Ethereum 2.0, also known as ETH2, is a set of integrated upgrades to the Ethereum network aimed at making it more scalable, secure, and sustainable. Many teams in the Ethereum community are working on these upgrades. Each team is concentrating on a particular aspect of the upgrade.
The Ethereum network can currently manage around 15 transactions per second. When it comes to onboarding millions of new users and releasing even more decentralized apps, this becomes a restricting factor. Ethereum 2.0 seeks to allow thousands of transactions per second in order to make Ethereum more scalable. On one condition, increasing the number of transactions per second does not come at the expense of increasing the network's node capacity. Let's go over all of Ethereum 2.0's main goals.
One of the most important aspects of a decentralized network is its security. Ethereum 2.0 seeks to improve the network's defense against all types of attacks, including a "51% attack," in which someone controls the majority of the network and can compel true fraudulent improvements.
The well-known Proof of Work-based consensus model used by the current Ethereum network, sustainability, necessitates a significant amount of computation, power, and energy. Ethereum 2.0 seeks to make Ethereum more environmentally friendly by replacing the energy-intensive Proof of Work system with Proof of Stake.
The series of modifications needed to accomplish these goals was originally named "Serenity," but most people now refer to it as Ethereum 2.0, or simply ETH2. It's worth noting that both of these goals were almost always on the Ethereum roadmap, and they were debated long before the network went live.
Proof of Work, which is the current Ethereum consensus model, is a well-known and battle-tested solution to creating cryptocurrencies. Miners use their tools, mostly energy, to verify transactions and protect the network in Proof of Work. To function correctly and protect the network from "51% attacks," this model necessitates a lot of resources. Proof of Stake attempts to solve the issue of electricity use by absolutely excluding the miners. The Proof of Stake consensus model depends on economic incentives rather than computers.
Users who want to secure the network with Proof of Stake will take their ETH and become validators. Each validator is rewarded for validating transactions by collecting both the block reward and transaction fees, much like miners in Proof of Work. To prevent validators from attempting to manipulate the system by validating illegal transactions, the Proof of Stake method employs a process known as "Slashing," in which validators lose a portion of their staked ETH if they want to behave corruptly. To carry out a good "51% attack" in a Proof of Stake model, the hacker would need to manipulate 51% of the validators, which would necessitate all validators winning 51% of all staked ETH.
A total of 32 ETH is expected to become an Ethereum 2.0 validator. Using staking pools, such as Rocketpool, it is also possible to stake with less than 30 ETH. Validator's payouts are determined by the amount of ETH staked in the system. If there are fewer than 1 million ETH staked, they can be as high as 18% annually, but if there are more than 100 million ETH in the system, they can be as low as 1.81% or even smaller.
Proof of Stake satisfies all main goals. It makes it easier, more sustainable by eliminating energy-intensive miners, more secure by making a "51% attack" more difficult, and more scalable by enabling sharding, which would be far more difficult to do in the Proof of Work model since it would most likely dilute computing resources across several charts.
Sharding is a term that isn't exclusive to the Ethereum 2.0 upgrade. Splitting a database into several instances, each having a portion of the entire data collection, is a popular procedure in computer science. Any instance would be referred to as a shard. Each shard in Ethereum 2.0 is essentially a new chain of its own. There will be 64 of them at first. This specifically solves Ethereum's scalability issues, as shards would distribute the load across the network.
Furthermore, each Ethereum node would only be required to operate one of its shards. This involves only storing a small subset of data and makes it possible to operate a node without expensive hardware. Making nodes easy to operate could result in a greater number of network members, which means more decentralization and stability. At first, sharding can only have additional details. At this time, sharded chains would be unable to manage transactions or Smart Contracts.
Because of layer 2 scaling, in particular Rollups, it would be possible to improve scalability. Rollups allow for the off-chain bundling of transactions and Smart Contract executions, as well as the generation of cryptographic proof and its submission to the chain. This method only involves the availability of a data shard to store the evidence, so it can be used for the first edition of sharding.
Since the combination of data sharding and Rollups should enable Ethereum to process over 100,000 transactions per second, there is still room for improvement. It is possible to update shards to make them completely executable, similar to how the Ethereum chain is now. Depending on how common the data sharding and Rollups solution becomes, it's unclear if this upgrade will be required. It's also worth noting that, under the data sharding model, the new Ethereum chain becomes one of their shards, and this is the only shard capable of processing transactions and Smart Contracts.
The next crucial idea to learn in order to completely comprehend the Ethereum 2.0 upgrade is the Beacon Chain. The Beacon Chain is in charge of organizing a Proof of Stake system by assigning stakers to various charts at random. Randomness is critical because it prevents stakers from working together to gain control of a shard. The Beacon Chain is essentially a modern Proof of Stake network that operates alongside the Ethereum chain. One of the first items on the Ethereum 2.0 roadmap is its launch. Validators will initially be responsible for connecting new blocks to the beacon chain, but they will not be responsible for validating Ethereum's main net transactions.
Docking is the last piece of the Ethereum 2.0 system. The new Ethereum chain is docked to become one of the shards in the Ethereum 2.0 Proof of Stake model. This method would also signal the conclusion of Ethereum's current Proof of Work model and the complete transition to the new Proof of Stake model. Docking would allow Smart Contracts to be run on the Proof of Stake model. Furthermore, it will have a complete overview of Ethereum as well as its current state, making for a seamless transition for all ETH holders and users.
The entire development process is divided into many phases. Phase 0 focuses on releasing the Beacon Chain and is the first phase of delivering Ethereum 2.0. A minimum of 16,384 validators must be met to do this. On November 24th, the needed number of validators was met, and Phase 0 was launched on December 1st, 2020. Phase 1 of the project focuses on data sharding. After Phase 1 is complete, Phase 1.5 focuses on docking, making the new Ethereum chain one of Ethereum 2.0's shards. In 2021, both Phase 1 and Phase 1.5 will be completed. After Phase 1.5, there are two potential outcomes: either the combination of data sharding and rollups will suffice, and no further phases will be required; or maybe the complete sharding solution would still be needed, bringing us to the final phase, Phase 2. This will be determined after Phase 1.5 is finished successfully.