On November the 24th the countdown to the official launch of Ethereum 2.0 started. Today starts the first phase of a multi-year process of getting Ethereum fully running on Ethereum 2.0. To truly understand the significance of the launch of the start of Ethereum 2.0 let’s first look at what Ethereum is all about.
Ethereum is the foundation for our digital future.
Ethereum is the base layer for a new internet, today we identify the internet as a place of information, the next step for the internet will be the internet of value. This internet, with Ethereum at its foundation, will offer open access to digital money and data-friendly services to anyone, no matter your background or location. Right now, you can already use thousands of different applications built on Ethereum.
Ethereum is a technology that lets you send their cryptocurrency, Ether, to anyone for a small transaction fee. It also powers applications that everyone can use, and no one can takedown. It is the world’s programmable blockchain.
Ethereum continues what bitcoin started, but whereas bitcoin is programmed to be money, Ethereum is programmable so you can use it for lots of different applications and use cases. This means Ethereum is for far more than just payments. It is a marketplace of financial services, games, and apps that can not steal your data or censor you.
The ease to which it is to build on Ethereum is most visible on the number of applications build on Ethereum, currently, there are +- 3000 known apps on Ethereum.
So, what is Ether?
Currency for our digital future.
Ether is a cryptocurrency. It is scarce digital money that you can use on the internet. Ether is different from traditional money in a lot of ways.
- It’s really yours. Ether lets you be your own bank. You have complete control of your own funds with your wallet as proof of ownership.
- It is secure by cryptography. Money on the internet is new but it is secured by proven cryptography. This protects your wallet, your Ether, and your transactions.
- It is open to anyone. All you need is an internet connection and a wallet to accept Ether. You don’t need access to a bank account to accept payments.
- It allows for peer-to-peer payments. You can send your Ether without any intermediary service like a bank. It is like handing cash over in-person, but you can do it securely with anyone, anywhere, anytime.
- It is available in flexible amounts. Ether is divisible up to 18 decimal places, so you don’t have to buy 1 whole Ether. You can buy fractions at a time.
Next to those amazing characteristics, Ether is also the fuel and security for Ethereum. When you send Ether or make use of an Ethereum application, you will pay a small fee in Ether to use the Ethereum network. This fee is an incentive for a miner to process and verify what you are trying to do.
Miners are like the record keepers of Ethereum, they check and prove that no one is cheating. Minders who do this work are also rewarded with small amounts of newly issued Ether.
The work miners do keeps Ethereum secure and free of centralized control. In other words:
Ether powers Ethereum.
Ether will become even more important with staking. (more on that later) Ethereum as we know it today is incredibly successful and popular. But to unlock the full potential of Ethereum it was evident that it needed a few key upgrades.
At this moment the high demand is driving up transaction fees which makes Ethereum expensive for the average user. The disk space needed to run an Ethereum client is growing rapidly and the proof-of-work algorithm that keeps Ethereum secure and decentralized has a big environmental impact.
Enter Ethereum 2.0
Ethereum 2.0 is an upgrade to the Ethereum blockchain, it is the outcome of years (since 2014) of research and development by more than 100 developers from across the Ethereum ecosystem. Now that the technology is ready, these upgrades will provide a complete overhaul to Ethereum to make it more scalable, secure, and sustainable to make life better for existing users and attract new ones. There is no on-switch for Ethereum 2.0, this means improvements will ship incrementally over time.
Today marks the launch of phase 0 of Ethereum 2.0.
Phase 0. The launch of the Beacon Chain.
The Beacon Chain will introduce proof-of-stake to Ethereum. This is a change from the current proof-of-work algorithm currently in use, same as bitcoin. It is a way for users to help keep Ethereum secure. When you stake your Ether you activate the validator software. As a validator, you will process transactions and create new blocks in the chain, and you will get a reward for doing so. This reward is dependent on the amount of Ether staked. With 1.000.000 Ether staked this is 15.7% per year, with 10.000.000 it drops to 4.9%, a lot less but still a very interesting proposition.
Staking and becoming a validator is easier than mining, instead of a warehouse full of processers to validate transactions, you just need a minimum of 32 Ether to start validating, or you can join a pool if you have less. The more people that participate in this process the more decentralized the network will become and therefore safer from attacks.
The Beacon Chain will run parallel to Ethereum 1.0 until phase 2 of Ethereum 2.0 which will be the merging of the mainnet into the Beacon Chain.
Proof of stake is needed for phase 1 of the Ethereum 2.0 upgrade.
Phase 1. Sharding
Shard chains will be the second Ethereum 2.0 upgrade. They will increase the capacity of the network and improve transaction speed by extending the network to 64 blockchains. It will let you run Ethereum on a personal laptop or a phone, which will allow many people to be able to participate, by running clients. This will further increase security because the more decentralized the network, the safer it is from attacks.
When the first shard chains are shipped they will provide extra data to the network. That data will give incredible improvements to the number of transactions per second. When combined with the rollups, the ability to bundle transactions, they will allow for 100.000 transactions per second. (visa is capable of handling 65.000 transactions per second) After this, the shards will gain more features over time.
Sharding will scale Ethereum to the capacity to fully achieve its potential as the foundation for our digital future.
Phase 2 Docking the mainnet into Ethereum 2.0
It is important to remember that initially, Ethereum 2.0 upgrades are separate from the mainnet, the chain we use today. The Ethereum mainnet will continue to be secured by proof-of-work (mining), even while the Beacon Chain and its shard chains run in parallel using proof-of-stake. The docking phase is when the two are merged.
When Ethereum mainnet will dock with the Beacon Chain, it will run as a shard which uses proof-of-stake instead of proof-of-work.
After the docking is done, Ethereum will have the scale, security, and sustainability it always envisioned for the future.
Ethereum 2.0 is a game-changer. It will make Ethereum ready to be the foundation of our digital future. The scale is unprecedented, and what is even more mindblowing, it’s needed. Ethereum will need the 100.000 transactions for the future it is aiming for. Their vision to ‘grow Ethereum until it is powerful enough to help all of humanity’ has the possibility to become a reality with these upgrades.
Ethereum is not ‘riding the wave’ of experimental and exponential technology, it IS the wave.