Ethereum 2.0 Solution and Progress Research Report

Recently, Ethereum developer Marius van der Wijden said on a social platform that the PoS mechanism is currently being tested on Ethereum and the first mainnet shadow fork will be carried out. This means that the Ethereum "merge" is coming soon. The "merge" is a key milestone in the Ethereum 2.0 scalability blueprint, when the entire Ethereum network will transition to the PoS consensus mechanism.

In addition, Ethereum 2.0 core developer dapplion stated on his social account that the Ethereum mainnet shadow fork test will be conducted again this Saturday.

As the "merger" approaches, Ethereum 2.0 has also made further progress. It strives to make blockchain applications faster and cheaper without sacrificing the principle of decentralization. The specific plan and process have once again become a topic of keen interest. So what is the plan for Ethereum 2.0? What upgrades does it include? What is the current progress? What impact will its arrival have on the development of the industry? The European Yi Research Institute will explain Ethereum 2.0 in detail from three aspects: Ethereum 2.0 technical progress, Ethereum 2.0 plan, outlook and risks.

Note: To welcome the merger, the Ethereum Foundation previously announced that Ethereum is facing a change in positioning while upgrading the protocol. At the end of 2021, core developers have stopped using the terms Eth1.0 and Eth2.0, and replaced them with "execution layer" and "consensus layer" respectively. However, the name change did not affect Ethereum's established upgrade route. Since the name of Ethereum 2.0 has been deeply rooted in people's hearts, this article will still use the name "Ethereum 2.0".

Ethereum 2.0 Technical Progress

Route Planning

Since its establishment, Ethereum has firmly occupied the position of the first public chain, with the world's largest developer community, and the number of DAPPs far exceeds that of other public chains. However, even such a leading position does not mean that we can sit back and relax. Ethereum, which is positioned as the "world computer", can only process about 20 transactions per second, and it is even difficult to support a commercial application of an ordinary scale. The high gas fees and waiting for packaged transactions caused by frequent congestion incidents have made the user experience very poor, which has greatly restricted the development of Ethereum.

Ethereum 2.0 is the established plan to solve the current bottleneck of Ethereum's network performance. It is committed to significantly improving the scalability and performance of the Ethereum network without reducing decentralization, so as to better carry decentralized applications and promote the explosion of industry applications.

Ethereum's goal is to become a distributed finance and smart contract execution platform and to become "a true world computer". In order to achieve the goal of a world computer, it set four development stages when it was first launched in 2014: Frontier, Homestead, Metropolis, and Serenity. The first three stages all adopted the PoW model, and the fourth stage "Serenity" is the final form of Ethereum, which is what we often call Ethereum 2.0.

So far, the first three phases of Ethereum have been completed, and the fourth phase of development is underway. During this period, the transformation from PoW to PoS, as well as sharding and the replacement of EVM with eWASM and other important upgrades will be completed. After the upgrade is completed, the performance of Ethereum will be greatly improved.

Of course, the fourth phase cannot be achieved overnight and will be upgraded in stages. According to its latest roadmap, the main nodes of Ethereum's fourth phase upgrade are the launch of the beacon chain in Q3 2021, the "merger" in 2022, and the sharding to be implemented later. The beacon chain was launched in December 2020. Since then, the beacon chain has begun to run in the form of PoS. The process of generating blocks in the execution layer is still carried out by the original chain in the form of PoW. Ethereum has entered a stage of PoW+PoS mixed mining, paving the way for the transition of the entire network to PoS.

(The latest roadmap for Ethereum upgrades)

As of April 12, the beacon chain is running smoothly. On-chain data shows that the beacon chain has 341,300 nodes, with a total stake of approximately 10.9046 million ETH, of which the effective voting participation rate is 99.84%. Since October 15, 2021, the number of nodes and the total stake have grown steadily, and the daily validator income has also been growing slowly.

(Beacon chain block data, image source: https://beaconscan.com/)

The Merger is Coming

Next, Ethereum plans to "merge" in the second quarter of 2022. The consensus layer (PoS beacon chain) and the execution layer (PoW original chain) will be merged, and the PoW part of the original chain will be stopped. This upgrade represents Ethereum's official switch to PoS consensus.

It is worth noting that this merger will stop the PoW verification of the original chain, and will not unlock the ETH previously staked to the beacon chain. The unlocking will be done in the first hard fork after the merger. This means that before unlocking, no ETH issued by PoS can be released for circulation, and the way to issue more ETH through PoW has been stopped, and Ethereum has entered a stronger deflation. In addition, this merger is only a change in Ethereum consensus and cannot achieve performance improvement. Therefore, the GAS fee will not change due to this upgrade. It is necessary to wait until the introduction of sharding in the subsequent upgrade to effectively improve the scalability of Ethereum.

