A comprehensive understanding of Ethereum 1.0 to 2.0

The recently completed Ethereum London upgrade has generated a lot of buzz throughout the entire crypto assets industry. Why is the London upgrade so important? Because it is a crucial step for Ethereum in transitioning from 1.0 to 2.0. Since the inception of the Ethereum network, there have been multiple hard forks. The first one adjusted mining difficulty, the second was the “Homestead fork,” and the third was due to a “hacker” attack leading to the “DAO and blockchain fork.” In November 2016, a fourth fork was conducted to reduce weight and prevent DDoS attacks. In March 2019, to improve speed and expand capacity, the “Constantinople and St. Petersburg upgrades” were implemented; in April 2021, to optimize mainnet performance, Ethereum once again carried out the “Berlin upgrade”… up until the Ethereum London upgrade on August 4, 2021. As development progresses, Ethereum network upgrades have become more frequent.

Why does Ethereum have so many upgrades? How does Ethereum transition from 1.0 to 2.0? What important stages are involved?

01 Why does Ethereum have so many Hard Fork upgrades?

Ethereum's grand blueprint as a “world computer” and “global open-source platform” is built on the POW blockchain consensus mechanism, which establishes Ethereum's fate of continuous upgrades. As a “global open-source platform”, Ethereum aims to support applications, so the greatest requirement for the underlying chain is: super strong processing speed. However, this is precisely the Achilles' heel of the POW consensus mechanism. POW is public, transparent, decentralized, and highly secure, but: the transaction processing speed is very slow. Bitcoin, which uses the POW consensus mechanism, can only process 7 transactions per second; Ethereum, which also uses the POW consensus mechanism, has a similar low processing speed, handling only 15 transactions per second. Therefore, as the Ethereum network grows larger, with more users and more applications developed on-chain, upgrades will become more frequent.

In addition, the bidding model has been used for Ethereum transaction confirmations for the past six years. This means that when multiple transactions appear before a miner at the same time, the miner chooses to prioritize confirming the transaction with the highest fee. This leads to: during peak network periods, transaction fees skyrocketing, and to have transactions confirmed quickly, one must pay high fees; some users with low fees may not even get their transactions confirmed. This extremely high-cost fast confirmation of transactions and the unlimited delay in confirmation for low fees will greatly harm the Ethereum network ecosystem.

Moreover, the POW consensus mechanism has been criticized for several issues: it consumes too many resources and is not environmentally friendly; the POW mechanism can also lead to increasing centralization of mining. As computing power increases and mining costs rise, this results in only a small portion of people with large capital being able to mine. 65% of Bitcoin mining is completed by large mining groups. For ordinary users, running a full node to verify and record Blockchain data becomes increasingly difficult. This trend of centralization in miner computing power and full nodes has made the chain less decentralized than originally envisioned, which is very detrimental to the overall security of the protocol.

This is why Ethereum has gone through multiple forks and even revolutionary upgrades, allowing Ethereum to leap from 1.0 to 2.0.

What is Ethereum 2.0?

So what is Ethereum 2.0? How is it different from Ethereum 1.0? How does Ethereum transition from 1.0 to 2.0? From the very beginning of its birth, Ethereum has planned a detailed development roadmap:

Phase One: Frontier; Frontier refers to the initial version of Ethereum.

Phase Two: HomeStead; After the second fork upgrade of the mainnet in March 2016, the first stable version was released, called “HomeStead.” After this version, the Ethereum project grew rapidly.

Phase Three: Metropolis. In this phase, the security of Ethereum is enhanced, improvements in smart contract writing, and optimization of Mainnet performance. The Ethereum network officially enters its mature stage, gradually showcasing its power. The boom of “Initial Coin Offering (ICO)” in 2017, the rise of the DeFi ecosystem in 2020, and the popularity of on-chain NFTs have brought numerous opportunities for wealth creation on the blockchain. At the same time, the inherent flaws of the network under the POW consensus mechanism are highlighted.

Stage Four: Tranquility. In the tranquility stage, Ethereum will officially transition from the POW proof mechanism to the POS proof mechanism, and develop a second expansion plan to comprehensively enhance the operating efficiency of the Ethereum network. Specifically, it aims to completely solve the long-standing network congestion and high transaction fee issues of the Ethereum network, while also ensuring the security of the decentralized network, striving to find a balance and optimal solution within the impossible triangle of blockchain. This will allow Ethereum to achieve a “complete ecological application,” ultra-fast processing speed, and the blueprint of a “world computer” with numerous network collaborative developments.

In short, the first three phases are all about Ethereum's long-term exploration and patching in 1.0; the Serenity phase is when Ethereum 2.0 can make a qualitative leap, and one can even directly say that “Serenity” is Ethereum 2.0.

How did the Ethereum network transition from 1.0 to 2.0?

So, how did the Ethereum network transition from 1.0 to 2.0, and what are the important participation stages?

1. Launch the Beacon Chain.

The biggest focus of the transition from Ethereum 1.0 to 2.0 is the shift from POW to POS. Therefore, the Ethereum chain must support POS staking Mining. On December 1, 2020, Ethereum launched the Beacon Chain, allowing users to stake ETH using smart contracts on Ethereum to participate in POS and earn rewards. However, the current Beacon Chain does not yet have the capability to process transactions and execute contracts, and the staked ETH and earned rewards are locked, with an estimated withdrawal period of at least 2 years.

