riskier to make changes to the core design. 

While newer smart contract platforms can design the system the way they want to from scratch and then launch, in the case of Ethereum, the upgrades need to be done to a live system – one that’s securing billions of dollars of value. Significant upgrades can really mess with those funds and complex contracts on-chain, so Ethereum researchers needed to be extra careful in figuring out how to transition Ethereum into the future.

In short, Ethereum 2.0 aims to make Ethereum’s technology keep up with the insane demand that users and applications have for its block space.

The Merge

One of the most impactful changes of Eth2 is the switch from proof of work to proof of stake. 

Much has been written about the differences between PoW and PoS, but in short, instead of miners competing in an arms race of computing power, consensus is going to be achieved based on how much stake each validator has in the network. There are nuanced differences here, but it also makes Ethereum – wait for it – more energy-efficient than Bitcoin.

This will be done in an event called The Merge, where the Beacon Chain will be merged with the current Ethereum mainnet, ending the era of proof of work mining on Ethereum. 

While we’re on the topic of mining, what will happen to the ‘old’ proof of work chain? Difficult to say. It’s likely that PoW miners will try creating some sort of fork to protect their investment and continue mining.

Sharding

Another major component of Eth2, sharding is a way to split the network into smaller partitions called shards. You could think of a shard as essentially a new chain. Instead of every node having to validate every transaction, the blockchain is split into what are essentially separate networks that are still all connected. As a result, the transaction throughput is increased on the base layer.

Currently, the plans account for 64 different shards that Ethereum is going to be “split” into. 

This is a fairly common technique for scaling in the blockchain space, one that other smart contract platforms are also going for in slightly different ways. The main question is whether you want to scale the so-called layer 1 (the base layer) through methods like sharding and other forms of parallelization, or take most of the activity to layer 2 scaling solutions, like the Bitcoin Lightning Network or Ethereum rollups. Or actually, why not both? This seems to be the strategy that Eth developers are going for.

Layer 2, rollups, sidechains

While technically isn’t a part of the Eth2 roadmap, layer 2 scaling solutions, and most importantly rollups, complement the ETH 2.0 upgrades a lot. You see, sharding does bring a lot of scalability benefits, but even according to Ethereum developers, it’s quite far off. It’s likely not getting rolled out anytime earlier than 2022. 

Meanwhile, Ethereum needs to scale now. Or ideally, it should have scaled yesterday, but that’s a different story. Rollups are an excellent way to do that because they bring great scaling benefits like increased throughput and low fees while inheriting from the security of Ethereum. 

In short, rollups move computation off-chain to free up more space on-chain. The two main categories are called optimistic rollups and zero-knowledge (zk) rollups. Since this isn’t an article about rollups, we won’t get into the differences here, but if you’d like to, go read this article . The bottom line is that zk rollups still need some time to be ready for prime time, so optimistic rollups are likely to be adopted first. 

The two main competing camps for optimistic rollups are the implementations done by Arbitrum and Optimism. They are both compatible with the Ethereum Virtual Machine (EVM), meaning that existing smart contracts can be deployed on them with relative ease. Both of these are very close to launch, and it’s likely we’ll see plenty of existing dapps moving to them thanks to the lower fees and comparable security guarantees to Ethereum.

Then we have other scaling solutions, such as the highly successful Polygon, a proof of stake sidechain. Sidechains don’t inherit their security properties from the Ethereum mainnet, they have their own set of validators who, in theory, could take control over the sidechain. 

On the other hand, they can be really fast and cheap, just like Polygon is. There’s a bigger security trade-off for less of a compromise on performance and cost, leading to a great user experience. Rollups, in contrast, have more comparable security (but still less!) to Ethereum layer 1, but transacting on them will cost a bit more than on a sidechain.

We could compare the trade-offs between these solutions at length, but the main point here is that they all benefit the Eth2 roadmap. They free up precious block space on the mainnet and give more time for the core upgrades to be rolled out. In many people’s minds, the Eth2 vision is now synonymous with a highly vibrant and diverse L2 ecosystem.

Summary

So, that’s a rough summary of what Ethereum has in the pipeline in the relatively near future. 

With the switch to proof of stake, sharding, a lively L2 scaling ecosystem, and EIP-1559 bringing a revamp to the gas auction system and potentially making ether a deflationary asset, the future seems bright. 

Ethereum is on the way to become a secure and performant backbone for the decentralized internet, and it’s all on the shoulders of developers to successfully and safely execute these critical upgrades.