Everything You Need to Know About Ethereum 2.0 - CoinGyan

Even if you are someone who is not keeping up with cryptocurrencies or blockchain, you must have probably heard about Ethereum at least once in your life. Especially around these days, when cryptocurrencies have stormed twitter’s trend column for over the past few months now, and many special thanks to Mr. Elon Musk for that as well. His tweets can do some things here and there.

So, coming back to Ethereum, something big is on the way, and it is nothing but Ethereum 2.0, the development of which officially took off from December 1, 2020. It is going to revolutionize blockchain technology forever.

Ethereum 2.0 will bring many upgrades to what we have right now to make the existing Ethereum public mainnet more powerful, more scalable, greener, more sustainable, and more secure. Also, there would be a tonne of staking opportunities for you so that you can earn a competitive passive income on your ETH investments.

However, this upgrade is not an act of snapping fingers like Thanos to make the previous version of Ethereum disappear in dust particles just right away. It is much more a step-by-step process and a blend of a lot of work by the intelligent development community.

How Ethereum 2.0 is Different from Ethereum 1.0

The best way to understand Ethereum 2.0 is by understanding how it is different from its predecessor. Originally, Ethereum 1.0 makes use of a POW consensus mechanism known as Proof-of-Work. It is the same mechanism that Bitcoin currently uses, but there are four painful issues associated with it, as highlighted below:

  • It consumes a lot of physical computing power or energy to build the blocks. 717,797 households in the United States could be powered by the energy expended on validating the Ethereum network for a single day!
  • It’s way too slow. Ethereum 1.0 can process only 15 transactions per second, miles behind VISA, which can process a massive 24000 transactions per second.
  • It experiences clogged network issues. The ethereum network is struggling with network congestion issues. The same can be resolved only if the transaction verification speed is improved.
  • The ethereum network is consuming a huge disk space because of its increasing popularity. It has been becoming difficult to run the node on the network, and the only way to eliminate this problem is increased scalability.

All these problems above exist because of the way the Proof of Work (POW) mechanism works. This is where Proof of Stake (POS) slides in to save the day. When we referred to the scalability, security, and sustainability solutions from Ethereum 2.0 in the introduction, that’s because of POS contribution.

However, there is one more important thing that we need to discuss, i.e., sharding. So, what is sharding, and how does it solve the problem? Well, think of a grenade. When it explodes, it is segmented into hundreds and thousands of shards. Similarly, the Ethereum blockchain can be exploded into several shards. Shard chains split the Ethereum blockchain, which, as a result, divides the data processing responsibility among multiple nodes instead of a single node and makes it possible for the transactions to be processed in parallel rather than consecutively. Result? A network capable of executing thousands of transactions per second!

So, this amazing duo of POS & Shard Chains has created the dent as these two are some of the most important things under Ethereum 2.0 belt that differentiates it from Ethereum 1.0.

Multi-Phase Rollout of Ethereum 2.0

So, for those wondering if Ethereum 2.0 has been launched or not, you need to know that Ethereum 2.0 will be a multi-phase rollout starting with Phase -0 and ending at Phase -3. Phase-0 already got the kickstart with effect from December 1, 2020, and by the time Phase-3 will complete, we might have to wait for a few years.

One important thing to keep in mind here is that Ethereum 2.0 will launch as a separate network. This means that Ethereum 1.0 will not be instantly flushed out but will co-exist in parallel with the Ethereum 2.0 development phase. Let’s check.

PHASE 0: The Beacon Chain and the Proof of Stake

Ethereum 2.0 launch has officially set into motion with the Phase 0 deployment on December 1, 2020. This Phase aims to allow the seamless migration of validators and their ETHs from a POW-based Ethereum 1.0 to a POS-basedPOS-based Ethereum 2.0 network with the help of the Beacon chain. The Beacon chain is like a bridge that is making this happen.

Casper has been introduced in this Phase, the new Proof of Stake consensus mechanism that will replace the current Proof of Work mechanism in Ethereum 2.0. Casper will be delivered via the Beacon Chain, which will be the system chain of Ethereum 2.0.

We should also keep in mind that the beacon chain doesn’t change the Ethereum you use today. You can still send ETH to a friend, swap tokens on MetaMask or Uniswap, and play with your Axis.

Note: The beacon chain is live and will introduce Proof of Stake to the Ethereum ecosystem in July 2021.

PHASE 1: Deployment of 64 PoS shards

With the beacon chain and its PoS system running smoothly, Phase 1 will activate Ethereum 2.0’s primary scalability solution, which is sharding. As we discussed, sharding will multiply the network’s throughput and speed. Since 64 POS shards shall be deployed in this Phase, it will boost the throughput by 64x, making it practical to achieve lightning-fast speed.

Eventually, the Beacon Chain POS will also be responsible for randomly assigning the validators to validate shard chains. This means it is extremely difficult for stakers to collude and take over a shard. Want to hear it in numbers? According to Chih-Cheng Liang, the likelihood to take over the shard would be less than 1 in a trillion. Hence, this is a foolproof and reliable integration to keep the network secure and scalable at the same time.

