Learn everything about Ethereum 2.0 in 2020

Author: Yilun Cheng

Translation: Zoe Zhou

Original title: "Everything You Need to Know About Ethereum 2.0 in 2020"

Introduction:

• Phase 0 of Ethereum 2.0 will be launched as early as the end of the second quarter of this year;

• Ethereum 2.0 is the PoS version of the current Ethereum mainnet, and introduces sharding technology to increase network throughput;

• According to Ethereum founder Vitalik Buterin, the introduction of PoS will result in more than 10 million ETH being locked in the protocol once the two networks are integrated;

• Although risks still exist, various mechanisms, including an anti-correlation penalty system, can prevent the problem of equity concentration.

Phase 0 of Ethereum 2.0, the first step in a multi-phase deployment of a broad protocol evolution, is approaching a major milestone.

Preston van Loon, CEO of Prysmatic Lab, an Ethereum 2.0 client implementation team, told The Block that the plan is to debut on a major multi-client testnet soon. Speaking about the future, he expects Phase 0 to be launched by the end of the second quarter of 2020.

According to the June 2019 call by Ethereum 2.0 implementers, the Phase 0 mainnet was originally scheduled to launch on January 13, 2020. However, the launch was delayed due to a last-minute decision by developers in October 2019 to reduce the number of shards (a key property of the Ethereum 2.0 blockchain) from 1,024 to 64.

Developers made this change in an effort to speed up cross-shard communication, but the extra work caused a delay in the mainnet launch.

Preston van Loon told The Block that the project’s single-client testing period is nearing its end, and developers will soon implement a major multi-client test network, which will run for at least two months before the mainnet launch.

“The latest status of Phase 0 is that all configuration specifications are complete, we have frozen all expected features, and standardized crypto libraries. The Ethereum test network is now running the latest data,” he said.

While the exact timeline is still subject to change, Preston van Loon expects the mainnet to launch by the end of the second quarter.

There are currently eight Ethereum 2.0 clients in existence, many of which have already begun testing their functionality.

For example, Prysmatic Labs’ Prysm launched its “Sapphire” testnet in June 2019. The testnet now has more than 35,000 active validators, according to an update from Prysmatic Labs on Jan. 31. Sigma Prime’s Lighthouse and Status’ Nimbus are also running their own testnets.

In December 2019, Parity’s Shasper connected to Prysm on the Sapphire test network, making Sapphire the first public multi-client Ethereum 2.0 test network. But Preston van Loon made it clear that they have not yet seriously attempted to run a single multi-client test network.

“We will not push this single multi-client testnet until we have a comprehensive understanding of the cryptographic library standardization. This will be done in a few weeks,” he said.

“I’m optimistic that we can get multi-client testnets moving by the end of February. We’ll then run testnets for a few months before certifying the mainnet launch.”

Preston van Loon said that there are still some strict requirements to be met before the mainnet of Phase 0 is released. Notably, two or more compatible clients need to run a multi-client test network together for at least two months. Everyone is confident in this network.

Other ecosystem members must also sign the agreement because approval is required from client implementers, auditors are needed to check the security of the code, and the Ethereum Foundation needs to agree.

Preston van Loon sees the measures as “confidence boosters” to reassure stakeholders that they will not lose out as a result of the new system.

Ethereum co-founder Vitalik Buterin echoed Preston van Loon’s optimism, adding: “Development work on Ethereum 2.0.0 is progressing well.”

Buterin told The Block that the last big challenge for developers to solve is peer-to-peer networking.

“The problem with peer-to-peer networks is that the sheer volume of messages coming out of all the validators adds a lot of bytes to the network,” he said. “Even though it’s less than a few megabytes per second, we’re still working on reducing that.”

Buterin added: “Right now, it’s just a matter of optimizing and making sure the system is secure.”

Simplifying Ethereum 2.0: Proof of Stake and Sharding

Ethereum 2.0 is the proof-of-stake (PoS) version of the current Ethereum mainnet, which introduces sharding technology to increase the network's throughput.

Preston van Loon said: “I’ve always wondered why Ethereum isn’t the biggest blockchain. I think the reason is that it leaves a lot to be desired in terms of user experience, and it doesn’t scale very well… I guess the trading price of ETH will fall, not only because of the uncertainty of Ethereum 2.0, but also for other reasons.”

