32ETH? One article to understand Ethereum 2.0

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Crypto Valley Live (ID: cryptovalley)

Ethereum 2.0, expected to launch in 2020, marks the start of the long-awaited upgrade to the Ethereum mainnet. This article will briefly introduce the whole picture of Ethereum 2.0 and prepare for its next stage of development.

Ethereum 2.0 is a major upgrade of the current Ethereum mainnet, and its purpose is to solve the scalability problem of Ethereum through sharding and other technologies.

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History of Ethereum 2.0

Ethereum 2.0 is not a new idea in the Ethereum community. The idea of ​​changing Ethereum’s underlying consensus mechanism to address the limitations of Proof of Work (PoW) has been around since its inception. After the launch of the mainnet Frontier in July 2015, discussions about the Ethereum 2.0 upgrade have never stopped.

Homestead, March 2016

Istanbul (Istanbul), December 2019

Proof of Stake (PoS)

Compared with the many upgrades of Ethereum in the past, the launch of Ethereum 2.0 is particularly significant because the proof-of-stake consensus mechanism (PoS) it will implement will remove the proof-of-work (PoW) from the existing network.

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Proof of Stake (PoS)

Proof of Stake (PoS) is the most important change in Ethereum 2.0 because it transforms the economic incentive structure for blockchain validation. The current incentive structure is maintained by PoW consensus. Most of the public chains using PoW are well-known (including BTC, ETC, LTC, etc.), and it is also the most used consensus mechanism so far. The miners of the PoW mechanism run nodes and consume computing power to solve complex mathematical problems and compete for the packaging right of the next block.

The time and money required for miners to run hardware and consume electricity on a PoW chain are compensated through block rewards, which are distributed to miners who successfully mine blocks. The PoW consensus algorithm is very safe, and the computing power required for an individual to destroy a mature PoW public chain like BTC or Ethereum is very large, and even such a huge computing power may not exist at all.

Although the PoW mechanism is very secure, the PoW consensus also has problems of scalability (Scalability) and accessibility (Accessibility).

Scalability: Since each block is mined sequentially and the amount of data that can be recorded in each block is limited (i.e. block size is limited), Ethereum can only process so many amount of information. If the number of pending transactions exceeds the number that can be accommodated in a block, then the remaining transactions must wait until the next or subsequent block verification. Scalability issues will be addressed by the implementation of sharding (see below) on the PoS network.

accessibility. PoW miners have played a fundamental role in the birth and development of decentralized technology that we have seen in the past decade. Although the PoW public chain has many advantages, the entry threshold for becoming a miner is quite high. Individuals must purchase and set up all the necessary hardware to become a miner, and may also have to live in an area where electricity costs are low in order to reap significant overall benefits from blockchain rewards. Furthermore, for enterprises and companies, the cost of electricity is often lower, which means that a miner may need to form a company and purchase enough mining hardware to increase mining capacity if he wants to get the most profit. mining probability. Several largest mining groups will prevent most ordinary blockchain users from really participating in the maintenance of the network, which leads to the centralization of miners. In Ethereum 2.0, one of the goals of PoS is to allow more individual verifiers to participate and share the rewards of maintaining the network through fair competition.

Proof of Stake replaces the two most important components of PoW: miners and electricity, with validators and staking, respectively. Broadly speaking, validators replace miners as nodes that maintain the agreed state of the network and are rewarded for their random selection of the next block. Unlike PoW (miners achieve block confirmation by consuming electricity), verifiers in the PoS system only need to invest 32 ETH to bind their benefits to the system.

In Ethereum 2.0, if validators fail to stay online and perform their computational responsibilities, their block rewards will be reduced accordingly, incentivizing validators to stay online as long as possible . If a validator maliciously tries to disrupt the network (such as validating a wrong data record), the 32 ETH or part of their pledge will be forfeited. In PoS networks, the economic incentives for malicious actors are stronger (i.e. making malicious actors less motivated to do so), while in PoW, the economic risk of an attack failure is only the cost of electricity required to reach a certain computing power, The cost of launching an attack on the PoS system is equal to the amount of ETH staked (i.e. the penalty). The risk of losing a corresponding amount of money is more intuitive to individuals who want to launch an attack than the more abstract cost of electricity. The result of a failed PoW attack is the loss of electricity fees, and the confiscation of the validator’s pledged funds is equivalent to PoW miners burning the entire mine farm in a failed attack. In short, the PoS system can make individuals more motivated to maintain the entire network.

Although hardware cost savings make the entry barrier for becoming a validator much lower than that of a miner, in fact, not many people have 32 ETH or are willing to risk nearly $6,000 (about $190/ETH) to pledge. There are not many experts who have enough expertise to keep the whole system running well without downtime and without losing money. Now we expect two solutions to the access problem: For the obstacles posed by technical difficulties, some companies have started to provide pledge services, through which they will help others pledge 32ETH and maintain client operations. If an ETH holder has less than 32 ETH to stake, he can join a staking pool, thereby pooling his funds with other people's funds to reach the required 32 ETH threshold. Then the return he gets will be proportional to his total investment.

Proof of Stake (PoS) will be launched in the first phase of the Ethereum 2.0 upgrade, known as Phase 0.

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Ethereum 2.0 will be rolled out in stages after Phase 0 in 2020. Phase 0 will launch the beacon chain of the Ethereum 2.0 network. The Beacon Chain will deploy a PoS consensus algorithm and will manage a registration record of validators who will start validating Ethereum 2.0 blocks.

In order for the beacon chain to produce its genesis block, at least 524,288 ETH must be staked on the network and distributed to at least 16,384 validators (these numbers are set to ensure adequate security and decentralization ). Staking rewards will not be distributed until this threshold is reached, which is part of the reason why some spirit of altruism is needed among the early participants in Phase 0.

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Phase 1

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Phase 1.5

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Phase 2

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After Phase 2

Ethereum 1.x

in conclusion

While mentioned above, it is worth emphasizing again that Ethereum 2.0 is not expected to be fully functional until Phase 2. During this period, the blockchain ecosystem will continue to develop, and Ethereum still needs to meet the needs of developers, decentralized application construction, enterprises, governments, etc. Therefore, before actually entering Phase 1, the Ethereum PoW chain will at least exist in the form of "Ethereum 1.x". Even though the future construction plan of Ethereum 2.0 is still being perfected, developers will still work on improving the performance of Ethereum 1.x.