I. Market Context

The year 2020 is an interesting year for the Crypto market since DeFi has become a force that cannot be underestimated. However, DeFi still has many problems mainly because it is built on the foundation of ETH, which is relatively old. And good news for DeFi, by the end of 2020, ETH 2.0 will replace its old version and start to operate. However, many people are still not aware of the concept of ETH 2.0 as well as the progress of this largest upgrade ever.

In today’s article, we will cover everything you need to know about ETH 2.0.

II. What is ETH 2.0? Why do we need it?

1. What is ETH 2.0?

ETH 2.0 is an upgrade of the entire Ethereum Blockchain network. It can be roughly understood that ETH 2.0 will bring the changes in four basic issues:

  • Consensus mechanism switches from PoW to PoS
  • Speed up transactions and decrease fees with Sharding and eWASM
  • Limited supply
  • Reduce annual supply and allow Staking to receive interest

2. Why do we need ETH 2.0?

There are many reasons that force ETH to launch ETH 2.0 in the time ahead. The main reason comes from the “backwardness” of the current ETH.

Firstly, ETH 1.0 has very slow transaction speed. The processing speed of ETH 1.0 is only 7 to 15 transactions per second, which is far behind compared to the 3.0 generation Blockchain like TRX or EOS, not to mention Blockchain in 2019 like SOL. Without upgrading and improving, ETH will gradually become obsolete.

Secondly, ETH is still using PoW. This consensus algorithm makes it very difficult for ETH to balance between scalability and security. PoW is also closely related to price. If the price isn’t high enough, PoW will make 51% attacks extremely easy. ETH is a typical example of this.

Therefore, ETH 2.0 needs to be launched as soon as possible.

III. Basic misunderstandings about ETH 2.0

There are many misunderstandings about ETH 2.0 and I’m pretty sure that at the time previous to the launch of ETH 2.0, there will be more scams surrounding this event. So, how should we understand ETH 2.0?

First, by definition, ETH 2.0 is not a hard fork of a new coin. Basically, if you are a holder and simply hold ETH due to the launch of ETH 2.0, you won’t get any extra bonuses since ETH 2.0 will still use ETH. For users like most of us, the only difference will be speed improvement. There will be ETH2 tokens after the roll out of Beacon Chain Phase 0, but its value will be exactly equal to 1 ETH. Once ETH 2.0 is completed, the token will be used for staking/running validators. Second, ETH 2.0 is not only an upgrade in speed. ETH 2.0 has a different structure from ETH 1.0. Proof-of-Stake, Sharding mechanism, and eWASM are new structures that make the system work faster, smoother and safer. Therefore, ETH 2.0 is not a simple hard fork. In fact, ETH 2.0 is a new Blockchain, however, accounts, wallet addresses, and contracts from ETH 1.0 will be fully transferred to ETH 2.0. So, the launch of ETH 2.0 will take a relatively long time. The first phase of ETH 2.0 will be Phase 0, which will be launched at the end of this year. By 2021, Phase 1 will be launched, and Phase 2 afterwards.

IV. The phases of ETH 2.0

ETH 2.0 is expected to have 7 phases from Phase 0 to Phase 6, which includes:

  • Phase 0: PoS Beacon Chain (without Sharding)
  • Phase 1: Basic Sharding without EVM
  • Phase 2: EVM state transition function
  • Phase 3: Light client state protocol
  • Phase 4: Cross-Shard transaction (between 2 sharding, we will explain more below)
  • Phase 5: Tight coupling with main chain security
  • Phase 6: Super-quadratic or exponential sharding

However, this is only the expected roadmap, and of course that may change in the future.

Based on the roadmap of ETH 2.0, we will head to Phase 0, which is the first phase of this year. Phase 0 is called Beacon Chain which has attracted a large number of validators with more than 20,000 attending Beacon Chain Testnet. Phase 0 is expected to be released in Q4 2020.

Next, the launch of Phase 1 will allow Ethereum to scale through Sharding, that is, increasing the transaction speed of the system by multiple times. The Blockchain network of ETH will be divided into 64 shards to operate at the same time. Phase 1 also allows Shards to communicate with each other via Cross-linking.

Phase 2 of ETH 2.0 will complete the basic structure of ETH 2.0, allowing PoS to function completely. When Phase 2 is done, ETH and ETH2 will be merged, and basically the following phases are just focusing on adjusting the system. And finally, ETH 2.0 will be in operation. We will update information about the following phases once it’s released.

V. ETH 2.0 terms

  • Sharding: Sharding is a new term, referring to the division of Blockchain of ETH into many shards. Currently, every time a transaction takes place, all nodes of ETH must check that transaction for a while, which increases the security and safety of the Blockchain, however, it also reduces the speed of the Blockchain significantly. ETH 2.0 divides Blockchain into many pieces, called Shards, and each Shard is a separate data storage tool. Instead of nodes having to process all the transactions as before, ETH 2.0 will allow nodes to process the assigned Shards, thereby both speeding up the network and ensuring the security of the system.
  • EVM: Ethereum’s current virtual server, which runs ETH Smart Contracts, is the brain of Blockchain. EVM is responsible for the gas fee that users have to pay. As we can see, the current EVM is not too efficient because gas fees still increase quickly during peak time. That’s why ETH 2.0 will integrate eWASM.
  • eWASM: Short for Ethereum WebAssembly Machine, it’s the new virtual server based on WebAssembly technology. WebAssembly technology was originally built by Google and Mozilla developers, with the aim of allowing programming languages to be run on websites.

In short, eWASM will help ETH 2.0 reduce gas fees greatly and increase the security of the system.