Ethereum 2.0 is an upgrade of the Ethereum network and is expected to be carried out by the end of 2020.
Once launched, Ethereum 2.0 will become a test network for testing the Proof-of-Stake (PoS) algorithm system. Most economic activities and smart contracts will continue to run on the original Ethereum network, and it will continue to be a parallel system of Ethereum 2.0. The developer has realized the connection bridge from Eth1 to Eth2, but the Token cannot be transferred back in the reverse direction.
What are the three phases of Ethereum 2.0 deployment?
Phase 0: Beacon Chain
The testnet will start in July 2020. It only includes testing the new PoS consensus mechanism , so the network will be mainly test-driven, although it will use real Ethereum Tokens. During this phase, the following PoS functions will be launched.
- Staker management
- Staker’s money management.
- A random number generator to help select block producers and pledge regulators.
- Staker voted on the block size proposal.
- Distribution of rewards and fines, rewards and fines for Staker.
Phase 1: Fragmentation
An experimental network with 64 shards will be deployed initially . In the absence of major economic activity, Phase 0 aims to test the basic PoS infrastructure, while Phase 1 aims to test the basic sharding model . At this stage, 65 blockchains will run in parallel-the existing beacon chain at stage 0 and 64 new shards. There will also be a two-way communication and link mechanism between the beacon chain and all 64 fragments.
Phase 2: Implementation of a new operating mode
Suppose that at this stage, smart contracts will begin to work on the network, and economic activity will begin. Sharding will no longer be the storage of raw data, but will begin to resemble virtual machines and Ethereum 1.0 smart contracts. The specifications for the second phase are under development.
One-way conversion
After the launch of Ethereum 2.0, there will be two networks running in parallel-Eth1 and Eth2 . Initially, Eth1 Token can be exchanged for Eth2 Token, but not vice versa, so theoretically, the transaction price of Eth2 Token should be less than or equal to the value of Eth1 Token. However, in the early stages of the transition, Eth2 Tokens are unlikely to be priced or supported by exchanges, as their only use will be pledge. Even basic transfers will not be possible.
To transfer Eth1 to Eth2, you need to use the Eth1 escrow agreement. This agreement will destroy the Token on Eth1, and the destroyed Token can be used as a confirmation for issuing a new Eth2 Token. The Token will be permanently destroyed, but due to the protocol change caused by the hard fork, the Token can be recycled.
Tokens transferred to Eth2 will automatically enter the validator pool .
PoS (Proof of stake)
According to the concept of PoS, the “weight” of voting and the amount of rewards for validators are determined by the pledged Token value. The Eth2 specification stipulates that each verifier must have 32 ETH . If the number of tokens received in the contract exceeds 32 ETH, the verifier will not get rewards from these additional tokens. If there are less than 32 ETH Tokens, the node will not be activated. Therefore, you need to transfer ETH to Eth2 at the ratio of 32 Tokens. Each part of 32 ETH can be a separate Staker.
What will the issuance of Token look like?
Eth1 will continue to operate on the basis of PoW, and Eth2 will continue to operate on the basis of PoS.
During this period, both sets of validators, miners, and candidate nodes will be rewarded, so Ethereum’s inflation rate will rise -at least until the two systems merge.
The issuance level of Eth2 will depend on the number of tokens participating in the pledge process. The annual issuance level will be based on an algorithm, where Eth2 is the number of Ethereum tokens participating in the PoS verification pool (the source of these numbers is an article published by Vitalik Buterin in April 2019).
This formula is based on the idea that the more ETH transferred into Eth2, the more new tokens will be issued, but the investment income will decrease as the pledge increases. Graphical Ethereum 2.0 inflation rate.
The following chart shows the inflation rate of Ethereum 2.0:
The issuance rate determines the amount of remuneration. The reward is designed to motivate users to convert Token to Eth2 . Since the success of Eth2 will reduce the demand for tokens, the rewards will be reduced proportionally. Such a model can ensure that the number of mobile tokens is sufficient to significantly increase the scale of the network; however, if Eth2 is popular, the issuance volume will not become too high.
