Ethereum 2.0, commonly known as Serenity, is an ambitious multi-year effort aimed at providing the world with accessible programmable money. Over the next few years, Ethereum will undergo multiple upgrades and forks in order to reach the full envisioned network outlined in the whitepaper nearly 5 years ago.
As of now, Ethereum can process roughly 25 transactions per second. Unfortunately, this throughput is largely insufficient given the notion that Ethereum’s mission is to be the world computer for the next generation of applications. Fortunately, the network’s throughput capacity is set for drastic improvements in the coming months (and years) with the introduction of Ethereum 2.0 and a handful of new scaling solutions — specifically Sharding and Casper.
What is Sharding?
To give some background on traditional blockchain architectures, usually every node in the network must verify and process every transaction. If there are thousands of nodes in the system and every node must validate every transaction, this redundancy strengthens the network from malicious attack. However, this also creates latency issues and ultimately leads to inefficient transaction processing. Arguments have been made that this architecture inherently limits the layer 1 scalability of a network.
With this in mind, sharding splits the network processing into smaller pieces, called “shards”. A shard represents a chain in the network with each shard comprised of a cluster of nodes (or validators). As such, nodes are only responsible for processing and verifying the transactions within their respective shards.
By delegating the transaction verification to multiple shards, nodes are required to process a significantly lower number of transactions, ultimately leading to higher scalability without sacrificing decentralization or security.
What is Casper?
Unlike Ethereum 1.0 or Bitcoin, Ethereum 2.0 will leverage Proof of Stake (PoS), better known as Casper, to achieve consensus. For those unfamiliar, unlike PoW which requires users (known as miners) to provide computing power to secure the network, PoS requires users (known as validators) to provide wealth to secure the network. In practice, Casper will require users to stake 32 Ether in order to become a validator and earn a return in the form of ether (ETH).
- Phase 0: Beacon Chain
- Phase 1: Basic Sharding
- Phase 2: Sharding with EWASM
- Phase 3 and Beyond: Light Clients, Cross-Shard Transactions, Super-Quadratic Sharding and More.
Phase 0: Beacon Chain
The first step towards Ethereum 2.0 (Phase 0) revolves around a migration towards an entirely new blockchain, the Beacon Chain. The Beacon Chain is the bedrock for Ethereum 2.0 as it includes the initial Casper/PoS implementation (no sharding yet) along with several features which act as the basic infrastructure to allow for sharding in the future.
Moreover, Phase 0 does not include smart contract or EVM-related functionality as this functionality is planned for Phase 2. According to the ConsenSys article published in October of 2018, the Beacon Chain is primarily responsible for:
- Managing validators and their stakes
- Nominating the chosen block proposer for each shard at each step
- Organizing validators into committees to vote on the proposed block
- Applying consensus rules
- Applying rewards and penalties to validators
- Being an anchor point on which the shards register their states to facilitate cross-shard transactions
We want to emphasize that Ethereum 2.0 utilizes an entirely new blockchain. This means the network will not be upgraded as a hard fork on the existing chain.
More importantly, through Phases 0–2, all user transactions and smart contract execution will still occur on the PoW Ethereum 1.0 chain.
With this said, rewards throughout these phases will be distributed to both validators and miners on each respective chain (Eth 1.0 & 2.0). Therefore, the combined issuance rate is going to be higher throughout the early phases of Ethereum 2.0 where it will ultimately decrease over time towards 0–1%. Users who are interested in becoming validators on Ethereum 2.0 during Phase 0 will migrate their 1.0 ETH to ETH 2.0 through a one-way deposit contract. This contract will burn the 1.0 ETH and mint new 2.0 ETH on the Beacon Chain.
In order to successfully bootstrap the beacon chain, there’s a threshold which will require a total 16,384 validators to be live, aggregating around 524,288 newly staked ETH. Once this threshold is reached, validators who deposit ETH on the 2.0 chain will earn 11% interest given these parameters*.
