An Overview of Ethereum Roadmap (incomplete) and ETH2.0 Impacts on Network Speed, Transaction Cost, and Sustainability

By August 3, 2022DeFi
Click here to view original web page at medium.com

This post is a guide on Ethereum upgrade (Beacon chain to The Merge) and what Eth2.0 mean to the network users.

Ethereum prides itself as the smart contract original blockchain and the first programmable blockchain. Instead of new projects building from scratch, Ethereum enables them to launch on its network and tap its security and user base.

The programmability of the Ethereum network paid off, and it has enjoyed a giant stride ever since. While the massive adoption was good, it quickly led to unforeseen problems such as delayed transactions, high gas fees, and environmental concerns down the line.

To retain its status as the leading smart contract chain, the Ethereum team and developers have been brainstorming to improve the network. And they seem to have come up with a solution in what is now called ETH 2.0. This post walks you through ETH 2.0 and its implication for network users.

What Is ETH 2.0?

ETH 2.0 (aka the serenity or Consensus layer) is a series of upgrades that will make the network cheaper, faster, and sustainable.

Crucially, when the upgrade is complete, Ethereum will be able to process more transactions per second, and the network fees will reduce drastically. In addition, the network will be less energy intensive.

It would help to note that ETH 2.0 is not just a single network tweak that will happen next month. Rather, it is a series of upgrades with a long roadmap ahead of it. This makes sense because several tests need to be conducted for smooth execution.

When ETH 2.0 is finally here, it will work differently from ETH 1.0. So let’s discuss what is new on ETH 2.0 before diving into its roadmap.

What is New on ETH 2.0?

The current ETH 1.0 operates on the Mainnet and uses the Proof of Work consensus model. However, instead of the mainnet, ETH 2.0 will launch on a new chain called the Beacon Chain, secure network via the Proof of Stake consensus model, and store data on shards.

Let’s break down all those terms and how they will be implemented on ETH2.0.

Proof-of-stake (PoS)

Blockchains like Ethereum and Bitcoin use proof-of-work to secure their network. PoW requires validators to solve a complex mathematical puzzle to validate transactions.

The first person to solve the puzzle adds the transaction to the blockchain and receives a reward in the network’s native currency (ETH).

The problem with PoW is that miners need high computing power (electricity and hardware) to validate transactions making it energy intensive and costly.

The ETH 2.0 solves this problem by using a Proof-of-Stake consensus model. In PoS, the network selects a validator randomly to add the new transaction to the blockchain. The selected validator proposes a new block and waits for other validators to attest to the league. Once a decent number of validators attest to the block, it gets added to the chain, and the participants are compensated.

Proof of stake does not require heavy hardware and consumes less energy, making it cost-effective and eco-friendly. Anyone with 32 ETH (now $50k) can become a validator.

Beacon Chain

This is a brand new chain that will bring PoS to the Ethereum network. Some of its roles will include:

  • Coordinating activities on ETH 2.0,
  • Delegating duties to shards, and
  • Fostering communication between shards.

Shard Chains

Shard chains are sub-chains of the main blockchain. They work in parallel to reduce the workload on the central network.

The logic is that instead of one chain doing all the work (like we have with the mainnet), the beacon will delegate some critical roles to smaller chains (shards), making the network faster and lighter.

So, how will the Proof of work, beacon chains, and shards make the Ethereum network more scalable?

ETH 2.0 Roadmap

ETH 2.0 has different features that developers are working upon simultaneously. Each part will roll out in different phases listed below:

Phase 0: Beacon Chain

Currently, the beacon chain does not have shards. Therefore, it neither handles transactions nor smart contracts.

At this phase, Ethereum still operates on the mainnet. The beacon chain does not have any shard, nor can it handle transactions.

It only has a one-way smart contract that enables potential validators to contribute ETH, which would be used to defend the network after the merge.

Phase 1: The Merge.

This is where the PoW mainnet (ETH 1.0) merges with the proof-of-stake beacon chain. i.e., the Ethereum network will leave the Proof of work behind and migrate into Proof of stake.

The mainnet will bring smart contracts to the beacon chain, and it will be able to store data of transactions taking place on the entire network.

PoS is safer and eco-friendly, and the beacon chain will work closely with layer 2 scaling solutions to increase transaction speed bringing Ethereum one step closer to its vision.

It is essential to note that the merge is still a phase in the ETH 2.0 roadmap and not the end game that will make Ethereum cheaper to use.

Consequent to two successful public testnet, the merge between the beacon chain and mainnet is expected to ship in September 2022.

Phase 2: Sharding

This is the last phase of ETH 2.0 that will add new chains (shards) to the beacon chain.

The shards will increase Ethereum throughput by 64 times and enable it to process around 100,000 transactions per second.

Besides scaling, shards will lessen the load on the Beacon Chain and reduce its file size significantly. Therefore, consumers would be able to run a node on their personal computer, making the network more decentralized and reducing attack surface area.

Shard chains are expected to ship in 2023, but the full operational roles of shards are yet to be defined. However, going by current narratives, 2 shard versions are clear.

On the one hand, shards will act as data depots, i.e., they will only store data and not run smart contracts or handle transactions.

On the other hand, shard chains would be smarter. In this version, there could be a compromise where some chains act as data depots, and a few others will be able to execute code and run a smart contract.

Vitalik Buterin, the Ethereum co-founder, thinks a third use case where shards work in parallel with Zero Knowledge snarks to bring private transactions to the Ethereum network is also possible. However, the zkSNARK is still being investigated.

How Would The Merge Affect Users?

ETH 2.0 describes the transition of the Ethereum network from POW to POS. All technical upgrades will occur under the hood, so Dapp users will not be affected.

Ether will still serve as the network fee. There will be no new token, and the Ethereum network as a whole will remain the Ethereum we love, only that it will be faster, more secure, cheaper, and sustainable this time.

The hype will likely increase ETH’s price in the short term. As for the long-term implication of The Merge on ETH price, it is believed that the transition to Proof of stake will reduce the daily issuance of ETH from 12,000 ETH to around 1280ETH.

In addition, a surge in staking rewards from 4.5% to 10–15% post-merge will encourage more people to stake their ETH.

Furthermore, Proof of stake will reduce ETH sell pressure from validators as they would have no reason to sell.

ETH price may likely increase in the long run if the merge goes as planned when all these considerations are priced in. You can point to this piece by David Hoffman of Bankless for better insight on how the merge may affect ETH price.

Wrapping up

ETH2.0 roadmap is in motion, and it is closer than ever if you’re reading this post.

The Beacon chain is already live. Last year’s London hard fork made a crucial change to transaction fees and set the correct path for Ethereum’s transition to proof-of-stake.

Consequent to the success of two public testnets, The Merge is one step away, and shard chains may ship sometime in 2023.

The future of the Ethereum network depends on the success of these upgrades and the community to make ETH2.0 ships safely.

I’m Azeez, a freelance content writer, and blockchain enthusiast. Kindly clap on the story so more people can see it. Also, follow me for more deep dives. I’m open to work.

All Today's Crypto News In One Place