While Ethereum has brought about a whole new realm of possibilities due to its native token Ether (ETH) and its smart contract and tokenization capabilities, it is often faced with challenges such as network congestion, relatively low transaction times and throughput, large blockchain size and excessive electricity use for mining (all issues Bitcoin also shares).
This state has been even more recently highlighted by the success of the DeFi (Decentralized finance).
Ethereum was built on several stages, many of which have been implemented, but Serenity (Ethereum 2.0) is particularly important for the network and community because it will bring about some of the biggest changes in the network, including proof-of-stake and sharding updates.
Ethereum 2.0 is planned to launch in the second half of 2020, following its announcement in 2018 and launch delays in 2019 and 2020. The deployement will follow a step by step implementation model.
Consensys website extract :
« Phase 0: In the first phase of Ethereum 2.0, the “Beacon Chain” will be implemented. The Beacon Chain stores and manages the registry of validators, and will implement the Proof of Stake (PoS) consensus mechanism for Ethereum 2.0. The original Ethereum PoW chain will continue to run alongside the new Ethereum PoS chain, ensuring there is no break in data continuity.
Phase 1: The second phase of Ethereum 2.0 will likely roll out in 2021. The primary improvement of Phase 1 is the integration of shard chains. Shard chains are a scalability mechanism in which the Ethereum blockchain is “split” into 64 different chains, which allows for parallel transaction, storing, processing of information. At its most conservative estimate it will enable 64 times more throughput than Ethereum 1.0, but it is designed to be able to handle several hundred times more data than Ethereum 1.0.
Phase 2: The third phase of Ethereum 2.0 will likely be launched in 2021 or 2022. This phase is currently less clearly defined than the above two phases, but will involve adding ether accounts and enabling transfers and withdrawals, implementing cross-shard transfers and contract calls, building execution environments so that scalable applications can be built on top of Ethereum 2.0, and bringing the Ethereum 1.0 chain into Ethereum 2.0 so that Proof of Work can finally be turned off. »
The first stage is currently known as « Phase 0 » and will see the launch of the Beacon Chain (the heart of Ethereum 2), the blockchain on which the first iteration of Ethereum’s PoS consensus model will be implemented.
The second stage, « Phase 1 » will bring the implementation of shard chains that are compatible with each other and can be used simultaneously.
While these two stages will build the foundation of Ethereum 2.0 and the solutions for the congestion and scalability issues Ethereum is currently facing, these two stages will coexist with the current blockchain 1.0, and the two will only be merged in the third stage.
During a « Phase 1.5. » (pre third stage), Ethereum 1.0 will coexist alongside 63 other blockchains, with the Beacon chain eliminating the need for token swaps for those that wish to remain on the original chain throughout the implementation of Ethereum 2.0.
Once Ethereum 1.0 will be merged with Ethereum 2.0 – the third stage – the blockchain history will remain, with Ethereum 2.0 being considered as completely deployed. It is expected to happen by 2021.
The sharding feature on Ethereum 2.0 will allow 64 chains to run in parallel, meaning that the transaction speed and throughput will be considerably increased. These chains will be interoperable, and users will be able to spend Ether across multiple chains. However, the burden of keeping the blockchain history will be distributed throughout the multiple chains, allowing the network to be more accessible while still secure.
Proof of Stake (PoS) mechanism will offer more crypto-economic security combined with lower electricity consumption.