What Is Ethereum 2.0?

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Launched in 2015, Ethereum is an open-source, blockchain-based, decentralized software platform used for its own cryptocurrency, ether. It enables smart contracts and Distributed Applications (DApps) to be built and run without any downtime, fraud, control, or interference from a third party.

In 2016, Ethereum was split into two separate blockchains, Ethereum, and Ethereum Classic, after a malicious actor stole more than $50 million worth of funds, which had been raised on the DAO, a set of smart contracts originating from Ethereum’s software platform. The new Ethereum was a hard fork from the original software intended to protect against further malware attacks.

Eth2 will reduce energy consumption, allow the network to process more transactions, and increase security. The launch of Ethereum 2.0 is a significant step compared to past upgrades due to the implementation of a Proof of Stake consensus mechanism, moving the network away from its existing Proof of Work architecture.


Proof of Work

Ethereum’s current architecture is maintained by a Proof of Work (PoW) consensus mechanism. Proof of Work is the architecture used for the most utilized blockchains, including Bitcoin. In Proof of Work, miners run nodes and expend computational energy to solve complex mathematical problems in a competition to mine the next block.

The time and money that miners need to run hardware and expend electricity on PoW chains are validated by block rewards, which are distributed to miners who successfully mine a block into existence. PoW chains are extremely secure; the combined computational power required for an individual to compromise a well-established PoW blockchain like Bitcoin or Ethereum would cost an extraordinary amount of money.

Disadvantages of PoW

PoW blockchains suffer from scalability and accessibility issues.

  • Scalability: Because each block is mined sequentially, and there is a finite amount of data that can be recorded in each block (a measurement known as a block size), Ethereum can only process a limited amount of information in a given amount of time. If the number of pending transactions surpasses what a block can fit, then the remaining transactions have to wait for the following block, and so on.
  • Accessibility: PoW miners have been fundamental to the creation and maintenance of the surge in decentralized technologies we have witnessed in the past decade. Though PoW blockchains are functional, the barriers to entry to be a miner are quite high. An individual must purchase and set up all the necessary hardware. To earn considerable returns from block rewards, that individual also likely must live in a region with lower electricity costs.

Proof of Stake

Proof of Stake replaces the two primary components of PoW (miners & electricity) with validators and stake on Ethereum 2.0. Broadly speaking, validators replace miners as the individuals who maintain the agreed-upon state of the network and receive rewards for randomly selecting the next block of data. Unlike in PoW, in which miners expend physical energy (called hash power) by burning electricity to confirm blocks, validators in a PoS system commit 32 ETH from their account.

On Ethereum 2.0, validators will stake at least 32 ETH by depositing the funds into the official deposit contract that has been developed by the Ethereum Foundation.

Validators will download and run Ethereum 2.0 client software. While running client software, they will be randomly selected to propose and attest to blocks on the Ethereum 2.0 blockchain. Validators who correctly propose and attest to blocks will receive a reward of ETH as a percentage of their stake.

On Ethereum 2.0, if a validator fails to stay online and execute their share of computational responsibilities, their block reward will moderately decrease in order to incentivize validators to stay online as consistently as possible. Should a validator maliciously attempt to compromise the network all or some of their 32 staked ETH will be slashed.


Phases of Launch

Eth 2.0 is a long road filled with uncertainty currently, Phase 0 of the launch has been completed.

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Phase 0

Eth2 is set to roll out in phases, beginning with Phase 0 in 2020. Phase 0 will launch the beacon chain of the Ethereum 2.0 network. The beacon chain will implement Proof of Stake and will manage the registry of validators, who will begin attesting blocks into existence on Ethereum 2.0.

Phase 1

There is no firm launch date for Phase 1 yet, but it is anticipated in the year following the launch of the beacon chain in Phase 0. The primary improvement of Phase 1 is the implementation of shard chains, the scalability solution mentioned earlier in this article. For Ethereum 2.0, sharding will result in the Ethereum blockchain being partitioned into 64 separate chains (called shard chains) that run parallel to one another and interoperate seamlessly.

Phase 1.5

An important moment within Phase 1 is the merging of the original PoW Ethereum blockchain with the new PoS chain. This moment is being referred to as Phase 1.5 in the Ethereum community. Specifically, the PoW Ethereum blockchain will be brought into Ethereum 2.0 and exist as one of the 64 shard chains alongside the beacon chain, meaning there will be no break in continuity or data history.


Ethereum 2.0 has been long-anticipated and much discussed in the blockchain ecosystem. Proof of stake and sharding will bring considerable improvements to scalability, security, and accessibility. For ETH holders, Ethereum 2.0 provides a new opportunity to participate and receive rewards for maintaining the network.

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What Is Ethereum 2.0? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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