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Everything about ETH 2.0 for Beginners

Yayın RAIN EDITORIAL TEAM - Mar 09, 7:20 PM

Ethereum (ETH) has made its place in the cryptocurrency world as the second largest and most popular blockchain platform after Bitcoin (BTC). Its creators aimed to make Ethereum better than its predecessor by making sure it has all the features that Bitcoin lacks. Some limitations of Bitcoin are its scalability and proof of work or PoW algorithm. The recent multi-phased upgrade of Ethereum, which includes the Shard Chains, The Merge, and the Beacon Chain aims to resolve the scalability issues on the Ethereum network and make numerous infrastructural modifications. The change of PoW to the PoS (proof-of-stake) model is the most notable and favorable. It modifies the protocol to make it better. PoW is an energy-intensive system. On the other hand, the PoS algorithm offers a better scalable blockchain with advanced transaction output.

In 2013, Vitalik Buterin – the creator of Ethereum proposed using a blockchain platform that would support apps and offered other benefits that focus on finance. He envisioned a world where developers could harness the power of decentralization to create lending platforms, governance systems, databases, and much more to embody physical assets in the digital space.

Buterin hypothesizes that Ethereum could be a global supercomputer. However, the ether network struggles with validating only a few hundred transactions within a practical timeframe. When users transact small amounts on the Ethereum network, they pay a fee, which is a significant amount. Although Ethereum is designed to be a revolutionized blockchain technology, it does not seem to meet its goals. Thankfully, Buterin and numerous developers are aware of these limitations and how these prevent investors from adopting Ethereum. The ETH programmers and Buterin have come up with the Eth2 or Ethereum 2.0 upgrade to fix this.

Ethereum 2.0 Explained

This upgrade is a foundation-altering change, but its implementation will take several years. Ethereum developers have been working tirelessly on this since 2020. Once implemented, Ethereum will work faster, prove safer, and will be more accessible than before. The development of ETH2 is a significant shift in the consensus algorithm. This upgrade means changing from the PoW algorithm to the PoS algorithm. The PoS algorithm offers many benefits and adjusts various aspects of the network to ensure better security, scalability, and accessibility.

Proof-of-stake vs. Proof-of-work

In the blockchain design, proof-of-work was the original method Bitcoin used as the first cryptocurrency in the world. Its purpose was to validate blocks and solve complex algorithms because miners would lend their CPUs and GPUs. The blocks hold a specific transactional amount within the blockchain network which helps in validating the blocks logged by the miners.

Each transaction block must be unique to prevent duplication of transactions or double-spending. Each block has a unique 64-digit hexadecimal code that proves its uniqueness. Miners find this code. The code also solves the issue of power lent by the miner’s computer. This hexadecimal code serves as the Proof-of-work by the miner. The computer the miner uses consumes real power to mint a block.

Sadly, mining is not an environmentally friendly process. It requires using tons of electricity and miners have a lot of bills to pay. Also, there is huge competition in the cryptocurrency mining industry. Miners with one graphic card compete against others with several cards. Moreover, only the first miner who succeeds in finding the code receives the Bitcoin reward. This limits users with less money from investing in a proper mining mechanism. However, there are alternatives – like joining a mining pool and splitting the rewards among participants.

Proof-of-stake does solve the PoW algorithm limitations. PoS also requires validation of transactions like mining does. However, participants in PoS are called validators – who stake a cryptocurrency amount in the minting network. The participants must signal the network about their intent to be validators. The more these validators stake, the more they earn for their participation.

Validators are responsible for validating transactions made on the network on which they participate. After validation, the block adds to the blockchain, and the validator earns his/her reward. PoS is more accessible as compared to PoW and allows anyone to participate without having to purchase expensive hardware.

Benefits PoS Offers

Good accessibility on the network results in improved scalability as increased users connect to the network to validate transactions. This subsequently leads to better security and decentralization as more users validate a network. Moreover, there are increasing points of stability on PoS and minimal risk of attack by bad actors, unlike systems with a central point. Not to forget that as PoS requires less power than PoW, the environment suffers less.

Additionally, more decentralization prevents a 51% attack. This means an attack by a bad actor takes control of 51% of the nodes to validate ill-intended transactions. PoS prevents this because for someone to conduct a 51% attack, one would need to hold 51% of all the tokens available on the network. It is almost impossible for one user to hold all 51% of tokens on the PoS network. To do this, one would have to steal from hundreds of Ethereum wallets at once. With so many protocols and validations in place, it is very unlikely to happen instantly without a trace.

The upgrade of Ethereum to Ethereum 2.0 will offer PoS benefits. In summary, there will be better security, scalability, and accessibility with a less negative impact on the environment. However, the transition to Eth2.0 will require a lot of input from users and a lot of time for the changes to take effect.

Stages of Transitioning to Ethereum 2.0

Below is an illustration of the different stages involved in this transition:

Phase 0

This phase introduces the Beacon Chain. This feature launched on 1st December 2020 and marks the first stage in shifting to Proof-of-Stake. It enables users to lock away their stakes or Ethereum tokens and become validators. Beacon Chain simply exists alongside the Ethereum mainnet and connects to it or “merges” with it to coordinate the PoS system. Phase 0 does not affect the Ethereum blockchain.

What is the Beacon Chain?

