The Ethereum Network is currently at a cusp of seismic proportions. Originally released in 2015, Ethereum has had developers working through three major upgrades thus far to create the massive decentralized world computer that it is today. Now, with the upcoming ETH 2.0 upgrade (also known as Serenity), we are at the edge of the cliff about to leap again, this time even further.
To understand the Serenity release, it’s important to give some background information as well as an overview of what Ethereum is and what the Network has accomplished so far.
What is Ethereum?
Ethereum is a programmable blockchain that represents the infrastructure for Web3. This new kind of internet improves upon the world wide web as we know it today. The infrastructure is defined by the Ethereum platform, which allows any software developer to create decentralized tools and apps on the open, public blockchain.
The Ethereum Virtual Machine (EVM) represents the underlying foundation that executes the code for the Network to function. All the users across the globe are connected to the EVM via their computers. Each computer, or node, runs the Ethereum software while storing a real-time copy of the blockchain. When a transaction is recorded on the blockchain, every user has that information. Ethereum, in this way, is decentralized with no single point of failure. It’s much different than what you might see with a bank’s server or a private enterprise’s intranet of computers.
Because information is updated to all the users’ computers (called ‘nodes’), someone wanting to manipulate or change the information would have quite a time attempting to hack this ever-growing number of computers worldwide. Not only that, but Ethereum’s participants are incentivized through cryptocurrency tokens and ruled by an automated consensus mechanism to keep the network running optimally.
The Ethereum Virtual Machine is distributed, making up a global, peer to peer network.
The Ethereum Platform
Ethereum’s decentralized platform enables the following benefits to all its users:
- As it resides on an open public blockchain, anyone can become a part of the Ethereum Network. It doesn’t matter who they are, where they live, how much money they have, or what they say on social media.
- All users have access to a redefined, open-source system of money. New applications can use this built-in money system to create their own cryptocurrency. For example, an ERC20 token like $MKR or $HEDG. Tokenized software applications can now run with similar incentivization strategies, with data secured on the Ethereum Blockchain.
- Increased privacy for app users is a hallmark of blockchain technology and available to all.
- A mechanism for payments is securely built into the system. That way, any applications built on top of the Ethereum Blockchain can also provide payment services to all its users.
- Ethereum enables developers to create decentralized applications or Dapps. They are controlled and run automatically by using Ethereum’s system of smart contracts, a consensus mechanism, game theory, and incentivization. So instead of a top-down, corporate hierarchy as the main framework for business, Ethereum provides the ability to set up a new type of corporate organizational structure that incentivizes users to follow the Network rules for the good of the Network and themselves (as opposed to benefiting the shareholders and top executives, for instance.)
- Decentralized applications can give users the right to own and control their own data.
The ETH 2.0 release will gradually roll out improvements to optimize all the abilities Ethereum currently enables.
What Is Ether?
The Ethereum Blockchain has its own native cryptocurrency named Ether, or ETH, which has long been the number two cryptocurrency, behind bitcoin, in terms of total market cap and the size of the blockchain.
Ethereum’s native crypto has numerous functions:
- Because Ethereum is a distributed computer system, shared openly far and wide over hundreds of computers, this also enables users to send ETH to each other peer to peer. This means from one cell phone or another device to another – with no third parties and directly, This happens within minutes and costs very little.
- Those people that run nodes and mine Ether all help the Network run and earn ETH for their work.
- Ether is a heavily traded asset with a current 24-hour trading volume of over $18.2 billion.
- While Ether represents the fuel (called ‘gas’) to run the Network, the Ethereum Network also powers decentralized applications which are built upon it, called Dapps.
What are Dapps?
Decentralized applications (Dapps) fuse together the money system benefits of the Ethereum Blockchain with software applications. One difference between Dapps and most web apps is that applications such as Facebook, online games and financial tools, make a user beholden to that platform. Dapps are programmed to run automatically and those that create and/or them do not need to worry about getting blocked or censored from a centralized platform, such as Twitter.
Another major point about Dapps is that because they run on an open public blockchain, they are available to anyone with an Internet device. Most apps today are available only through GooglePlay and Apple’s App Store, so they depend on these centralized platforms.
According to the State of the Dapps website, there are 2608 Dapps currently running on the Ethereum Blockchain. Together, those Dapps have over 15,000 users and a daily volume of about $12.6 million.
Hundreds of Dapps are spread across dozens of industries thus far, including:
- Cryptocurrency markets & exchanges (examples: Bancor and Ox)
- Crypto wallets (Basic Attention Token, Ethos)
- Financial tools and software (Synthetix, Ethlend)
- Games (My Crypto Heroes, GodsUnchained)
- Betting & Gambling (Augur, Hyperfair)
A few years before its official inception in 2015, the Ethereum white paper was published. It documented the open source protocol for creating Dapps. Ethereum was originally founded by Vitalik Buterin (who remains an influential figure in the crypto community today) along with Mihai Alisie, Anthony Di lorio and Charles Holkinson. Dr. Gavin Wood, Jeffrey Wilke and Joseph Lubin (ConsenSys Founder) were also on the original development team.