PHASE 1.5: Ethereum 1.0 integration

Before this Phase, Ethereum 2.0 was a separate network from Ethereum. But once the docking shall be done at this stage, then the transfers of ETH made from ethereum to Ethereum 2.0 would become impossible to reverse, and the dapps built in one environment shall not exist in the other.

PHASE 2: Smart contract execution and Cross-shard communication

Now, coming to Phase 2, it represents activating the functionality for dapp deployment natively on Ethereum 2.0. Once communication between all 64 shards and the beacon chain is fully tested, then Phase 2 will enable the users to store and deploy new smart contract data on any of the shards in the Ethereum 2.0 network.

PHASE 3: Further Scaling

Out of all the previous phases we discussed, Phase 3 is the least defined. In the words of Buterin, it’s the catch-all term for “basically other stuff that we want to add down the line.” This could mean adding more shards to the Ethereum 2.0 network or new cryptographic technology such as Zero-Knowledge Scalable Transparent Arguments of Knowledge (ZK-STARKs). These would increase the privacy of Ethereum 2.0 by enabling users to share data and perform computations without revealing that data or computation to third parties. The technology is currently under research and development within the ethereum community and other cryptocurrency communities such as Zcash.

The idea of the developers to build Ethereum 2.0 through stages is, in fact, good because there is no room for any complications now.

Staking ETH 2.0: The Passive Income Generator

One of the most exciting opportunities with Ethereum 2.0 is earning passive income by staking your ETH holdings into the Ethereum 2.0 network and running a validator node by participating in the blockchain. The good thing here is that you can run a validator node and become a validator with just three things in your suitcase.

  • A decent laptop
  • 32 ETH
  • Robust internet connection

For those who think that 32 ETH in an Eth Wallet does not fit in their pocket size, they don’t need to worry because staking pools and services make participation possible for everyone. You can invest less ETH and still become eligible to share the rewards within the pool.

There are several staking pools that you can explore. Some of them have been listed down below:

To mine on Ethereum 2.0, you will need to lock your ETH holdings in the network as a stake. Why stake a minimum of 32 ETH to become a validator? The purpose of this is to make sure that you behave like a good individual. You will earn good on your 32 ETH by performing good actions and validating authentic transactions. However, if you perform manipulative actions to attack the network, the network will automatically destroy your ETH.

If you want to learn more about staking on Ethereum 2.0, then you can check out the Ethereum launchpad, and it will guide you step by step through the process of setting up a validator node in a much, much simpler way.

However, one thing that matters the most here is that once the users migrate their ETHs into Ethereum 2.0 right now, then they won’t be able to extract it back until Ethereum 1.0 is docked with Ethereum 2.0, which will happen at the Final Phase of the deployment and might take 2 or 3 years from today.

So, it is a one-way street for you. You will need to decide today if you want to reap the maximum benefits from the current bullish market of ETHs or lock your holdings into Ethereum 2.0 for the next 2 to 3 years and wait for the magic to happen.

Ethereum to Become a Deflationary Coin?

The recent announcement of the long-awaited EIP 1559 in July 2021 has made the investors happier as this would make ETH a deflationary coin. On the other side, miners don’t seem happy with it because they will lose a huge amount of revenue. EIP 1559 is a powerful update that would restructure the transaction fees to make the Ethereum network faster and cheaper.

The transaction fees in Ethereum have been a pain for the investors, especially after the DeFi hype that started in August 2020. Traders have been struggling with the high costs that were affecting the trading game. The transactions are prioritized through an auction mechanism that favors the transactions with the highest bidder as determined by the miners to be executed first. This bidding process increases the gas prices and pulls down the Ethereum Network’s speed. According to Etherscan.io, the average price of every ERC 20 transaction is slightly above 200 Gwei.

However, with EIP 1559, things will change because the gas fee would be replaced by a base fee, which the miners set. A fixed algorithm would perform the calculations and not the bidding process. In addition to this, EIP 1559 would also bring a feature that would adjust the size of the network for resolving the most critical problem in the Ethereum Protocol – Congested Network.

EIP 1559 is introducing the base fee, but it will also incinerate a large amount of Ether forever after its implementation, making Ethereum a deflationary coin.


Ethereum 2.0 is a powerful upgrade to the existing Ethereum network that would change how this protocol works for the best interest of investors and traders. The multi-phase rollout, along with EIP 1559, will make Ethereum better on multiple fronts, such as reliability, security, scalability, and much more.

Got any doubts or questions? Feel free to drop them in the comments below.

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About Author

I am a tech enthusiast & Digital nomad from Dhenkanal, India I've been dealing with Bitcoin since 2014.I started CoinGyan to help users around the globe to learn about popular Cryptocurrencies. Here at CoinGyan, I write about Bitcoin Wallet, Cryptocurrency wallets, & making money from Crypto.

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