Have you ever gone into a store with the idea of buying a package of Oreos? We have for sure, the double stuffed Oreos are the key to our hearts. Back to the story, you get to the store and find that in the aisle there is a new version of the Oreo’s, ones that have a better taste, maybe this time it’s pumpkin spice or honey cream, also they stand out better now because of a new improved look with better branding, and to add a cherry on top they even have about 40 less calories than the older ones?
Well, just like how Oreos can have new flavors and better taste, the Ethereum 2.0 update is doing a little bit of the same thing in a sense… paving the way to an overall better product.
Let’s dig in.
Why is Ethereum upgrading?
Ethereum is upgrading so that it is more scalable, secure, and eco-friendly.
Right now, Ethereum can only handle around 15 transactions a second. When the network is very busy, this means the cost of transactions starts to get very high… in fact we’ve seen it get as high as $50 for a single transaction, meaning if you wanted to send your friend $20 in ETH, you would have to pay a total of $70. Ethereum 2.0 should have mechanisms in place that allow it to perform up to 100,000 transactions a second.
Ethereum 2.0 will also be much more resistant to 51% attacks due to how it works. In other words, it will be much more difficult to attack the network or to do something malicious to it. We will explain a bit more of the technical side of how this works in a bit.
Right now Ethereum uses the proof-of-work mechanisms, which uses a TON of electricity to help secure the network. Since Ethereum has grown to such a large size and the coin is believed in by many, we can switch to the proof-of-stake method which uses much less electricity. Stick around and we will teach you exactly how it works in simple words.
Ethereum 2.0 Upgrades
So now we know WHY ethereum is upgrading, put your big boy pants on and let’s talk about HOW they are doing it. In this video, we will be summarizing these, however there will be a separate video on each one so you have a better idea of how the technicals work!
Proof of Stake
Right now, Ethereum uses a consensus model called “Proof of Work”. First off, if you’re not sure what a consensus model is, you should subscribe because we have a video coming out soon on like at least 5 of the different ones that are out there. Basically, a consensus model is a way for a group of people to agree on something. In the case of Ethereum, the thing they are agreeing on is the transactions in the blockchain. The model they use right now is based on work, it’s called “proof-of-work”. Think of it like this, there is a race and everyone lines up to the race. When the race starts, everyone runs to the finish line as fast as possible. The one runner who is the fastest will win. Since they won, we give them a reward.
However, everyone else who ran wasted their energy, especially if they are running in a bunch of races and keep losing. In proof of stake, instead, we do 3 things to make this better.
- We make the runners put up collateral – this is called their stake
- We only pick 1 runner
- We shorten the race so it’s easier to win
This way, nobody wastes their energy (or electricity) when running the race (or validating transactions). If you want to know more about how the collateral works, how the runner is picked, and how short the race is… check out our video on Proof of Work.
The Beacon Chain
The Beacon Chain is the proof-of-stake mega blockchain that went live on December 1, 2020. It doesn’t handle transactions or smart contracts, but you can think of it as the heart for Ethereum 2.0. Right now, it exists separately from the Ethereum blockchain, running side by side with it. It’s basically the ETH 2.0 blockchain running in parallel with the version 1 blockchain until we all switch to it. The Beacon Chain is also responsible for selecting the “runners” or validators who get to validate the proof-of-stake blocks.
The beacon chain’s purpose is basically to coordinate the entire ethereum network. Speaking of the entire network, let’s talk about Sharding.
Sharding is a very interesting idea and we’re going to explain it in an analogy. Imagine if you’re wanting to go to work and there is 1 highway lane. That highway is so backed up that you are now bumper to bumper and your usual 10 minute drive takes 3 hours.
This is how Ethereum is currently, it has one lane. Imagine if they made 63 other highway lanes that went the exact same route, but this way WAY more cars could travel on the highway. This is what Sharding is, they are essentially creating 63 more highway lanes, so there are 64 total lanes…they all work together so that more cars can travel.
In technical terms, the idea of creating these Shards is to split the infrastructure of the Ethereum network into smaller pieces that can operate independently of each other with the goal of scalability. In terms of Ethereum, these shards will allow the storage and accessibility of data, but won’t be used for executing code like our current blockchain.
Eventually, our current Ethereum blockchain will become 1 of the 64 shards, so we will keep all of the old data and then have 63 new blockchains to start using. This process is called Docking, and also marks the last time we will use proof-of-work in the Ethereum network.
Ethereum 2.0 Launch Timing
Now, you might be wondering when all of this will take place. Just like developers roll software updates out in slow sections to make sure bugs are reported and nothing horrible happens, Eth will be upgrading in sections in the time period of around 1 to 2 years, according to their website.
The plan is to upgrade in phases.
Phase 0 includes the Beacon Chain which uses the new proof of stake mechanisms. As we have said, this has already happened on December 1, 2020. To do this, a bunch of validators have volunteered to validate transactions, and each validator had to stake, or lock up, 32 Ethereum. Right now there is around 10 billion locked up as collateral for validators. So the heart of ethereum 2.0 is already running and is being tested on.
Phase 1 involves the Sharding Network. The ethereum.org website says they plan for this phase to happen around 2022. This is when they want to launch and start testing the shard blockchains.
Phase 1.5 is what they are calling the Docking and Final Merging process, this is when they will actually switch from the old Ethereum to ethereum 2.0, move from proof-of-work to proof-of-stake, and the old Eth will be one of the shards.
Phase 2 is essentially the final touches. The shards will be upgradable to include new features. There’s a few more technical stuff outside the scope of this video too, but one of them includes an upgrade to Ethereum’s VM which is the thing that actually runs the Ethereum code.
It should be noted that some of these specifics have been changed in the past, and the dates rumored about each of these has changed a LOT in the past – for example some developers thought Phase 0 was going to happen in early 2019.
So we’ve gone over some of the benefits of Ethereum 2.0.
As a recap, Sharding is the ability to split the load of the entire network among a bunch of smaller chains.
Proof of Stake will allow validators to use much less electricity to secure the network.
Finally, Ethereum 2.0 should work in a very similar way to the Ethereum we have today, however there are major improvements across the whole network.