This model seems to contradict the original “permanent linear expansion” plan of Ethereum.
- Some factors can mitigate the impact of possible increases in inflation.
- In the first stage, the incentive system is expected to include two elements: one is the basic commission for Token destruction, and the other is the reward commission for Staker. Destroying Token will reduce inflation.
- If the verifier cannot participate in the verification process—for example, if the node stops working or loses connection to the network—the pledge reward will be cancelled.
- If the verifier violates the rules, they will be fined and the confiscated token will be destroyed.
These mechanisms may cause a large number of Ethereum Tokens to be destroyed, which may inhibit the impact of high inflation .
How will the blockchain merger proceed?
In the future, Eth1 and Eth2 may merge back into one system within a few years. In fact, Eth1 will become a shard within Eth2, allowing Ethereum to move in both directions between shards, and the two Tokens will be combined into one. It is speculated that most of the economic activities currently occurring on Eth1 will continue to be carried out within the Eth2 shard.
The next step may be the consolidation of consensus systems. Eth1 fragmentation can gradually shift to PoS .
Proof-of-Work can continue to work, but after a given number of blocks—for example, after every 100 blocks—the consensus of the block will determine Proof-of-Stake. Finally, it will be possible to completely abandon PoW: PoW block rewards will become unnecessary. This will make Ethereum users and investors more certain about the inflation schedule.
What are the main technical functions provided by website developers?
In Ethereum 2.0, how will PoS (proof of stake) work?
PoS is a general concept of fork selection rules.
The chain with the majority of Token voting is preferred . The core voting system principles of Eth2 are the same as those in Ethereum’s 2018 proposal, and are based on the idea of Casper Friendly Finalty Gadget. However, the system has been updated based on the combination of Casper Friendly Finalty Gadget and the latest Message Driven Greedy Heaviest Observed Subree Fork selection rules (Casper FFG & LMD GHOST Fork selection rules).
The voting system engine consists of the following parts. First of all, a large fork pool, each fork pool represents up to 32 ETH (activating a fork pool requires 32 ETH, this number can be reduced to 16 ETH, which needs to be deactivated). This pool does not directly vote on blocks-it is divided into committees whose members are randomly selected from members of the larger pool.
The reason for being divided into committees is that not every Staker can vote for every block -otherwise, the blockchain will contain too much voting data, which will make expansion impossible.
In addition, the committee allows you to collect voting data into a controllable data device. Therefore, in these committees, a group of Staker is randomly selected to vote.
According to Eth2’s specifications, the target number of Staker per committee is 128 (the minimum number expected). The developer believes that this is a sufficient number of stakers to provide a possible block selection guarantee. Signatures can be combined to reduce the required block size and expand the network.
The committee is randomly selected by RanDAO and other systems . Random selection defines a pass phrase, which is added whenever a block is suggested. In order to combat block fragmentation attacks, there are only two options for proposing a block to affect this stage: proposing the block or not proposing it. Therefore, the manipulation possibilities are limited.
In addition to the committee’s allocation of pledges, there is another subcategory of blocks and checkpoint blocks.
There is a block checkpoint (checkpoint) in every 32 blocks, and the time interval between checkpoints is called an epoch (epoch). Within the boundaries of each era, there are 32 12-second time periods (intervals) that can be proposed for blocks.
Therefore, each era has 32 groups of time slots for 32 committees. At the end of each epoch, the members of the committee will change positions. Each era has a committee (the “ideal minimum” is 128 members). One committee member has the exclusive right to propose a proposal within a 12-second interval, and other committee members can vote for a block. This kind of voting is also called proof.
Assign Staker to the committees in the beacon chain (assuming that there is a committee for each slot):
In reality, things may be more complicated than these figures. Therefore, at stage 0, there can be up to 64 committees in a period instead of one. Therefore, if each committee has 128 members, each time slot can hold up to 262,144 stakers, which is equivalent to approximately 8.4 million ETH.
