Our new partner Blockchair has been tracking ETH deposited to the smart contract that will activate Phase 0 of Ethereum 2.0. The critical threshold has now been reached! While the full roadmap for Ethereum 2.0 could take several years to roll out, that means the process will begin on 1 December with the launch of the Beacon Chain.
But what is Ethereum 2.0 all about? What functionality will it provide – and, more to the point, what are the implications for businesses that use Ethereum’s blockchain infrastructure, like Chrono.tech’s suite of products and services?
The limits of Ethereum 1.0
Ethereum is an incredible piece of technology. The network enables users to run software of any complexity on a completely trustless basis. If Bitcoin is decentralised cash, Ethereum is decentralised computing. It’s the infrastructure for thousands of dApps – decentralised applications – that can be accessed by anyone with an internet connection and that execute exactly as written, without the risk of intervention or interference from third parties.
But Ethereum is not designed to handle the kind of transaction volumes that the new movement of DeFi, or decentralised finance, is placing on it – let alone the enormous throughput that would enable it to compete with the conventional financial system. For years now, Ethereum’s developers have been researching how to upgrade the network to do just that.
Ethereum 2.0 is a collection of interconnected upgrades that will make Ethereum more scalable, secure, and sustainable. At present, the network can support just 15 transactions per second (tps). The idea is to scale it to thousands of times that, while also making the network more decentralised, without compromising on security. These three properties – scale, security and decentralisation – are known as the blockchain scaling Trilemma. It’s very hard to have all three. This is the problem that Ethereum 2.0 intends to answer.
In the process, this will dramatically reduce transaction fees, enabling microtransactions and other low-value transfers that would otherwise have been economical. For example, LaborX users will once again be able to create and purchase $ 10 Gigs without needing to worry that the transaction fees will be more than their earnings or the cost of paying for the Gig itself. Fees of just a few cents will mean LaborX can take on the centralised giants of the space, potentially attracting millions of new users.
Fully realised, Ethereum 2.0 will be a remarkable technical feat. Two of the ways the platform will achieve its aims are a shift to Proof of Stake, and Sharding.
Proof of Stake
Ethereum’s current consensus system is Proof of Work (PoW). This is hugely energy-intensive and requires that miners own specialist hardware in order to maintain the network. PoW is often criticised for being environmentally unsustainable, but it has other problems. Because mining rigs are expensive, the network tends towards a degree of centralisation, introducing potential vulnerabilities.
Proof of Stake (PoS) takes a different approach to securing the blockchain. Instead of mining being a matter of committing computational resources to the network, PoS replaces hashrate with financial commitments. Coin stake, not CPU cycles, are how the next block generator is chosen. It’s a lot like a lottery: your chance of generating the next block is proportional to the amount of ETH (lottery tickets) you commit to staking.
For a PoW coin, attacking the network successfully requires having enough hashrate to become the majority ‘voter’ for a period of time: a so-called 51% attack. For PoS, it requires buying up a large proportion of the coin supply to achieve the same thing. Of course, by attempting to do so, the attacker would drive up the cost of the coin, making it more and more expensive to accumulate enough to succeed. Consequently, Ethereum’s developers consider PoS to be highly secure, as well as vastly more efficient and egalitarian than PoW. Anyone with 32 ETH will be able to participate – or even less, via staking ‘pools’ – increasing network decentralisation.
Another major update is sharding: splitting the blockchain into many fragments and processing transactions in parallel, rather than the current situation of every node being forced to process every transaction.
Vitalik Buterin, the co-founder of Ethereum, has described sharding in the following terms: ‘Imagine that Ethereum has been split into thousands of islands. Each island can do its own thing. Each of the islands has its own unique features and everyone belonging on that island, i.e. the accounts, can interact with each other AND they can freely indulge in all its features. If they want contact with other islands, they will have to use some sort of protocol.’
Sharding will remove the current 15 tps bottleneck on Ethereum, opening the way for thousands of transactions per second. With additional improvements, such as Rollups (a way of batching many transactions and submitting them to the blockchain together) Ethereum could support 100,000 tps or more.
With all these shards operating semi-independently, they need a means of staying in sync. This is the job of the Beacon Chain, or Brain Chain, which will also be the first element of Ethereum 2.0 to launch. The Beacon Chain is the Proof of Stake blockchain that will coordinate all the shards in the Ethereum network, and it’s the part of the roadmap that will ship on 1 December.
The Beacon Chain’s functionality will be very limited at first – for example, it won’t have accounts and won’t be able to handle smart contracts. Ultimately, though, it will be ‘docked’ with the current Ethereum mainnet, and will be connected to all of the different shards in the network.
What does Ethereum 2.0 mean for Chrono.tech?
Chrono.tech’s products are built on Ethereum, and anything that makes the network more secure, efficient and future-proof is good news.
In particular, we welcome these changes for LaborX. The high costs of executing smart contracts or even withdrawing funds in a simple transfer have discouraged some people from using the platform. We’ve addressed this by creating the Gigs module, which offers simpler, more streamlined digital contracts, and by adding additional blockchains and payment options. But an Ethereum 2.0 that offers reduced transaction fees means that both customers and freelancers get to take home more of their pay, and we still enjoy the vast community and network effect that Ethereum provides. Plus, digital contracts of any complexity can be created, without worrying about the cost – paving the way for detailed, bespoke agreements.
Trade ETH on TimeX
ETH has rallied significantly in the run-up to Phase 0 of Ethereum 2.0, helped by the overall bull run in the crypto markets. If you want to buy or sell ETH, register on Chrono.tech’s Plasma-based exchange TimeX for a fast, secure and straightforward trading experience. You can even buy up to $300 of ETH without even creating an account!