Scaling: The Road to Ethereum 2.0

As the ETH deposited in the Ethereum 2.0 deposit contract reached the threshold of 524,288 on November 24, it is basically certain that the Ethereum 2.0 beacon chain will be launched as scheduled on December 1, 2020.

This also means that Ethereum will officially move towards PoS and expansion at the layer 1 level. In the future, decentralized applications on Ethereum may no longer have to endure the high gas fees experienced during the DeFi craze in the summer of 2020.

Scaling is critical to Ethereum, because Ethereum's vision is to be a global, decentralized application public open source platform that anyone can participate in. To become the infrastructure of the next generation of the Internet and meet the needs of the mainstream Internet population, scaling is an inevitable choice.

Ethereum 2.0 is the real Ethereum in Vitalik’s mind

Vitalik Buterin's expectation for Ethereum is to become the world's computer, but Ethereum 1.0 uses the PoW consensus mechanism, and its TPS is only about 15, which is simply unable to bear the responsibility of a world computer.

Vitalik Buterin once said: “Ethereum 1.0 is a few people’s unremitting attempt to build a world computer; Ethereum 2.0 will eventually become the world computer.”

Looking back at the history of Ethereum, Vitalik released the Ethereum white paper in January 2014, and the Ethereum 1.0 mainnet was created in July 2015.

But in the same month that Vitalik released the Ethereum white paper, he published a blog about the PoS consensus algorithm Slasher, seriously discussing Ethereum's future transition from PoW to PoS.

In March 2015, before the Ethereum mainnet was launched, the Ethereum community had already planned the future technical path of Ethereum into four stages: Frontier, Homestead, Metropolis and Serenity, and reached a consensus to switch from PoW to PoS in the Serenity stage. In order to drive miners to switch from PoW to PoS, the Ethereum 1.0 blockchain network also deliberately set up a "difficulty bomb".

In 2015, Vitalik and the Ethereum development community began to experiment with random sampling, which was a breakthrough in the application of sharding technology on the chain. In 2017, a breakthrough in data availability proof was achieved, proving that sharding is a feasible expansion solution.

It can be said that Ethereum 2.0 is the real Ethereum in Vitalik’s mind.

Although Vitalik is constantly improving his views on the specific technical path, for example, recently Vitalik said that the short-term and medium-term expansion strategy of Ethereum (1.0 and 2.0) is centered on Rollup.

Ethereum 2.0 Roadmap

Let’s first review the roadmap of Ethereum 2.0.

As mentioned above, four development phases have been planned since the launch of Ethereum: Frontier, Homestead, Metropolis, and Serenity.

Serenity is the stage of Ethereum 2.0, and its biggest change is the complete transition from PoW (Proof of Work) to PoS (Proof of Stake). For this change, Ethereum 2.0 is divided into at least three stages: Phase 0: Beacon Chains; Phase 1: Shard Chains; Phase 2: Cross-shard transfers, contract calls, eWASM replacing the Ethereum Virtual Machine (EVM), etc.; each stage will improve the performance of Ethereum in different ways.

Phase 0: The first phase of Ethereum 2.0 will implement the "Beacon Chains". The Beacon Chain stores and manages the registration of validator nodes and will implement the Proof of Stake (PoS) consensus mechanism of Ethereum 2.0. The PoW chain of Ethereum 1.0 will run alongside the new Ethereum PoS chain to ensure data continuity. Phase 0 of Ethereum 2.0 will be launched in 2020, expected in July.

Phas1: The second phase of Ethereum 2.0 may be launched in 2021. The main improvement of Phase 1 is the integration of Shard Chains. Shard Chain is a scaling mechanism in which the Ethereum blockchain is "split" into 64 different chains, allowing parallel transactions, storage, and information processing. According to the most conservative estimates, its throughput will reach 64 times that of Ethereum 1.0.

