What is Ethereum v2.0?

Written by Edward Jackson, Founder at AlliedBlock.com

Ethereum as it is today has challenges. Everyone that has worked with Ethereum knows what these challenges look like. Transactions can take a long time to process and the fees associated are both inconsistent and high. This brings high fees to users just trying to move funds or transact on the chain and it can create major problems for businesses trying to predict spend and plan for high transaction costs. There are mitigating strategies in play today like reducing gas costs by batching transactions or just in general strategically looking at ways to reduce the calls made to the Ethereum Virtual machine. There are also Layer 2 solutions that take the burdensome tasks off of the Ethereum chain directly. These are currently impact reducers; they’re ways for individuals and companies to circumvent Ethereum’s challenges but they don’t actually solve the main problem: Ethereum is a very congested network.

This sets the stage for Ethereum 2.0. The 2.0 initiative focuses on solving Ethereum’s major issue. This is a massive multi-year initiative that is already underway. The best way to break it down is to dig into its two major adjustments. These are: 1) a new consensus protocol and 2) a new shard infrastructure. These two adjustments in combo are Ethereum’s answer to its congestion problem. Lets take a look at each in detail.

Ethereum currently runs on the same consensus protocol as Bitcoin. This protocol is known as Proof of Work (PoW). Proof of work consensus has magic in it. PoW is what brought Bitcoin into existence all the way back in 2009. It is THE innovation that solved for double spend with digital currency and created trust in an anonymous decentralized network. So, of course, PoW has shine. But, PoW also has its faults. It’s slow and computational intensive. It’s one of the reasons behind Ethereum’s slow transaction speed. It also can tend to centralize as more advanced computing hardware becomes required to mine. As the barrier to mine profitably gets higher and higher, network participation becomes more and more entrenched in the few hands that can make it work at scale. So, over time, the network becomes less and less decentralized. Additionally, PoW is power hungry requiring significant electricity usage. Estimates have been made that the Bitcoin blockchain utilizes the same electricity consumption as a mid-sized country. This, of course, can have an overall negative impact on our environment.

The negatives around PoW is what has Ethereum focused on another consensus protocol for its future, Proof of Stake (PoS). PoS takes the vitally important job of consensus away from the miners and puts it into the hands of Validators. Validators are individuals that have taken the step to stake Ethereum for the opportunity to do the work of proposing, justifying, and finalizing new blocks on the chain.

Ethereum validators are currently required to stake 32 Ethereum. Validators like miners are rewarded for the work they do. In Ethereum 2.0, validators are solely responsible for the maintenance of the chain’s integrity. If they misbehave, they are penalized. If they behave, they are rewarded. Penalties come in 2 forms: 1) punishment, and 2) slashing. A validator can be punished for small infractions like being offline for an amount of time above a specific threshold. This results in a small loss of their staked funds. A slashing is more serious and occurs when a validator deliberately and maliciously tries to jeopardize the integrity of the chain. This causes dismal as an active validator and a 3-10% loss of staked funds. Funds that are taken as punishment or slashing are burned, never to be seen again. So, as we see in this Validator role structure, it is the nature of reward and punishment along with a large portion of 'skin in the game' that keeps PoS consensus in-tact.

Lets take a look at what validators actually do. First thing for us to understand is how blocks are confirmed. In this new system, a block is created every 12 seconds. These 12 second intervals are labeled slots. At the end of every 32 slots (6.4 minutes), Validators submit attestations; this is their work. This 32 slot sequence is known as an epoch. So, at the end of every epoch, validators do their work and submit attestations confirming 2 distinct things: 1) the height of the chain and 2) the transactions within the most recent checkpoint. Each type of attestation has its own unique standard; chain height attestations use an LMD Ghost standard and transaction checkpoint attestations use a Casper FFG standard. When validators agree on the epoch checkpoint, that checkpoint becomes justified. Important to note that the checkpoint isn’t finalized just yet. At every epoch, validators submit attestation for the current checkpoint and the immediate predecessor checkpoint. The current checkpoint becomes justified and the predecessor becomes finalized. What this means is that in order for transactions to becomes finalized they must move through 2 full rounds of Validator confirmations.

To get a sense of the scale of this process, the current standard Ethereum 2.0 has set down is that for every epoch a committee of 128 validators must come to a 2/3 consensus. This means for a transaction to be finalized in Eth 2.0 it must be confirmed by 85 validators twice over the course of 2 epochs. Additionally, Ethereum will pseudo-randomly assign validators to committees and epochs. At a minimum, Ethereum is looking to have 128 committees of validators or 16k+ validators at any given point in the system. This decentralization, double confirmation, and randomness are all levers Ethereum is pulling to assure the integrity of the new Eth 2.0 system.

Now that we’ve established the first major change under the new Ethereum 2.0 standard, lets take a look at the second and see how it ties in. The concept of Shards in Ethereum 2.0 splits Ethereum into multiple blockchains. Each is designated as a ‘Shard’. The intention is to split Ethereum into 64 shards. This splits transactions across 64 chains instead of having everything move through the single mainnet chain as it does now. This helps significantly with congestion, transaction speed, and overall transaction volume. Ethereum 2.0 with its shard structure is targeting a capacity of 100,000 transactions per second. This is exponential growth from the current standard of 30 transactions per second in the system.

The Validators are the parties tasked with maintaining integrity shard by shard. Validators are pseudo-randomly assigned to shards just like they are assigned to committees and epochs. Once they are assigned a shard, they then become responsible for the integrity of that specific shard. The randomness and constant adjustment of validators between shards is another lever Ethereum is using to decrease potential for attack coordination and increase the security of the overall system.

To tie everything together, there is third new element being added to the 2.0 system. It’s a smaller change than the consensus and shard structure adjustments but still very important. The Beacon Chain is specifically meant to handle communication of state between each shard. The Beacon chain holds two critical pieces of information: the validator list and the shard states in the form of validator attestations. The Beacon Chain is the organizer of the system referencing the current state of each shard.

The beacon chain was the first phase of the Ethereum 2.0 project and is currently live. Right now, it is holding the current list of pending validators that will start securing the chain when Ethereum 2.0 is fully up and running. Anyone willing to stake their ETH can become a validator right now and get listed on the Beacon chain. This is currently being accomplished through a registration smart contract. Before jumping in, keep in mind that the 32 ETH stake will be completely inaccessible until the launch of Ethereum 2.0. Currently, the schedule has launch targeted for 2022. This year, 2021, is focused on the creation of Ethereum 2.0’s shards. In 2022, the final step of merging the current Ethereum with the Beacon chain is the target and that will signal the end of Ethereum 1.0 and the official launch of the new Ethereum.

This impressive large scale upgrade designed to take place over multiple years is succinctly focused on solving the Ethereum congestion problem while also maintaining the core vision of decentralization in the Ethereum network. All new technology needs to go through a battle hardening phase where problems are addressed and worked through. The hope is that the security levers in place and the multi-year timeline allowing for a slow rollout will all help to bring Ethereum 2.0 to life without a major problem. Time will tell over the next 2 years how the ideas and systems set in place for Ethereum 2.0 will play out live.

AlliedBlock is a global blockchain research and development firm that is focused on delivering tailored blockchain development solutions. Contact us to learn more about how we can help you tailor a blockchain solution for your business (www.alliedblock.com).