We previously covered Ethereum in the following article looking at the token from a mainly security perspective:
The second largest cryptocurrency by market cap is extensively used as a platform for many layered solutions including DeFi (Decentralized Finance), DAO’s (Decentralized Autonomous Organizations), NFT’s (Non-Fungible Tokens), and as the basis for many AltCoins including Stable Coins.
In this article we will look at Eth2 and examine how this major upgrade plans on addressing areas such as scalability, security, and sustainability.
What is Ethereum 2.0?
The Ethereum we know and love, just more scalable, more secure, and more sustainable…ethereum.org
ETH has been subject to scalability issues as it has grown which have been noticeable by the speed of transactions and high gas fees during busy periods. Security is always a concern with cryptocurrencies as they are lucrative targets for hackers. Sustainability has become a major focus with PoW (Proof of Work) based verification of transactions due to vast energy consumption.
Eth2, which is a set of interconnected upgrades, intends on making Ethereum more scalable, more secure, and more sustainable.
The Eth2 upgrades comprise of the following:
- Beacon Chain – brings staking to Ethereum and lays the groundwork for future upgrades.
- The merge – Ethereum Mainnet (the main public Ethereum blockchain) needs merging with the Beacon Chain.
- Shard chains – expands Ethereum’s capacity to process transaction & store data. Over time shards will gain more features.
In the following sections we will look at each of these 3 areas being addressed by Ethereum 2.0:
Ethereum needs to support 1000s of transactions per second, to make applications faster and cheaper to use.ethereum.org
The introduction of Shard chains is a multi-phase upgrade aimed at improving Ethereum’s scalability and capacity. This is accomplished by spreading the load of the network across 64 new chains (shards).
Sharding as a concept involves splitting a database horizontally and hence spreading the load. This in turn reduces network congestion and increases the number of transactions per second that can be handled.
In addition to the sharding, EIP-1559 went live in early August 2021 as a way to address the way gas fees are calculated. This resulted in a move from an inflationary currency to deflationary one due to part of the Ether gas fees being burned during each transaction. The result of this over time makes ETH become scarcer due to a limited supply.
Ethereum needs to be more secure. As the adoption of Ethereum grows, the protocol needs to become more secure against all forms of attack.ethereum.org
Staking is one of the features introduced by The Beacon Chain upgrade which enables Ethereum to migrate from a PoW (Proof of Work) validation model to one based on PoS (Proof of Stake).
PoW uses the concept of ‘mining’ which is a consensus mechanism that relies on computation power to process transactions and produce new blocks within the blockchain.
PoS requires validators to deposit at least 32 ETH in order to activate the relevant software. Validators are responsible for storing data, processing transactions, and adding new blocks to the blockchain.
From a security perspective it is feasible to censor and reorder transactions if you control a majority of the network. To have this level of control a majority of validators is required. With PoS to have this majority requires a lot of ETH to be staked which keeps growing each time a new validator enters the system. This in turn bolsters the security of the network.
PoW requires the validators (miners) to have specialist hardware and lots of physical space. This makes entering the system as a miner more difficult so security against majority attacks doesn’t increase as much.
With the introduction of Shard chains there are additional security related implications.
Sharding is only possible with a proof-of-stake system. Sharding a proof-of-work system would dilute the amount of computing power needed to corrupt the network, making it easier for malicious miners to control shards. This isn’t the case with randomly-assigned stakers in proof of stake.ethereum.org
Ethereum needs to be better for the environment. The technology today requires too much computing power and energy.ethereum.org
As mentioned in the previous Security section, the Beacon Chain introduces Staking and hence the PoS system. This brings environmental improvements to Ethereum in that energy-intensive computers are no longer needed in order to participate as a validator.
This is in stark contrast to PoW which encouraged an arms race of those having the fastest and most powerful validators being rewarded the most.
Please note that PoS will not become fully active until ‘the merge’ upgrade occurs which merges the Ethereum Mainnet with the Beacon Chain. In the meantime stakers will add new blocks to the Beacon Chain but will not be processing Mainnet transactions.
Shard chains also have a sustainability impact by making it easier to run a validator node by keeping the hardware requirements low.
When is Eth2 being rolled-out?
The deadlines for Ethereum 2.0 have been fairly fluid and subject to some delays. According to the official website this is the latest timeline:
- Beacon Chain – shipped on December 1, 2021, and is currently Live.
- The merge – estimate Q1/Q2 2022.
- Shard chains – estimate is sometime in 2022 once the Ethereum Mainnet has been merged with the Beacon Chain.
For further information on Eth2 please visit the official site here:
What are your thoughts on Ethereum 2.0? Do you think the upgrade with make ETH more secure? Please share your thoughts in the comments below.