Ethereum 2.0 Solution

Ethereum 2.0 Architecture Model

The Ethereum 2.0 solution model diagram is as follows from top to bottom:

• PoW Main Chain is the original Ethereum mainnet. In Ethereum 2.0, it will continue to run as a shard of the Beacon Chain.

• Beacon Chain is the beacon chain, which is the core part of the entire Ethereum 2.0 system. Through the Casper consensus, it coordinates and manages all independent and parallel shard chains, and is responsible for randomly assigning validators to shard chains, which plays a vital role in the security of the entire system. Through cross-linking as the anchor point of each shard to achieve cross-shard communication, and track the current status of each shard, it provides final determinism guarantee for Ethereum.

• Shard Chains is a shard chain. Ethereum 2.0 is the source of scalability. The current plan is to build 64 shard chains. Each shard has a group of validators responsible for packaging and verifying blocks. It can achieve a significant improvement in network performance and capacity without increasing node hardware requirements and reducing the degree of decentralization.

• The VM layer is a virtual machine, which is the basic environment for the operation of smart contracts and drives the operation of the entire Ethereum. Ethereum 2.0 will replace the current EVM with eWASM, which will improve the compatibility and execution efficiency of smart contracts. Because compared to EVM, eWASM has better performance and better scalability, and can support programming languages ​​such as Solidity, C++, Rust, AssemblyScript, etc., it will be easier to develop contracts. In addition, eWASM is also compatible with current Web standards, so it is easier to run in ordinary browsers, and users can access dApps without extensions.

(Ethereum 2.0 architecture model)

Key Solutions

The blockchain has a famous impossible triangle problem, that is, the blockchain system cannot achieve the best in scalability, security, and decentralization at the same time, and needs to make a trade-off between the three to optimize the balance. Even if BCH expands the block size, the effect of improving efficiency is very limited. EOS sacrifices decentralization to ensure performance through DPoS consensus, but it also raises people's concerns about security issues. Various solutions cannot perfectly solve the impossible triangle problem. At present, the public chain cannot meet the needs of actual commercial applications in terms of scalability, transaction efficiency, security performance and other aspects.

Ethereum, positioned as the next generation of distributed social underlying platform, has proposed the following solutions to the impossible triangle problem:

Improve network performance and capacity through sharding to solve performance problems;

By converting the consensus mechanism PoW to PoS, the node threshold is lowered, more users are supported to participate, and the decentralization problem is solved;

The security issues introduced by sharding and PoS are solved through the beacon chain and Casper consensus mechanism.

(Ethereum 2.0’s specific solution to the impossible triangle problem, picture from the European Easy Research Institute)

• Solving performance issues — Shards

Sharding is the best solution for blockchain expansion. It can significantly improve network performance and capacity without increasing node hardware requirements and reducing the degree of decentralization. In physical space, sharding is to divide all nodes in the public chain network into different groups, each of which is called a shard. Originally, all nodes in the public chain had to perform the same calculation, and the results were written into the block data after all nodes were consistent. The entire network was severely restricted by the upper limit of the tasks that a single node in the network could handle. Now the tasks in the block are grouped and assigned to different shards for processing. The nodes in a single shard only need to undertake part of the work of the entire network. Assuming the number of shards is n, the workload that each node needs to undertake is 1/n of the workload of the entire network. Therefore, each shard can work in parallel, thereby improving the carrying capacity of the entire network. Similarly, the capacity of the entire network will also become n times the original.

(Sharding physical space diagram, picture from TokenInsight "Sharding Technology Research Report")

• Solving the decentralization problem - switching from PoW to PoS

Under the PoW mechanism, the threshold for becoming a verification node is high, and expensive professional mining machines are required to generate enough computing power to compete with peers. With the PoS mechanism, Ethereum can effectively lower the entry threshold for verification nodes. Any user who pledges 32 Eth has the opportunity to join the Verifier Committee, which uses the beacon chain random algorithm to select block validators and block proposers without the need to compete in computing power. The block proposer packages transactions to propose new blocks, and other block validators verify new blocks, and finally collaborate to complete the block process, which greatly simplifies the work of PoW consensus nodes.

In this way, the requirements for hardware devices of Ethereum network nodes are greatly reduced, supporting more users to participate. The more nodes participate in verification, the more decentralized and dispersed the Ethereum network will be, making it safer when facing attacks. At the same time, it also solves the problem of PoW requiring a lot of computing power and causing waste of resources.