Phas2: The third phase of Ethereum 2.0 will likely launch in 2021 or 2022. Compared to Phase 0 and Phase 1, Phase 2 is less clearly defined, but will involve adding Ethereum accounts and enabling transfers and withdrawals, implementing cross-shard transfers and contract calls, building an execution environment so that scalable applications can be built on top of Ethereum 2.0, bringing the Ethereum 1.0 chain to Ethereum 2.0, and finally shutting down proof of work.

The launch of the Ethereum 2.0 beacon chain mainnet marks the official launch of Ethereum 2.0.

10 questions to understand Ethereum 2.0

What is Ethereum 2.0? Ethereum 2.0, also known as Eth2 or "Serenity", is the planned fourth phase of the Ethereum blockchain and a complete redesign that will shift the consensus mechanism from PoW (Proof of Work) to PoS (Proof of Stake). The four phases planned for Ethereum are: Frontier, Homestead, Metropolis, and Serenity.

What is the difference between Ethereum 1.0 and Ethereum 2.0? Ethereum 2.0 will introduce two major improvements that did not exist in Ethereum 1.0: Proof of Stake (PoS) and Shard Chains. The consensus mechanism of Ethereum 1.0 is Proof of Work (PoW). PoW relies on miners to use electricity to drive physical mining machines to generate the Ethereum blockchain. PoS does not rely on miners and electricity, but relies on validating nodes (virtual miners) and ETH deposits to generate blocks. Shard Chain is a scaling mechanism that can greatly increase the throughput of the Ethereum blockchain. Shard Chain will "split" the Ethereum blockchain and distribute data processing responsibilities to many nodes. This allows transactions to be processed in parallel. Each shard chain is like adding a lane, upgrading Ethereum from a single lane to a multi-lane highway. Shard Chain is expected to be launched in Phase 1 of Ethereum 2.0.

What will happen to Ethereum 1.0? According to the plan, Ethereum 1.0 will become the first shard of Ethereum 2.0 when Ethereum 2.0 Phase 1 is launched. Before that, Ethereum 1.0 will continue to maintain the status quo.

Will there be an Ethereum 2.0 token? No new ETH token.

How to participate in Ethereum 2.0 staking? ETH holders can participate in Ethereum 2.0 staking and get rewards in two ways. 1. ETH holders can pledge 32 ETH to run their own verification nodes, which requires depositing 32 ETH into the Deposit Contracts on Ethereum 1.0. This process is irreversible. Running your own verification node means that you have the responsibility to verify and organize blocks, and failure to do so may result in the loss of ETH. 2. ETH holders pledge ETH through staking service providers or join staking pools, and anyone can get staking rewards in proportion.

What are the risks of becoming an Ethereum 2.0 validator? The benefit of becoming a validator is that you can receive ETH rewards. However, there is a "punishment" mechanism on Ethereum 2.0, so there is a risk of losing the staked ETH. The first way a validator may lose ETH is to go offline and fail to perform its duties properly. This results in a relatively mild penalty, which is roughly the same as the reward that may be obtained. Another way a validator may lose funds is to publish contradictory information. In this case, the validator is severely punished and expelled from the system. The amount of the penalty ranges from 1 ETH to the entire stake, and the detailed penalty depends on specific factors.

How much ETH is needed to start the beacon chain? To start the beacon chain, at least 16,384 validators will be needed, equivalent to 524,288 Ethereum pledged. The beacon chain will only start distributing rewards when it reaches the genesis threshold.

What to do with ETH you currently hold? You don’t need to do anything with the ETH you currently hold. It continues to be fully available on the Ethereum 1.0 chain. At some point, the Ethereum 1.0 chain will become part of Ethereum 2.0, and the ETH you hold will continue to function as it does now, without any action required. For those who want to participate in staking, they can choose to become a validator on the Ethereum 2.0 beacon chain by depositing their ETH into the Deposit Contracts on the Ethereum 1.0 chain. It then becomes the validator balance on the Ethereum 2.0 beacon chain. This process is irreversible. During Phase 0, these EHT cannot be used, and the validator will have to wait until Phase 2 to withdraw these ETH to a specific shard, at which time the staked ETH and the rewards generated will be fully available in Ethereum 2.0.