*Interest rate is lowered as more ETH beyond the threshold is staked. Threshold parameters are not finalized.
Phase 0 has been making tremendous progress in 2019. On May 7th, the team at Prysmatic Labs released a public testnet for the beacon chain on Goerli. The client allows users to become validators and deposit 3.2 ETH on the testnet and earn a return for their participation (in Goerli testnet ETH).
Phase 1: Basic Sharding (No EVM)
Following the implementation of the Beacon Chain, Phase 1 will introduce the basic sharding structure. Generally speaking, this phase in combination with the beacon chain will drastically improve the throughput of the network and is a major milestone for the scalability of Ethereum.
However, considering this is a basic sharding implementation, there will be no state execution (i.e. smart contracts). The Beacon Chain will be largely responsible for ensuring the construction, validity, and consensus of the data within these shards through the execution of blobs (binary large objects).
In addition to this basic implementation, Phase 1 will also introduce crosslinks.
Crosslinks allow for the state of each shard to be recorded and finalized on the Beacon Chain. Ultimately, crosslinks serve as the basis for cross-shard transactions in the later phases (more on this later).
The current specs for this implementation states that the beacon chain can support 1024 shard chains each comprising of 128 full nodes (131,072 total nodes). As such, we can assume there will be no more than 4.19M Ether staked (3.38% of Y2050 supply) in Phase 1 given the current specifications.
It’s important to note that the given specifications are constantly adjusting as further research and testing is done. Some of the details and numbers outlined in this article may be outdated as we progress towards the full Serenity implementation.
Phase 2: Sharding with EVM/EWASM
Phase 2 is when Ethereum 2.0 truly comes to fruition. This phases introduces account balances, smart contract execution and other abstractions into the network. The biggest improvement in Phase 2 includes the integration of eWASM (Ethereum Flavored WebAssembly) which is the next specification of the Ethereum Virtual Machine (EVM) based on WebAssembly.
eWASM will enable faster code execution and provide an improved developer experience. The main development attraction of eWASM is the ability to write smart contracts in C, C++, Rust, and Go along with access to existing WASM developer tools.
For those of you interested in learning more about eWASM, feel free to visit the Github.
Another interesting and potential development in Phase 2 is the introduction of state rent. State rent allows for the network to charge for storage and would require users to pay eWASM for this “service”. This is a fairly contentious implementation in early discussions within the Ethereum community and we at Fitzner just want to recognize the possibility for this implementation at some point in the Serenity roadmap.
Phase 3 and Beyond: Light Clients, Cross-Shard Transactions, Super-Quadratic Sharding and More.
Unfortunately, anything beyond Phase 2 is largely speculative as there’s little solidified information surrounding these phases. However, the official Ethereum Sharding FAQ has high level outlines for Phases 3–6. These phases would add a handful of features which will tie the bow on Serenity and deliver the fully scalable network originally envisioned. Some of these implementations include:
- Cross-Shard Transactions
- Light Clients
- Super-Quadratic Sharding
- Tight Coupling
If you’re interested in learning more about the implementations in the later phases, we encourage you to dive into the existing documentation and discussions circulating around Gtihub and ethresear.ch.
Who’s creating ETH 2.0?
With so many game-changing features on the horizon, there’s no doubt that the developers behind Ethereum 2.0 are comprised of top-tier talent. Below is a graphical representation of the teams either researching or developing a client for Ethereum 2.0.
Serenity is a technically ambitious roadmap aiming to deliver a true world computer. If the Ethereum community can successfully deliver the envisioned network, the nature of a fully scalable smart contracting network with a rather scarce asset is extremely enticing to developers, investors, and users.
In our next article we will dive into the economics surrounding Ethereum 2.0 along with potential drawbacks which may arise during the transition to Serenity. We at Fitzner are excited to stay involved with the progression over the next few years and look forward to exploring new applications and use cases which may arise in the near future.
If you enjoyed this article, be sure to stay up to date with our firm on social media.