(Node block generation process, picture from Ouyi Research Institute)

• Solving security issues — Beacon chain, Casper consensus mechanism

The introduction of sharding and the PoS consensus mechanism has added new security challenges to Ethereum. For example, the 51% attack on a single shard caused by sharding, the double-spending attack between shards, and the disinterested attack, long-range attack, and simple attack caused by the PoS consensus mechanism. Ethereum bridges these two types of risks and solves security issues through the beacon chain and the consensus mechanism Casper.

Beacon Chain - Solve the 51% attack problem of shards and the double-spending attack problem between shards

Different from ordinary blockchains, the beacon chain uses Slot and Epoch instead of "block" as the basic time unit.

Slot: In the future, each shard in Ethereum will have a validator committee to verify blocks. The validator committee completes a block confirmation in two steps (currently 12 seconds), which is block proposal and block verification. If the validator committee can reach a consensus, the slot can successfully generate a block. Otherwise, the slot cannot generate a block, forming a "skipped" slot, so the block generation speed on the chain is uncertain.

Epoch: A time period composed of multiple slots (currently 32), which is 6.4 minutes. The nodes of the validator committee will be reshuffled and redistributed after each Epoch, and their rewards and penalties are also determined after each Epoch. The last slot in an Epoch is called a Checkpoint.

(Slot and Epoch diagram, picture from "Block Production and Confirmation")

Randomly assign validators to the system to solve the 51% attack problem of sharding

The randomness of the blockchain system in the process of generating blocks is crucial. It must be distributed, verifiable, unpredictable, and inalienable. For the public chain, while dividing the tasks of the entire network into different shards, the computing power is also divided into the corresponding shards. For a single shard, only 1/n of the original computing power can be guaranteed. At this time, the difficulty of launching a 51% attack on a single shard will also be reduced to 1/n of the original, which will make the shard easier to be controlled by malicious miners. Therefore, for a sharded system, good randomness is needed to prevent a specific shard from being attacked alone, and the beacon chain is responsible for providing this randomness to the system. It will randomly select a committee of validators for each shard.

The validator committee is a group of validation nodes randomly selected by the beacon chain, responsible for witnessing the blocks generated by the beacon chain and each shard. The beacon chain has its corresponding committee, and each shard also has a group of validator committees. The committee is responsible for ensuring the security and integrity of the shard they are in, and is responsible for proving the status of the shard on the beacon chain.

In each slot, the beacon chain will randomly select a validator from the validator committee to be responsible for block generation for the chain, and a certain number of other validators will check the block and verify its correctness. When the next block is generated, a validator node will be randomly selected from the committee to propose block generation, and another group of different validators will verify its correctness.

After completing the block generation and verification tasks of an Epoch, the beacon chain will reshuffle all verification nodes and randomly select a new validator committee for the next Epoch for each shard. With the help of the random number generation algorithm, the election process of the verification node fundamentally avoids collusion between verification nodes and improves the security of the protocol.

Cross-shard communication to solve the problem of double-spending attacks between shards

A double-spending attack refers to sending the same funds to two or more people. The double-spending problem also exists in shards. Attackers can try to send the same funds to accounts in different shards to implement double-spending attacks. This requires good cross-shard communication to avoid double-spending attacks.

Cross-shard communication needs to be completed with the help of the beacon chain. Shards communicate directly with the beacon chain. The beacon chain will synchronously update the block headers of all shards as verification information, and different shards can communicate through the beacon chain. When the beacon chain block is completed, the corresponding shard block is considered finalized, and the remaining shards can rely on it for cross-shard transactions. As a hub, the beacon chain can record the status and information of all shards to avoid the double-spending problem.

Specifically: When Shard 1 sends a message to Shard 2, Shard 1 will package the relevant information into its block header. After waiting for the beacon chain to package the block header of Shard 1 into a new block, and the beacon chain completes the block consensus, Shard 2 will receive the information broadcast by the beacon chain containing the block header of Shard 1. After that, Shard 2 will verify the information about Shard 1 and then start to execute related operations, and send the completed block information to the beacon chain.

(Cross-shard communication process, picture from Ouyi Research Institute)

• Consensus Mechanism Casper - solves the problems of disinterested attacks, long-range attacks, and simple attacks, and regulates node behavior with a reward and punishment mechanism

Casper is the core consensus protocol of Ethereum 2.0, responsible for managing system nodes and implementing rewards and penalties on validators.

Solve the PoS disinterested attack problem through node staking and regulate node behavior with reward and punishment mechanism

Since PoS has the problem of "nothing at stake attack", that is, under the PoS mechanism, malicious node validators can stake their own coins on the forked chain to promote hard forks without any loss. Therefore, coin holders need to pledge a certain amount of Eth (currently 32 Eth) to the beacon chain to apply to become a node, and only after being marked as "active" can the protocol run.

