In May, Prysmatic Labs launched their test implementation of the Ethereum 2.0 specification on the Proof-of-Authority Göerli testnet, known as “Sapphire”. This marks the third Ethereum 2.0 testnet to come online in 2019, after the Nimbus and Lighthouse testnets went live in March and April respectively.
Ethereum 2.0, also known as Serenity, is a long-awaited upgrade to the decentralized network’s protocol that is intended to both drastically increase the throughput of the network, and reduce the energy consumption requirements of the network - two necessary milestones that will need to be reached to materialize Ethereum’s goal of becoming a “world computer”.
The first dramatic change that is featured in the Ethereum 2.0 update is the introduction of a new consensus algorithm, Proof-of-Stake (PoS), to replace the current consensus algorithm, Proof-of-Work (PoW). Proof-of-Work is a well tested decentralized consensus mechanism that was first implemented in Bitcoin in 2009 and later adopted by Ethereum in 2015.
Although PoW works well at what it is intended to do, it has long been criticized for being very energy intensive - at current levels PoW for cryptocurrencies consume more energy than an entire country.
The switch to Proof-of-Stake will almost entirely eliminate this wasted energy (in terms of the Ethereum network - Bitcoin has no plans to switch from PoW), as the giant cryptocurrency “mining farms” can be replaced by a small number of low-powered PC’s.
The other major change to the Ethereum protocol is the introduction of “sharding” - a feature that is expected to drastically increase the transactional throughput and computational capacity of the network.
This will work by essentially splitting the blockchain into different “shards” - individual chains that operate in parallel, have their own smart contracts, transactions and state, and are connected together by a main chain called the “beacon chain” that manages the network validators and facilitates communication between each shard via cross-links.
An architecture diagram showing a simplified version of Ethereum 2.0 is shown in the image above - in this diagram you can see that the beacon chain connects the separate shards, and an execution layer is layered on top of each shard.
The Sapphire testnet, like the other two Ethereum 2.0 testnets that were launched recently, is a publicly accessible, single client (Prysm) testnet that is testing only the operation of the beacon chain at this stage. The Sapphire testnet only accepts Prysm clients, and implements version 0.4 of the official beacon chain specification that was released by the Ethereum research team in March (the most recent version is 0.6.1).
The testnet includes the ability to deposit a stake of 3.2 test-ETH into the validator contract on the Göerli testnet to register as a validator, allows users to run a validator node, and allows those validators to actively participate in the Proof-of-Stake consensus protocol and earn (or lose) test-ETH based on their node behaviour.
After successfully testing the single-client implementations of the Ethereum 2.0 specification, the next step (after the Ethereum 2.0 spec has been finalized) will be the launch of a multi-client testnet. A multi-client testnet will essentially replace all three existing beacon-chain testnets with a cross-compatible version that can be joined by Prysm, Nimbus, Lighthouse and any other client that has implemented the Ethereum 2.0 specifications properly, and will ensure that all the different clients communicate and interact seamlessly.
After the successful completion of the beacon chain and proof-of-stake system, Ethereum 2.0 will continue through the following phases:
Phase 0 is the first phase of the Ethereum 2.0 roadmap, where the basic properties of the beacon chain are established and tested. At the moment, public single-client testnets are in testing. After the specification has been fixed, multi-client networks will be launched and tested for interoperability. Phase 0 is expected to be completed by late 2019.
Phase 1 will bring support for shards, and will test shard consensus and the validity of beacon-chain and shard-chain interactions. Phase 1 will not have any state execution (transactions, contracts etc.). Phase 1 is expected to launch sometime in early 2020.
Phase 2 will reintroduce support for accounts, transactions and smart contracts, and will include an upgraded version of the Ethereum Virtual Machine (EVM) using eWASM, which will allow for more efficient computation. The timeline for phase 2 and above is not as clear, but it is expected Phase 2 will be ready in late 2020 or early 2021.
This phase will bring the development of new clients that are designed for low-powered and low-storage devices such as smartphones, IoT devices, web browsers etc. This phase is expected to be implemented sometime in 2021.
Phase 4 will introduce cross-shard communication and transactions. The different shards will become aware of one another, and be able to share data and transact between one another.
After phase 4, the roadmap becomes less well-defined as further developments are still being made. After successfully implementing cross-shard communication, further iterations and improvements will be made to improve efficiency and accessibility. Phase 4 is expected to be implemented at the same time as phase 3, in 2021.
Ethereum has a well-defined roadmap, a clear vision and implementation strategy, and the resources to execute on that vision, which, when combined with Ethereum’s wide developer and community support and their first mover advantage, leaves Ethereum in a good position to preserve its status as one of the most popular blockchain networks.
The information in this article is general in nature. Any advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
The article content is not intended to be a substitute for professional advice and readers are urged to seek their own appropriate advice before making decisions.
Any reference to a particular investment is not a recommendation to buy, sell or hold the investment.