The Ethereum update aims to address scalability and network security issues. The main difference lies in the transition of the blockchain from the Proof-of-Work (PoW) consensus mechanism, which is used by most cryptocurrencies, including Bitcoin, in the Proof-of-Stake (PoS) algorithm.
In Ethereum 1.0 transaction blocks are verified and added to the Ethereum blockchain network by miners. With the use of expensive equipment and high energy costs. Network security is ensured by a Proof-of-Work consensus mechanism. Miners strive to be the first to solve a math problem and add a block to the chain.
Moving to a Proof-of-Stake mechanism in Ethereum 2.0 significantly reduces energy costs by up to 99%. PoS relies on transaction validators who bet on cryptocurrency to validate a transaction. Each successful block offer brings them a reward ("forging" or "chasing"). When choosing a validator, the amount of cryptocurrency and how long it is stored is taken into account.
Ethereum 2.0 scalability
Sharding is a technology that aims to make Ethereum 2.0 scalable. Dividing the main blockchain network into many tiny segments, working in tandem with the main chain of beacons, will allow transactions to be processed not sequentially, but simultaneously. The most common comparison is Ethereum 1.0 and Ethereum 2.0 as a single-lane and multi-lane backbone. Increases in lanes and parallel transaction processing result in higher Eth 2.0 throughput.
The goal is to share responsibility for checking and adding new blocks to the chain. Launched on December 1st, the Beacon chain ensures that all sharding chains are up-to-date. Now the Ethereum network can process up to 100,000 transactions per second, instead of 30 in the Ethereum 1.0 network.
One of the downsides to sharding is that if it's built not properly enough, then security issues can arise. The risk of interception of transactions by attackers can be caused by the reduction in the number of validators providing security in each chain of mini-segments. This is the classic trilemma of cryptography: scalability, decentralization, and security – which one to choose?
According to official statements, the Ethereum 2.0 chain will support 1,024 Ethereum segment chains, each protected by a committee of 128 validators.
What do validators do?
- Suggest and add blocks to the Beacon Chain or one of the shard chains.
- Confirmation of the validity of Beacons and shards.
- Control over other validators.
To avoid collusion, validators will move between shards. To become a validator, you need to block 32 ETH in the Beacon Chain.
Transactions are executed and verified only within the shard. The consensus mechanism in Ethereum 2.0 has several rules that are designed to prevent possible attacks on the network. In case of violation of the network rules, the validator is blocked and removed from the network.
- LMD GHOST — most recent block confirmation.
- Casper FFG — early voting.
Ethereum 2.0 update, its stages
Launch of the Beacon chain (1st December 2020)
The goal is to register validators and control whether they have at least 32 ETH blocked on accounts, which can be compared to an insurance policy. Validators run the risk of losing their ETH if they don't act in the best interests of the blockchain network.
Sharding and fusion of Eth1 with Eth2. It is planned for 2021, in two stages.
Stage 1. The debut of shard chains that will start verifying transactions, but without the support of accounts and smart contracts. Sharding – splitting the database into small fragments that are processed by separate servers. At least 64 shards are planned to be launched.
Stage 2. Full transition to Proof-of-Stake. The current main network of the Ethereum blockchain will be converted into mini-chains. Eth1 will become Eth2's shard.
Full deployment of Ethereum 2.0 with all the capabilities of shard chains, with the processing of smart contracts, etc.
The network will receive a new virtual machine – eWasm, which will be responsible for the implementation of smart contracts.
Projects as complex as the Ethereum 2.0 blockchain update cannot be completed on schedule. According to the most optimistic forecasts of developers, a full transition to Eth 2.0 will occur by 2022.
Ethereum 2.0 is of great commitment to investors interested in Decentralized Finance (DeFi). This is a revolutionary step in the crypto industry, as significant as the emergence of smart contracts a few years ago.