According to him, the Ethereum 2.0 update is designed to address these issues.

As The Block researcher Matteo Leibowitz has previously pointed out, PoS is theoretically superior to Proof of Work (PoW) in many ways. It uses less energy, is easier to reason about from a security perspective, is cheaper to participate in, and requires sharding due to its finality property.

The new sharding structure is designed to improve the scalability of the Ethereum blockchain.

Preston van Loon said in a blog post that in the Ethereum 1.0 system, every node running on Ethereum must process every transaction moving through the network. Although this approach is decentralized and secure, it limits the scalability of the network and increases the risk of congestion of the entire system.

Sharding, he said, offers a solution to the scalability problem without compromising the security and decentralized nature of the network.

In Ethereum 2.0, there will be a central blockchain, the beacon chain, which coordinates all 64 sidechains called "shards". Each shard will act as a complete PoS system with an independent state and transaction history. Instead of processing all network transactions, each node will only process transactions for a specific shard.

Preston van Loon also said: “Ethereum 1.0 doesn’t scale very well. It doesn’t support any large use cases on a global scale. With Ethereum 2.0, you’re going to increase your throughput by the number of shards you have. We’re launching with 64 shards, so you’re going to have 64 times the capacity as before.”

Currently, there are some alternative solutions for Ethereum 2.0, including Polkadot, NEAR, and Avalanche. In particular, NEAR adopts a similar design approach to Ethereum 2.0—they all have a beacon chain, shards, and shared blocks that provide input to the beacon chain.

However, despite these similarities, the two protocols have very different focuses, according to Buterin.

“NEAR aspires to have more of an application-specific protocol, whereas Ethereum’s approach is more similar to Bitcoin. So in Ethereum people have a simple base layer and can use a programming language or a second layer to build other things.”

Furthermore, Buterin believes that many alternative solutions have yet to recognize that the longevity of a project depends more on the community than on the underlying technology.

“They’re bringing in a huge amount of money and are doing this whole thing in a closed format, assuming that once it’s launched, people will flock to it,” he said. “They’re taking a more corporate approach to building interoperability, but I don’t think that’s going to work in the end.”

What happens after the Phase 0 mainnet launch?

According to an article on EthHub, Ethereum 2.0 will be rolled out in phases:

• Phase 0 will have two active Ethereum chains: the current PoW main chain and the Ethereum 2.0 beacon chain.

• Phase 1 will focus on the construction and deployment of 64 shard chains, although the sidechains will only serve as a data processing layer with no shard state execution or account balances.

• Phase 2 will introduce structured chain state, smart contracts, an EWASM-based virtual machine, and other features that tie the entire system together and enable transaction processing on sidechains. Any plans beyond Phase 2 are still subject to significant revision.

Buterin also told The Block that in addition to Phase 0, the Ethereum 2.0 team is already researching and developing the specifications for Phase 1 and Phase 2, with work on Phase 1 now largely complete.

“The core design of these phases has been set for quite some time. It’s just that there are some details that need to be refined,” he said.

“For example, developers are still optimizing the Proof-of-Custody game. This is a fairly new mechanism to ensure blocks are cleaned and verified before being written off.”

In addition, the data availability check protocol is still in the process of being optimized. Developers need to ensure that there is enough data to build the entire block.

“It’s never been done before. We hope there’s a client that will enable this at some point,” Buterin said.

Another key research question involves the integration between the Ethereum 1.0 and Ethereum 2.0 chains.

Under the current approach, the two chains will not merge until Phase 2. But Buterin noted that the community "wants Ethereum 1.0 and Ethereum 2.0 to work together, rather than as separate ecosystems for a long time."

On December 19, Buterin proposed a plan to accelerate the merger of Ethereum 1.0 and Ethereum 2.0. In the new process, the Ethereum 1.0 chain will exist as a shard chain in the Ethereum 2.0 system. There will be a new "Ethereum 1.0-friendly validator" that maintains both the old version of Ethereum 1.0 nodes and the beacon chain of the new version of Ethereum 2.0.