Who is developing Ethereum 2.0? The work of developing Ethereum 2.0 is mainly led and coordinated by the Ethereum Foundation research team, with about hundreds of developers. The Ethereum 2.0 specification is maintained on the Ethereum Foundation Github page. There are currently 9 independent teams building Ethereum 2.0 clients in a variety of different programming languages ​​for different use cases. These 9 teams are ChainSafe Systems, PegaSys, Parity Technologies, Prysmatic Labs, Sigma Prime, Status, Trinity, Nethermind, and Harmony.

Why do people pledge ETH2.0 to participate in the launch of the beacon chain mainnet? One of the most important reasons is the expectation of relatively low-risk stable returns. If there is just 524,288 ETH deposited, then the APR can reach 21.6%; if the ETH involved in the pledge reaches 2,450,000, the rate of return can reach 10%; even if the locked ETH is as high as 10,000,000, the APR can reach 4.9%, which is much higher than the ETH storage income of other DeFi protocols. The APR here is calculated in ETH, and as the price of ETH increases, its actual APY may be higher, which will encourage more people to pledge ETH.

Detailed explanation of the beacon chain

The beacon chain uses the POS consensus algorithm, which is the infrastructure of Ethereum 2.0. In the second phase of Ethereum 2.0, the shard chain will operate with the help of the beacon chain.

The beacon chain works by randomly assigning different validators to each shard to publish blocks, and also assigning a committee to each shard chain. The responsibility of this committee is to vote on the blocks produced by the shard chain validators.

The blocks of the shard chain require the consent of more than half of the committee members. The shard chain can also use the beacon chain to complete cross-shard operations. After the beacon chain is launched, it will run in parallel with the Ethereum 1.0 chain and will rely on the status of the Ethereum 1.0 chain during this period.

The beacon chain uses the PoS algorithm. In the PoS algorithm, the probability of each miner generating a block is proportional to the miner's rights. However, each miner in the beacon chain actually has the same rights.

Each miner can only pledge 32 ETH to the beacon chain. To become a beacon chain validator, you need to send a transaction to the Deposit Contracts on Ethereum 1.0, which requires you to have 32 ETH. The public method of the Deposit Contracts on Ethereum 1.0 has two parameters:

Pubkey, the signature public key of the validator in the beacon chain

Withdrawal_credentials, used to withdraw the pledged ETH later

After successfully calling the deposit contract, the contract returns a log event, and the beacon chain will be automatically informed of the events on the Ethereum 1.0 chain.

The beacon chain will mark newly added validators as "Pending Validators". After a period of time, they will become Active Validators, which means they can participate in block generation.

The beacon chain will penalize long-term inactive or bad validators. When the validator's stake is reduced to 16ETH, they will not be able to participate in the operation of the POS protocol. Finally, the beacon will exclude validators with stakes below 16ETH.

The beacon chain block needs to maintain the following information:

Register Validator

Waiting for validators, these accounts will be added to the validator list

Active validators, these accounts have been added to the validator list

Exit validator, these accounts leave the validator list

Polling Information

Validator voting

Random numbers used to randomly select proposers and committees

Proposer selection

Before submitting a block, a validator needs to be selected as the proposer. The power to submit the next block in Ethereum 1.0 depends on the miner's computing power. If the miner's processing power is large, there is a high probability that the miner will be selected as the producer of the next block.

In Ethereum 2.0, the selection of block-producing nodes is based on random numbers; it is difficult to generate high-quality random numbers in a blockchain system. However, the POS protocol requires that the source of random numbers be distributed, verifiable, unpredictable, and irreplaceable.