The following year, in 2014,the Ethereum project was officially announced on Bitcointalk.org. Shortly thereafter, the Ethereum Foundation held their historic crowdsale, going on to sell close to 60 million tokens.
In 2015, Augur launched the first ICO powered by Ethereum, in what ultimately led up to an epic ICO boom in 2017.
Scores of developers have been chipping away since 2015, refining the platform and creating new avenues of innovation. Always front and center is a commitment to the tenets of decentralization realized through additional developments to enable the Network to be:
- More Efficient
Three major updates involving forks of the Ethereum Blockchain have been conducted leading up to the Serenity release, called Frontier, Homestead, and Metropolis. With each milestone, right up until the ETH 2.0 update, the Ethereum Network has enabled faster transactions per second at a lower cost to users. Together, these two aspects make up the crux of scalability – and thus global adoption.
As the first public release in 2015, Frontier enabled miners to earn cryptocurrency while helping the Network run using a Proof of Work (PoW) consensus mechanism. Additionally, developers could begin to build upon the Ethereum Blockchain to create decentralized applications (Dapps) and blockchain-based tools.
Homestead was considered Ethereum’s first production release and it laid the groundwork for future improvements, including that for transaction speed. Introduced in 2016, Homestead Network upgrades were part of three Ethereum Improvement Proposals (EIPs):
- Main homestead hardfork changes
- Hardfork EVM update: DELEGATECALL
- Devp2p forward compatibility
Homestead expanded developer abilities to build on the Ethereum platform while simplifying the process of creating minimum viable products. At the time, it was considered the “next generation of blockchain technology”.
Both of these phases included a set of Ethereum Improvement Proposals. Byzantium had a total of nine EIPs to improve the Network’s privacy, scalability and security. All of these updates were designed to allow for faster block creation and lower fees for users.
- Byzantium was a lighter, faster version, making development easier for programmers and improving transaction speed. This hard fork to the Ethereum Blockchain also enabled zk-SNARKS (zero-knowledge simple concept non-interactive arguments of knowledge). This meant that developers could create peer to peer experiences where knowledge could be proven without having to give the knowledge away. This led to a greater level of privacy, such as with passwords. An upgrade to the predictability of ether was also included with this release.
- Constantinople was a hard fork and part two of the Byzantium update. Its original release date was set for November 2018. But Ethereum’s developers held off until three months later. Much of the improvements in Constantinople were build ons to Byzantium. The ability to leverage state chains to allow for off chain communications was introduced as well as an optimized way for developers to execute large scales of code. Additionally, a difficulty bomb came with the release, paving the way for the transformation from the Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS) by adjusting the mining difficulty protocol.
This fourth hard fork is scheduled for Q4 2019. With over 30 proposed EIPS, Istanbul includes one hotly debated IEP. This proposal would remove any advantages that ASICs hold over other types of mining hardware.
The main problem with ASICs is that they are confined to one algorithm and can become obsolete rather quickly. For instance, in the case of Ethereum’s planned updates. Another issue is that many feel that ASICs lead to centralization since they are more costly and less attainable than their counterparts, graphics processing units, or GPUs. Once this 4th fork is complete, along with testing, addressing the current challenges of Ethereum can begin with the Serenity / ETH 2.0 release.
Main problems addressed by ETH 2.0 / Serenity
Now we’re at the point where the next release will go further in solving two of the primary challenges to the Ethereum Network: Scalability and Efficiency.
The Ethereum platform is now home to hundreds of Dapps. But as of June 2019, the transaction per second rate for the Network was at about 20/sec, a far cry from what the Visa payment system is capable of (at max, 24,000/sec). For Ethereum to scale enough to include a mass audience, which is their plan, they had to choose a direction to move in to bring a higher level of scalability.
The worldwide team of developers who work on improving the Network have more or less agreed that “sharding” is the scalability tool of choice. While plasma chains and state chains may be used to enhance scalability and lessen the load to the Network, sharding is what Ethereum is ready to implement towards its goals of mass adoption.
In the current Network, a Proof of Work (PoW) consensus mechanism enables miners to compete in solving cryptographic puzzles in order to find the correct “hash.” To find it, all the miners are running hash functions on their computers until they are successful. When they do succeed, they can append the new block to receive their reward.
But all the other miners who are competing with them for each block are also running the computationally expensive hash functions at the same time. While the process is simple and quick, all the computational power and electricity used by the miners who didn’t ‘win’ that block is essentially wasted.
What is wasted is pretty significant. For every transaction verified within this system, it ‘costs’ as much as it takes to power a typical US home for 24 hours.
As it is, the PoW consensus mechanism lowers the potential profit for miners. Because of the computational power necessary to mine, scaling using PoW could lead to a smaller number of companies mining Ethereum. Those who can afford high powered computers would have better chances of solving the cryptographic puzzles and winning the block reward.
Since decentralization is a key to Ethereum’s goals, this efficiency problem is one of the main focal points of ETH 2.0. With the upcoming release, a major change will be the gradual switch to the Proof of Stake consensus mechanism, as we describe later in the article.