2. To prosper the Ethereum ecosystem, it is essential to solve the transaction fee issue.

The issue of Ethereum transaction fees has been longstanding. It was finally resolved in the London upgrade on August 4, 2021. A key aspect of the London upgrade is the design of EIP-1559. EIP-1559 changed the original completely auction-based fee model to a “base fee + tip” model. The base fee must be paid, and its rate is determined based on the base fee of the previous block and the resource utilization of that block; the tip portion is an additional optional fee that users pay to “jump the queue” for transaction confirmation. This smooths out transaction confirmation fees, preventing the rapid increase of fees for quick confirmations and ensuring that low-fee transactions can still be confirmed. It ensures efficiency while also considering fairness to some extent.

In addition, the design of EIP-1559 ensures that the base fee for each transaction is burned. This means that the more economic activities occur within the Ethereum network, the more ETH will be destroyed. From an economic perspective: the destruction of ETH as the base fee leads to a certain degree of deflation for Ethereum; and with the optimization based on fees, the more economic applications occur on the Ethereum chain, the more Ethereum is needed as buying power; while as selling power, part of the miners' income is burned, which further increases the value storage of Ethereum.

3. Design difficulty explosion, allowing miners to switch from POW to POS mining.

In theory, POS is indeed more efficient and environmentally friendly than POW, and after the London upgrade, transaction fees are lower as well. Therefore, users and entrepreneurs who use the Ethereum public chain will certainly vote for POS with their feet. However, how can we encourage miners to abandon POW and switch to POS? This is a much greater challenge. Miners have invested a large amount of capital in purchasing mining machines and building mining farms. Suddenly asking them to abandon all of this productivity and start from scratch in a different field to raise capital for mining is too difficult.

If Ethereum merely launches the Beacon Chain and allows POW and POS mining to coexist, then Ethereum's transition to 2.0 could be quite difficult. Miners may continue to insist on POW mining, leading to a stalemate.

So Ethereum designed a difficulty explosion. But it was originally designed to launch alongside the London upgrade, yet it has been repeatedly delayed. Why is that?

The difficulty explosion essentially increases the difficulty of Mining for POW miners. Moreover, this difficulty rises geometrically. This means that once it reaches a certain point, Mining can become extremely difficult, and miners may end up with nothing. To put it bluntly: the difficulty explosion is a design that forces miners to abandon POW. If miners are dissatisfied, it can easily lead to a fork. This is because the essence of a Blockchain's operation is “consensus.” In addition, if the POS mechanism does not address the issues of transaction confirmation efficiency, decentralization, and security; and the POW chain faces a difficulty explosion, making it impossible for miners to mine, it will lead to unconfirmed transactions and network congestion. This could directly cause the Ethereum network to collapse. Therefore, it is crucial to utilize the difficulty explosion to facilitate a smooth transition from POW to POS.

It is obvious that, at least before the difficulty explosion, the performance of the POS chain must be large enough to take over the work from POW and handle all transaction processing. It must be efficient while meeting the requirements of decentralization and security.

In this regard, does Ethereum have a solution? Yes, it uses shard chains to solve it.

4. Sharded Chain.

Many times, we believe that the remarkable performance improvement of Ethereum 2.0 is due to the change from POW to POS. In fact, POS does not directly reduce network congestion or improve transaction processing speed; rather, POS enables shard partitioning. Shard partitioning is the key technology that enhances network efficiency, allowing the blockchain network to upgrade from processing dozens of transactions per second to tens of thousands or even hundreds of thousands. How exactly does this technology improve the scalability of the network?

Currently, Ethereum has only one public chain, and the blocks are generated in order. The speed of block generation and the number of transactions that each block can record determine the number of transactions Ethereum can process per second. It's like shopping in a supermarket where only one checkout counter is open. Everyone has to queue at that one counter to pay. Unless the supermarket is quiet with hardly any customers, it would be extremely difficult to make a quick payment. However, if several checkout counters are opened at the same time, the efficiency will greatly increase.

The principle of sharding is as follows. In order to improve transaction processing speed, Ethereum 2.0 divides the original single chain that carries data and verifies nodes into 64 shard chains, processing transactions simultaneously. It is evident that this approach will greatly improve efficiency. However, since each chain processes information separately and the information is not synchronized across the entire network, wouldn't it be easy to double spend and commit malicious acts? Ethereum 2.0's solution is that different shard information communicates with each other, allowing transactions belonging to different shards to be confirmed; it also designs a beacon chain as the main chain, on which smart contracts are established to randomly assign validators; 128 validators will form a committee to produce blocks and distribute rewards; and after every 64 blocks, the beacon chain will randomly select a new round of validators. This greatly reduces the possibility of malicious actions.

In addition, to more effectively prevent double-spending attacks and malicious node behavior, Ethereum 2.0 implements a penalty mechanism for wrongdoers. This means that once a malicious node is detected, all of its staked ETH will be confiscated. This is much harsher than the punishment for “wrongdoers” under the POW mechanism.

With such layers of defense, the security of the Blockchain operating under the POS mechanism is greatly improved and is not inferior to that of the POW mechanism.

04 Conclusion

However, this technology is indeed too complex. Ethereum is still under development. To fully implement sharding technology and incorporate all the data of 1.0, it will likely take a long time. Therefore, Ethereum 2.0 has a promising future, but we cannot rush it. Specifically, it still depends on the technological progress of the Ethereum project. This is why when investing in digital currencies, we must emphasize the importance of the technical team behind the coin. Because technology seems distant and elusive, it is actually crucial for investing in coins. They are the key to whether a coin or a chain can achieve development. **$DOGE **$DOT