In this article, we analyze the launch of Ethereum 2.0, which, if there are no additional delays, should take place as early as July 2020. However, the launch may not be as important an event as it seems. At first, Ethereum 2.0 will operate primarily as a testnet for testing the Proof-of-Stake (PoS) consensus algorithm system . Most of the economic activity and smart contracts will remain in the original Ethereum network, which will continue to exist alongside Ethereum 2.0. The system will implement the possibility of a one-way transition: from Eth1 to Eth2, but not vice versa. Since the developers decided to scale the system using sharding, we believe that an incredibly difficult multi-year transition to a new network is the only solution for Ethereum.
Overview
Ethereum is about to move its entire economy to a new network, Ethereum 2.0. This is a very difficult and risky transition that will take a long time. In our opinion, its main goal is to solve the scalability issue. The popularity of the Ethereum network has grown significantly since its launch, and the volume of transactions has increased. For this growth to continue, full node operators and blockchain participants who are consensus agents (based on the Proof-of-Work or Proof-of-Stake algorithm) will have to use increasingly powerful computers. that will cost more and more. Ultimately, this can lead to increased centralization and, as a consequence, to the deterioration of the system’s high censorship resistance. This will continue until the network no longer makes sense.
Bitcoin uses Layer 2 networks (like Lightning ) to solve this problem , while Bitcoin Cash pretends the problem doesn’t exist — at least to some extent. It is clearer every day that Ethereum has chosen a different method to solve this dilemma: sharding.
The main problem with sharding is that it can be interpreted as a departure from the economic model of Ethereum. If users perceive the Ethereum network as one world computerthat cannot be stopped, it is unlikely to meet their expectations if it is divided into several segments (several computers). If a smart contract on shard 1 wants to interact with a smart contract on shard 2, then the system can slow down significantly due to the need to coordinate the sequence of events and exchange information between shards. In this case, the interaction will take place differently than if smart contracts were on the same shard, therefore, on a planetary scale, the world computer may fail at some point. It could even be argued that Ethereum and sharding are fundamentally opposite. On the other hand, in this way, Ethereum will be able to satisfy niche demand from subgroups of users who are interested in unrelated applications.
Sharding represents a fundamental change in how Ethereum works, and this fact explains why the move to this method of network scaling is more disruptive and revolutionary than one might imagine. Existing smart contracts cannot simply go to the sharded network. To do this, you need to build a new network and recreate smart contracts for this environment. The upcoming transition will be a painful process that will last for many years. Initially, Ethereum 2.0 will exist in parallel with Ethereum 1.0, and at some point these two systems will be merged into one.
Even before the launch of Ethereum, its creators planned to use Proof-of-Stake as the consensus algorithm , rather than Proof-of-Work. This plan, like sharding, turned out to be more difficult than expected and was therefore delayed as well. Migrating Ethereum to the new network is a great opportunity to finally launch the Proof-of-Stake system. The Ethereum VM will also be upgraded to a new version, this time using technological advances from the past five years and the experience of observing Ethereum in action.
