In 2013, Vitalik Buterin proposed Ethereum: a decentralized application platform, it was officially launched in 2015 funded by crowdsale. Ethereum is a blockchain-based distributed platform featuring smart contract functionality. It offered many advantages like decentralization, consensus and immutable but it had its downside. There are major scalability and inflation issues in Ethereum 1.0, a promised decentralized world computer:
Scalability If any of the DeFi applications or if any of the games gain traction, the Ethereum network is debilitated until the user experience gets so bad that the DeFi application or game stops being played.
Inflation Transaction fees on the Ethereum are paid in Gas which can escalate at any period of time, in fact, it can be increased up to 70% at peak usage.
That is why in December 2019, Vitalik Buterin announced Ethereum 2.0, it is the advanced version of Ethereum that is set to be launched in 2020 with a pending promise of decentralized world computer. Buterin showed ambitious goals for Ethereum 2.0, which includes proof of stake, sharding, and much more.
Ethereum 2.0 is meant to improve the Ethereum scalability by introducing a proof-of-stake consensus mechanism, which will eliminate the need for expensive proof-of-work mining. And sharding, which will improve the speed and throughput of ETH transactions.
The Ethereum wiki maps out seven distinct phases for Ethereum 2.0, which is still at the research stage. For Ethereum 2.0 to be functional, the first three phases will need to be completed:
- Phase 0 — Beacon Chain: The Beacon Chain chain that will run parallel to Ethereum’s proof-of-work chain on the proof-of-work program.
- Phase 1 — Basic Sharding: Sharding will help in the scalability of the network by dividing it into shards and authorizing many transactions is intended to help the transactions scale by dividing the network across multiple shards, allowing the network to process many transactions simultaneously.
- Phase 2 — eWASM: A modified version of Ethereum Virtual Machine that supports proof-of-stake and sharding.
Ethereum 2.0 will be running on proof-of-stake, which will be introduced on The Beacon Chain and will initially run parallel to Ethereum’s proof-of-work chain. The Beacon Chain will be responsible for the maintenance of a set of validators for proof-of-stake consensus that propose and validate new blocks to add to the chain. Each validator will have to stake 32 ETH to validate a block. The blocks in the chain will be validated by randomly selected 120 validators via the Beacon chain to vote on a block. Phase 0 of the Beacon Chain will be extremely barebones, with support for neither smart contracts nor accounts, but it will be developed further down the line into sharding and an updated Ethereum Virtual Machine.
Sharding involves partitioning a large amount of data into smaller pieces that are called shards, in Ethereum 2.0 each shard will have its own chain of transactions. A shared data layer will be formed. It will be introduced on top of the proof-of-stake Beacon Chain which will be verified by the randomly assigned validators. A shard’s validators only have to verify transactions on the shard that they’re assigned. Approximately 100 shards will be introduced in Phase 1.0 which will run in parallel.
Even though sharding will scale the network, it will also introduce some security risks. With the current structure of proof-of-work, an attacker needs to up to 51% of the hashrate to successfully mediate an attack. If the network is split into 100 shards, for example, it will take less of the network hashrate (or deposit in PoS) to successfully attack a shard of data, also sharding will lead centralization of the network as different shards are run by a relatively small group of validators.
eWASM: The Ethereum Virtual Machine v2 To authorize proof of stake and parallel transaction processing through sharding in the chain, the Ethereum team has planned to build a new virtual machine known as eWASM.
The proposed aspect of “Ethereum 2.0” offers an answer to the problems faced in Ethereum 1.0. Ethereum 2.0 is still in the heavy research and development stage, all the three phases of it will not be updated at a single point of time but it will be rolled out in phases, the sharding map alone is of 6 phases. Phase 1 and Phase 2 are expected to be out in 2020 and 2021. Needless to say, there’s a lot in store for the Ethereum community this decade.
On that account, Ethereum 2.0 is still in processing and no doubt it will take a long time before it is fully functional. One thing for sure, though, the Blockchain community has a lot in store for them this year.