A random number is used to select the proposer from a group of validators, making it impossible for the validators to know who was selected. This prevents them from colluding to launch an attack.

A block is generated every 6 seconds in the beacon chain. These 6 seconds are also called slot gaps. During each gap, the selected proposer collects all votes from the validators of the previous block of the beacon chain and uses them to form a new block.

Committee

Before the block proposed by the proposer is entered into the main chain of the beacon chain, it needs to be voted on.

The committee can vote on the blocks proposed by the proposer, and the blocks that pass the vote can receive final confirmation. Ideally, if votes can be collected quickly, the members of the committee are all active validators in the system.

Main chain selection rules

In Ethereum, the longest chain is determined by computing power, while the beacon chain of Ethereum 2.0 uses the POS algorithm. Therefore, a different set of rules will be needed to determine the forked chain (note: the main chain) that everyone needs to follow. The beacon chain solves this problem by using LMD GHOST (Latest Message Driven GHOST). This method involves an algorithm that runs based on messages, or in other words, through voting. Generally speaking, the forked chain with the highest number of votes will be considered the main chain.

The smiley faces represent voting information. The number in each block represents the total number of votes, which is the weight of the block.

In the image above, although the top chain is the longest chain, the green chain is the main chain.

Shard Chain

Shard chains are a core feature of the future scalability of the Ethereum 2.0 network.

Sharding refers to the separation of data processing responsibilities across multiple nodes in a database (such as a decentralized database or other types of databases), allowing transactions, storage, and information to be processed simultaneously.

The concept of sharding is very different from the current Ethereum 1.0 model, which requires all full nodes to process and verify every transaction.

The beacon chain will monitor the operation of the shard chains.

After the validator pledges 32 ETH, it will be randomly assigned to a shard chain for verification (the randomness here ensures that the validator's allocation path is unpredictable, otherwise it will face the risk of manipulation).

eWASM

In the second phase, with the introduction of the new virtual machine eWASM (Ethereum version of WebAssembly), the shard chain will evolve from a fairly basic form of data tagging to a full transaction chain, thereby assuming the responsibility of expanding the Ethereum network.

In order to maintain the normal operation of the blockchain ecosystem, nodes must execute transactions and smart contracts in virtual machines. The virtual machine of Ethereum 1.0 is EVM. After switching to Ethereum 2.0, the virtual machine of the Ethereum network will be upgraded to eWASM, a virtual machine based on WebAssembly. According to the standards of the World Wide Web Consortium (W3C), WebAssembly is open source.

Since WASM supports multiple programming languages, eWASM allows smart contracts written in any language to run on Ethereum. Compared with Ethereum 1.0's EVM, EVM only allows smart contracts written in the Solidity programming language to run on Ethereum.

Ethereum POW old chain: ETH 1.X

ETH 1.x is the code name for the Ethereum 1.0 series upgrade, because it will take 2-3 years for Ethereum 2.0 to be fully launched, which means that the current Ethereum will continue to operate. The beacon chain of Phase 0 and the shard chain of Phase 1 will be completed in 1-2 years. The eWASM to be implemented in Phase 2 will be completed sometime in 2022.

Ethereum 2.0 will be deployed as an independent blockchain, so it will not replace Ethereum 1.0, which means that the Ethereum 1.0 blockchain will need to maintain continuous development for the next 5 to 10 years.

Ethereum 1.x developers will continue to optimize Ethereum performance, especially expanding the layer 2 protocol.

For example, the Optimism team recently announced the launch of the first phase of the Optimism testnet and announced a roadmap towards the mainnet launch. Optimism is not the only team that is implementing optimisitic rollups. Fuel's rollup is also moving towards the testnet, and Arbitrum is also working on a rollup. The zk-rollup-based rollup solutions implemented by Loopring and zkSync are already online, and Deversifi based on Starkware technology is also online. The mainnet test version of OMG's plasma solution is online.