What Is Ethereum 2.0?

7 Jun 2022

Ethereum 2.0 (Eth2) is a major upgrade to the current Ethereum public mainnet, designed to accelerate Ethereum’s usage and adoption by improving its performance.

The History of Ethereum 2.0
Ethereum 2.0 is not a new idea in the Ethereum community. A shift in Ethereum’s underlying consensus mechanism to address the restrictions of a Proof of Work blockchain has existed since the blockchain’s genesis. Ethereum 2.0 arrives on the heels of many planned upgrades to the Ethereum mainnet following the mainnet Frontier launch in July 2015, namely:

Homestead, March 2016
Metropolis: Byzantium, October 2017
Metropolis: Constantinople, February 2019
Istanbul, December 2019
The launch of Ethereum 2.0 is especially significant compared to past upgrades because of the implementation of a Proof of Stake consensus mechanism, moving the network away from its existing Proof of Work architecture.

For more detail on the history of Ethereum upgrades, read A Short History of Ethereum.

Proof of Stake
Proof of Stake (PoS) is the most significant change in Ethereum 2.0, because it reforms the crypto-economic incentive structure for validating the blockchain. Ethereum’s current architecture is maintained by a Proof of Work (PoW) consensus mechanism. The components of Proof of Work are well-known to the blockchain community: it is the architecture used for the most utilized blockchains to date, including Bitcoin, Ethereum, Litecoin, and more. In Proof of Work, miners run nodes and expend computational energy to solve complex mathematical problems in a competition to mine the next block. 

The time and money that miners need to run hardware and expend electricity on PoW chains is validated by block rewards, which are distributed to miners who successfully mine a block into existence. PoW chains are extremely secure; the combined computational power required for an individual to compromise a well-established PoW blockchain like Bitcoin or Ethereum would cost an extraordinary amount of money, and may not even exist.

Although extremely secure, PoW blockchains suffer from scalability and accessibility issues. 

Scalability: Because each block is mined sequentially, and there is a finite amount of data that can be recorded in each block (a measurement known as block size), Ethereum can only process a limited amount of information in a given amount of time. If the number of pending transactions surpasses what a block can fit, then the remaining transactions have to wait for the following block, and so on. This scalability issue will be fixed by the implementation of sharding [see below] on the PoS network.

Accessibility: PoW miners have been fundamental to the creation and maintenance of the surge in decentralized technologies we have witnessed in the past decade. Though PoW blockchains are functional, the barriers to entry to be a miner are quite high. An individual must purchase and set up all the necessary hardware. To earn considerable returns from block rewards, that individual also likely must live in a region with lower electricity costs.

Another level deeper, electricity costs are often reduced for businesses and corporations, meaning a miner looking for maximum profitability would also need to form a company and purchase enough mining hardware to justify their effort. Several of the largest mining conglomerates outcompete the majority of regular blockchain users from actually participating in the maintenance of the network, leading to centralization of miners. In Ethereum 2.0, one of the goals is for PoS to level the playing field for more individual validators to participate, earning a shared return on maintaining the truth of the network. 

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