This is the coordination system or mechanism of Eth2.0. It is responsible for the creation of new blocks and their validation, and then rewarding the validators with Ethereum for ensuring the network is secure.

By staking 32 ETH, potential validators can log their interests or gains in the Beacon Chain. The 32 ETH requirement as the stake is quite a big deal because 1 Ethereum is worth several thousands of dollars. Moreover, the release of stake funds will only be after the complete launch of Ethereum 2.0. This high entry requirement is to ensure the commitment of early validators to the future of this project.

Phase 1

Originally, this project was to launch in mid-2021. However, there was a delay to early 2022. The reason is that developers cited unfinished code auditing and some related work.

Phase 1 will be about merging the mainnet with the Beacon Chain; i.e., swapping to the PoS consensus algorithm officially. After the complete implementation of Phase 1, all the transactions history and smart contracts support will be on the PoS network on Eth2. Then validators and speakers will get into action and will start mining Ethereum 2.0 from the network. Many miners will likely use their holdings and stake them all to become Eth2.0 validators.

At its beginning, the reason developers made Phase 1 was the introduction of “Sharding”

What is Sharding?

It is the process of dividing the blockchain into smaller chains. The smaller chains are “shards”. Shards make it easier to run a node by reducing the hardware requirements. For this upgrade to occur, it is necessary for the Beacon Chain and Mainnet to merge. In the end, Eth2 has 64 shards.

Ethereum 2.0 allows validators and other users to run their shards and validate transactions without congesting the mainchain. For shard networks to align with the Ethereum ecosystem, a PoS consensus method would be necessary. The first step would be the introduction of staking to the Beacon Chain. This would help prepare the ecosystem for the shard chain update that would come later.

Phase 2

This stage will introduce the Ethereum WebAssembly or eWASM. The World Wide Web Consortium created eWASM to make Ethereum more efficient than it currently is. The Ethereum WebAssembly is the subset of the WebAssembly unambiguously for the Ethereum smart contract execution layer.

Presently, Ethereum has an Ethereum Virtual Machine or EVM which enables Ethereum to operate as a global supercomputer. This means that users can access this computer from anywhere and interact with DApps (decentralized applications). All codes that are necessary for the execution of commands on Ethereum are stored on EVM. At the same time, it facilitated wallet addresses to ensure the calculation of each transaction and the fee associated with each transaction.

Moreover, the EVM supports different actions like determining if a smart contract requires termination, if the smart contract is unaffected by errors, or if the DApp will execute the same input and output. However, due to too many transactions, the Ethereum network has become too crowded. This has caused the EVM to operate much slower than intended. Upgrading the EVM is difficult due to some complex codes (i.e., Solidity). The purpose of designing the eWASM was to replace the EVM, which will take place in Phase 2.

Implementing eWASM makes the code work faster, speeding up the processes on the network. Moreover, eWASM can code C and C++ language, and gas works faster via eWASM. In summary, eWASM aims to make Ethereum development more accessible.


Sadly, due to the struggles in implementation, the launch of phase 2 has been delayed a lot. Developers are not sure about when eWASM will be active.

What is Next?

Implementing the Ethereum 2.0 upgrade is very important for the future of Ethereum. Right now, users pay high gas fees and experience longer transaction validation periods. This process uses up a fair amount of energy. The lack of scalability in the Ethereum network affects basic transactions, decentralized finance (lending and borrowing) and non fungible tokens. Due to congestion, building and trading NFTs on Ethereum can cost a lot of dollars to pay for gas fees.

Upon the launch of Ethereum 2.0, the network will experience benefits in various aspects. First, minting and trading NFTs on Ethereum will be cheaper because of the PoS consensus algorithm and sharding. Thanks to eWASM, Ethereum developers will find it easier to build DApps and compile smart contracts. Getting in-browser support for Ethereum will become easier due to the design of eWASM which is according to the World Wide Web. With the switch to proof-of-stake, the network will become more accessible than before with minimal negative effects on the environment.

There is speculation of the effects of Ethereum 2.0. However, it is important to mention that the upgrade to Ethereum 2.0 will boost the ETH price and stabilize it.

The expansion of the Ethereum ecosystem makes more room for ERC-20 assets. ERC-20 is the term for technical standards Ethereum-based assets. It follows the same rules to ensure the interoperability of all ERC-20 assets. As the numbers of users increase on the Ethereum network, they have to convert their Ether to ERC-20 tokens before they can interact with different DApps.

There is a marked difference between the Bitcoin and Ethereum ecosystems. While the invested value stays for long and gradually increases the price of assets in the bitcoin ecosystem, the better the Ethereum network gets, the more valuable assets have. Eventually, Ether assets will stabilize and the prices will increase.

Eventually, more users will become validators, educate themselves, and participate in the Ethereum network. Then it will be possible to expand the knowledge gained on Eth2 and increase participation across the crypto world. There may be increased interest by DeFi (Decentralized Finance) lending platforms, which would leave banks behind.

It may be a possibility that citizens would move their funds out of banks and begin using the Ethereum network instead. This is because moving their money to Ethereum would provide the users complete control over their assets. They will not have to pay huge bank charges and limitations on how or when to move their money.

There is no doubt that Ethereum 2.0 will change how the world sees Ether. Ethereum 2.0 will make Ether a necessary asset. Individuals and corporations will use Ether for daily activities, apps, and data management. Soon, there will be a global shift in how the world sees Ethereum.

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