“I think the reason a lot of people in the Ethereum community want to do this is because they care about scalability first and foremost,” Buterin told The Block. “This proposal would make it much more feasible to verify individual Ethereum 1.0 blocks without having to store the entire Ethereum 1.0 state, which is quite large.”

Upcoming Migration

In terms of user migration, the current design features a one-way bridge from Ethereum 1.0 to Ethereum 2.0.

But Preston van Loon said the motivation for migration would depend on the type of person moving.

For example, Stakers are encouraged to migrate early because the rewards are higher when the number of valid verifications is lower. On the other hand, building decentralized applications (dapps) within Ethereum will be attracted by the high capacity of Ethereum 2.0 in Phase 2 (when state execution and smart contract platforms are implemented).

“But if decentralized applications don’t have capacity issues, then they have no incentive to move forward because they want to be where their users are,” he said. “In the worst case, I think at some point there will be a mass migration and it will no longer be a matter of choice. We’ll just bring everyone together and decouple the connections between the two.”

Although designing the migration process is a complex technical issue, both van Loon and Buterin hope to design a relatively smooth migration experience for users.

“On the back end, it’s a very complex process,” van Loon said. “But for the user, it’s just a few clicks of a button to use a new client or provider. It has to be easy to do, or people won’t do it.”

Buterin agreed, but noted that for a short period of time, the system might not have any transactions.

“The challenges are mainly on the client and application developers,” he said. “If the migration is technically solved, it will be intuitive. But the migration may result in a period of one to two hours where no transactions take place.”

Over 10 million ETH locked in Ethereum 2.0

A previous report from Bitcoinist stated that according to Buterin’s rough estimate, the move to a PoS model could lock up around 10 million ether.

In an interview with The Block, Buterin predicted that the total amount of staked ether will be well over 10 million after the Ethereum 1.0 and Ethereum 2.0 systems merge.

He said: “My guess is that in phase 0 we’ll see a small amount of ether staked, maybe just a few million, but in phase one, especially after the merger, it could be over 10 million.”

Meanwhile, the Ethereum Foundation is conducting economic modeling to get concrete numbers on validator costs and rewards, but much of this information will only be available after the Phase 0 mainnet launch.

“We recognize that there are limits to what you can learn from analytics alone,” he said. “One of the reasons we wanted to do Phase 0 before Phase 1 is that we wanted to get a sense of how much participation there would be before we had a lot of activity on the chain.”

So far, Ethereum 2.0 has not had a fixed release schedule. But Buterin believes that because the Ethereum network is not used to store value, but to build applications, it is better to have no fixed release time.

“I think people value the level of security more than they value guaranteeing a large issuance,” he said. “If we say everything is transaction fees, then if there are periods of time when there are almost no transaction fees, then the network has no security during that period. Whereas in our model, when people stake, the interest rate is higher.”

Buterin added that this could be an alternative to Ethereum in the future, as a large amount of ether is staked in Ethereum 2.0 instead of being stored in other application protocols such as MakerDAO and Uniswap.

“I think ether locked up in Ethereum 2.0 will be more competitive than ether locked up in other protocols,” he said. “It will be very different from the current ether market, where most of it is just sitting there doing nothing, sitting in people’s cold wallets.”

Risks of concentrated ownership

Now that Ethereum is ready to transition to a PoS system, the possibility of equity concentration needs to be considered, which would pose a serious security risk to the protocol.

Buterin explained that there are several mechanisms that can inhibit ownership concentration from occurring.

First, in a sharded system, the number of transactions a person has to process is proportional to the amount of ether they have staked. Therefore, even if they merge, they still need to verify the same amount of data; in this regard, merging will not save them any time or energy.

Secondly, Ethereum 2.0 has an anti-correlated penalty system. In this system, the more validators that go offline at the same time, the heavier the penalty. Therefore, it is more risky to invest a large amount of equity in a service or exchange.

Finally, developers are trying to improve the network design to make it easier and cheaper for users to run Ethereum 2.0 nodes and stake.

However, according to Buterin, risks remain.

“Stake concentration has been one of our concerns from the beginning. We’ve built different mechanisms into the protocol to prevent it. But despite that, there are still a lot of people who are going to be lazy and we’re going to see centralized providers staking a lot.”