Each Staker is assigned to a committee. The more pledged, the more committees . The largest committee size is 2048, roughly equivalent to the entire Ethereum supply used by each epoch (64 committees * 32 ETH * 32 slots * 2048 stakers per committee = 134.2 million ETH).
The figure below illustrates how the number of committees and the number of committee members change with the amount of ETH in the pledge pool. It shows that with the growth of the pledge pool, the number of committees first increased to 64, and then when there were approximately 8.4 million ETH in the pledge pool, the size of the committee began to grow.
The number of committees and the number of committee members.
In order to determine which blocks have the most votes, it is necessary to add up all the votes of all committees . If voters perform well, they can get rewards from the newly issued Ethereum Token pool. If voters violate the rules, they will be fined and lose part of their pledge. The purpose of the penalty is to prevent squatting behaviors such as voting for two conflicting blocks, although this may be allowed in some cases. Staker will be deprived of rewards for being offline.
How to finalize in Ethereum 2.0?
When committee members vote on a block, they must not only vote on a specific block proposal, but also must refer to and vote on a specific historical block checkpoint. It is this mechanism that guarantees the stability of the voting process. Therefore, in fact, in the PoS model, there are two voting procedures, one inside and one outside. The following figure illustrates how these two types of votes occur and in which blocks these votes can be stored.
Voting and quoting, assuming effective communication (assuming that each slot has a committee).
If a checkpoint block is established on a block and more than two-thirds of the committee members mentioned the checkpoint when voting, then the block can be “confirmed”.
The earliest time a block can become “confirmed” is after two-thirds of the block is confirmed.
The next stage is finalization. When a block contains two confirmed blocks in the blockchain, the block is finalized. Therefore, in most cases, when the threshold of two-thirds of voters reaches fast enough, due to effective communication channels, users need to wait for confirmation of one epoch (6.4 minutes) and two epochs (12.8 minutes). Final confirmation. This process is shown in the figure below.
Under normal circumstances, the process of confirming and finalizing a block in the beacon chain.
What are the penalties for those who violate the rules?
In three cases, voters will be punished.
- The block packer makes two conflicting proposals in the same period.
- Submit two checkpoint blocks containing conflicting links at the same time.
- Cast two votes that have overlapping links with the checkpoint block transition. For example, one marks the transition from checkpoint block 1 to checkpoint block 4, and the transition from checkpoint block 1 to checkpoint block 4, and the other one refers to the transition from checkpoint block 2 to checkpoint block 3.
It can be assumed that this rule will be replaced by a more reasonable rule. According to this rule, all references to block transitions must be made in order. However, an honest node may skip a checkpoint block and vote continuously. The result may become legal. A picture illustrates this situation.
How efficient is PoS in Ethereum 2.0?
The developer claims that after the block is finalized, users will be guaranteed that their transactions will not be tampered with . However, these systems are extremely difficult to evaluate in terms of the degree of convergence and final determination.
Perhaps the entire process, including the voting committee, the index of this committee, the link to checkpoint block conversion, and the block that needs to wait for two epochs to be finalized, is an unnecessary abstraction. It is an attempt to integrate the voting system with the PoS model Divide into components to complicate it. But the security model contains a fundamental flaw, that is, the stake has no assets.
On the other hand, it is possible that such a process actually enhances the security of the network .
Multi-component processes—for example, the staking cycle—make it difficult for users who decide to change the staking to change the rules.
How does sharding work in Ethereum 2.0?
In the first phase, shards are added to the system. The original plan was to start with 1024 shards, but now this number has been reduced to 64. The beacon chain is still considered the main chain, but now also contains shard references. Since there are 64 slices, and each beacon block can be associated with 64 slices, it is assumed that in normal operation, each beacon block can be associated with each slice.