Another aspect to the efficiency challenge is the capabilities of the Ethereum Virtual Network. Essentially, the EVM is the massive decentralized computer Network that connects to all participants. The EVM is basically the foundation of Ethereum and its tasks include executing smart contracts, maintaining gas price and verifying account balances.
As you can imagine, the speed at which the EVM operates will also affect not only Network functioning, but scaling as well. As part of the Serenity updates, eWASM will be implemented. It’s basically a set of open standard instructions that was put together by engineers from some of the biggest names in technology, including Apple, Google, Moz and Microsoft.
The solutions to these problems, which we’ve bolded in this section (Sharding, PoS and eWASM), are detailed below in the ETH 2.0 Roadmap section.
ETH 2.0 Design Goals
According to EthHub.io, the design goals for the tiered Serenity Release are as follows:
- Decentralization – so that a normal laptop can participate in the Network
- Resilience – to stay live even when large groups of nodes are offline
- Security – using cryptography to allow for a large number of validators
- Simplicity – minimizing complexity even it some efficiency is lost
- Longevity – making sure all parts are quantum secure or replaceable with quantum secure parts when they become available
Roadmap for ETH 2.0 / Serenity
The Ethereum Network is already immense and the planning going into these updates is likewise substantial. In order to make for a smooth transition during the implementation of the changes within ETH 2.0, the Ethereum developers have broken the Serenity release down into three major phases:
Phase 0 – Beacon Chain
Phase 0 may be considered as the cornerstone of ETH 2.0. The main goals of the Beacon Chain release is to lay the groundwork for the new Casper PoS consensus mechanism for the chain itself, as well as all future chard chains.
The Casper Proof of Stake protocol will provide the new set up for:
- Managing validators and corresponding stakes
- Nominating and grouping block proposers for shards
- Maintaining consensus rules
- Validating rewards and penalties
- Acting as the anchor chain in the enablement of cross shard transactions
ETH2 – The new asset for staking
A new Ether, called ETH2, will roll out with the Beacon chain. Once available, users have two ways of attaining ETH2:
- Earning rewards for validating on the Beacon chain
- They’ll also be able to purchase the new cryptocurrency 1:1 to ETH1, which is Ether as we know it today. Once traded out, ETH1 tokens are effectively burned.
These validating actions, or attestations, will comprise the largest load on the Beacon chain. When enough attestation is reached on a shard to create a new Beacon chain block, a crosslink is set up and confirmed on Beacon, paving the way for crosslink shard compatibility and communication.
When Phase 0 is complete, planned for sometime in late 2019, we’ll have two active Ethereum chains, one PoW and the other PoS. The original Proof of Work system will remain live until testing and conversion are complete. During this phase, users will have the ability to migrate from ETH1 to ETH2, but not vice versa. Validators on the Beacon chain can begin staking tokens with the minimum stake at 32 ETH2.
Phase 1 – Sharding
Sharding will allow for increased scalability. With shards, parallel transactions can take place without having the throughput for every transaction within a shard updated on the main chain. As far as the Beacon main chain is concerned, each shard chain block represents a group of data bits.
The data root of each shard is anchored to Beacon chain. Then, it’s recorded on the main chain enabling cross-shard transactions. These “crosslinks” will notify the Beacon chain of updates to each shard chain. But this is possible without having to validate each individual transaction within the shard. Additionally, crosslinking will enable shard validators to agree on a shard block’s content. So, then it can be added to the Beacon chain.
Essentially, this part of ETH 2.0 represents the infrastructure for communication between shards. And so the, beginnings of interoperability. During this phase, we’ll still see the two parallel main chains, Beacon (ETH2) and Ethereum (ETH1).
Phase 2 – State Execution
During Phase 2, the foundational aspects of the previous ETH 2.0 releases will come together, providing functionality for the updated Network.
In essence, shard chains transition from simple data containers to the new structured chain state. At this phase, smart contract functionality is introduced into the new system. Additionally, every shard will manage a virtual machine using the instruction code set, eWASM, which was designed to enable faster execution times. Now each shard can handle the smart contracts and different accounts as well as the state of each in relation to the main chain, Beacon.
This update will have an effect on developers building on Ethereum 2.0. On the original ETH 1.0 chain, they could store code and data indefinitely. With ‘state rent’ update, they will pay for eWASM storage. Any unused data after a time will fall out of state, improving Network efficiency. All shards that operate via the state rent mechanism will be considered part of Ethereum Virtual Machine 2.0 (EVM 2.0)
We’ve given you an overview of what to expect with the upcoming ETH 2.0 updates. While there are many other pieces to the puzzle, such as Lightning Network-like solutions including Plasma and Raiden, you hopefully now have a strong understanding of the major updates coming soon to the Ethereum Network.
Serenity, or ETH 2.0, will have a major impact on all aspects of Ethereum while trying to solve its major issues: scalability and the need for a higher level of efficiency.
With these changes, it is the hope that Ethereum can continue on its trajectory of being the building center of decentralized applications. Increased scalability, enhanced security and interoperability between chains are coming our way to effect this goals.
Additional Reading on ETH 2.0 and Ethereum Network
- Mastering Ethereum by Andreas Antonopouos
- Blockchain Basics – A Non-Technical Introduction by Daniel Drescher
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