At the same time, the beacon chain will also track and manage the verification nodes. Every time the nodes successfully package a block, they will receive an Ethereum system reward proportional to the tokens they hold. The nodes are responsible for generating and verifying blocks, and they need to be online all the time to complete the tasks assigned to them by the system. If the majority of validators reject the blocks they have built, the nodes will face the risk of losing their pledged tokens; if the validators fail to fulfill their responsibility to vote on the blocks, their staked Eth will also be confiscated; if the balance of the verification node decreases below the verification threshold, it will be kicked out of the verification node pool and will no longer be able to participate in the verification work. Therefore, Casper forces validators to act honestly and abide by the consensus rules through a reward and punishment system.

Ensure the finality of the chain and avoid PoS long-range attacks and simple attacks

A long-range attack is to create a chain longer than the original main chain starting from the genesis block, and tamper with the transaction history to replace the original main chain. A simple attack is an attack in which the forked chain creates as many blocks as possible per unit time to exceed the length of the original main chain. Compared with PoW, PoS does not have a mechanism for forcing a delay between two blocks. An attacker can make the chain that rewrites history catch up with the original main chain in a short period of time. If the longest chain principle is used, it is very likely that the real main chain will be usurped.

Ethereum will achieve the finality of the chain through a checkpoint in each Epoch cycle to avoid such risks. Specifically, Ethereum sets the first Slot block in each Epoch as a checkpoint. The verification nodes participating in the consensus will vote on the checkpoint. When the checkpoint receives more than 2/3 of the votes, and the previous checkpoint is also a deterministic checkpoint, then this checkpoint is a deterministic checkpoint, and this block becomes deterministic and cannot be changed. Therefore, a major improvement of the Casper consensus is the introduction of explicit finality. As long as the blocks before the final checkpoint are confirmed, the block information cannot be tampered with, there is no possibility of subversion, and there is no need for subsequent miners to increase the security of the confirmed blocks.

(Checkpoint, picture from Ouyi Research Institute)

Outlook and risks

Outlook

• Establishing industry status

If Ethereum 2.0 is successfully implemented, it will completely solve the performance bottleneck of Ethereum. With its current largest ecological scale, lower gas fees and faster transaction speeds after the upgrade, coupled with eWASM's better developer experience and higher accessibility, Ethereum will become an irreversible existence in the public chain field.

• Promoting ecological prosperity

Limited by the performance bottleneck of the underlying public chain, the blockchain is currently unable to serve physical applications, and Dapps with more than 10 million monthly active users have not yet appeared. If Ethereum 2.0 is successfully implemented, it will be able to support large-scale commercial applications. By then, it will surely empower the public chain to the physical world, boost the rise of Web3, and Dapps with tens of millions of users will also emerge.

risk

• Landing risks

Ethereum 2.0 is difficult to develop. Although the framework of Ethereum has been determined, many details are still under discussion and modification, and there are risks in implementation. As can be seen from the architecture diagram, the completion of Ethereum 2.0 requires several major technical innovations. The realization of smart contract sharding and state sharding itself has extremely high design and development difficulties. In addition, it is necessary to consider the transition and compatibility with the original chain, which further increases the difficulty of implementation. As a platform that has been developed for several years, the code structure of Ethereum has become very complex. The bottom layer is difficult to modify. The modification of the original architecture will affect the whole system, and many factors need to be considered.

• Competing risks

According to the public chain TVL comparison data, although the Ethereum public chain still ranks first with a share of 55.4% in the pie chart on the left, the area chart on the right can clearly reflect that the TVL ratio on Ethereum is declining and is being eroded by other public chains.

(Public chain TVL chart, picture from defillama)

Many public chains are committed to solving the expansion and performance issues currently faced by Ethereum. Most of them are compatible with Ethereum code at the smart contract layer, which can allow developers to transfer to their own public chains in the fastest and most convenient way. Therefore, the competitive pressure faced by Ethereum is very large. If Ethereum cannot complete the upgrade in time, it will give other public chains the opportunity to surpass it. In the high-performance public chain track, public chains such as Solana, Avalanche and Terra are competing fiercely, and the number of addresses is growing rapidly. The time left for Ethereum 2.0 is urgent.

Reference articles:

TokenInsight "Sharding Technology Research Report"

Ethereum 2.0 is coming, don’t you know Casper yet?

Ethereum 2.0 series: block production and confirmation

Understanding Ethereum Upgrade: Learn about the latest roadmap and dispel misunderstandings about merged PoS