There is a two-way link mechanism- fragmented blocks refer to beacon blocks (hash values of these blocks), and beacon blocks can refer to fragmented blocks (cross-reference). Some fragments may not be referenced by beacon blocks, but each fragment block must refer to a beacon chain.
Block structure in the Ethereum sharding system (showing two shards).
The blue arrow represents the hash value of the block, and each block must contain this hash value. The gray arrows represent cross-referenced fragments, which are not necessarily included in the beacon block, as shown on the right side of the figure.
In the first stage, the sharding system and the pledge process become intertwined. The validator committees of the slots starting from stage 0 are displayed in the form of slices. Each shard has its own voting committee, which changes during each “committee period” of the proposed block.
Similarly, in the beacon chain, one committee member is assigned the task of generating a block in a specified time period, while other committee members vote for each proposal during that time period. The key factor is that when the beacon chain references the sharded blockchain through the cross-reference system, all voting data is included in the beacon chain .
In the first stage, the pledge is randomly allocated-either in the beacon chain or in a specific shard. If the stake contains less than 8.4 million ETH, there will not be enough pledges to fully serve all shards, so the work of sharding may be slowed down to a certain extent.
The following figure shows a possibility: Staker committees are allocated by shards.
This allows only one verifier committee for each slot in the beacon chain. However, each shard blockchain contains the hash value of the last beacon block, and each beacon block can contain voting data (cross-reference) for all shards.
Therefore, all votes and pledges on the sharded blockchain can also be used to calculate the rules for selecting the fork and the final determination process of the main beacon chain . The working principle of the PoS system is the same as before, except that the voting data in the committee directory (index) is not included in the beacon chain, but the voting data of each shard.
There is no checkpoint block in each shard blockchain, and there is no confirmation or finalization process. To ensure that the transaction is completed within the shard, you need to wait for the beacon chain. Once the actual block in the beacon chain is finalized, the user can verify whether the transaction is performed in the shard.
Therefore, cross-linking makes:
- The voting rights of the sharding blockchain committee are included in the voting rights of the main beacon chain.
- Finalize and verify the sharded blockchain block.
- Perform all other types of sharding interactions – for example, moving ETH from shards to shards or other types of assets.
The mechanisms required in this regard have not yet been fully developed. As the second phase begins, they may become demand.
The sharding framework allows a node to be managed with flexible quality-able to handle everything, including the beacon chain and each shard . Only the beacon chain can be managed, which includes the header of each sharded blockchain.
There is a third possibility-control the nodes that verify the beacon chain and the selected fragments. If a user chooses not to manage the nodes that process each shard, he must rely on other users to verify the authenticity of the processes in these shards. However, some users are likely to choose to verify these fragments to provide assurance.
What is the future of Ethereum 2.0?
Ethereum holders tend to try new complex systems-DAO, Maker, DeFi.
Some members of the Ethereum community worry that the Ethereum technology has existed for 5 years, but it is still behind, so they think that new technology is needed.
Ethereum 2.0 meets the community’s demand for new ideas, and it can be expected that it will generate large amounts of funds and stake rewards (maybe billions of dollars in ETH).
How will the launch of Ethereum 2.0 affect prices?
In the short term, a large number of ETH Tokens may be locked in the beacon chain, because users will be attracted by the opportunity to make money by packaging new blocks. Therefore, the stock of ETH in the market may shrink and the price may rise. On the other hand, ETH may simply be attracted from other contracts, where they are considered blocked. If Ethereum 2.0 is to become a catalyst for the long-term growth of token prices, not only should the stock not be restricted, but the demand generated is also necessary .
In order for the Ethereum 2.0 network to succeed, the PoS and sharding system must function and be attractive enough to attract economically meaningful components of the Ethereum ecosystem.
Smart contracts and DeFi systems will have to choose shards that suit them, and invest in upgrading their technology to be compatible with the limitations of the sharding system.
What are the main disadvantages of Ethereum 2.0?
Ethereum 2.0 is very complicated. In a system with many committees, shards, and different types of votes, problems such as failure and delayed updates are likely to occur.
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