If the creation of Ethereum ushered in a new era of experimentation in financial applications, Ethereum 2.0 seeks to continue this progress by altering the network’s design. This includes migrating to a new consensus mechanism that will govern how transactions are approved by the network and its cryptocurrency is distributed. 

But before we dive into its new iteration, it is important to understand how Ethereum, one of the most ambitious cryptocurrency projects to date, operates. 

Ethereum was built to be a kind of operating system for hosting any number of custom assets and programs, called decentralized applications (dapps).

To create dapps, developers write programs, called smart contracts, and deploy this code to the Ethereum blockchain. These dapps are essentially large constructions of smart contracts that can be set in motion if and when specific outcomes are met.

Today, Ethereum uses proof-of-work mining (in which computers burn energy to solve puzzles needed to create blocks) to power its blockchain. Miners batch transactions into new blocks roughly every 12 seconds.

Using this design, the Ethereum blockchain currently processes 12 transactions per second over its distributed network, a figure that may prove higher once Ethereum 2.0 is enacted. 

Ethereum 2.0 will bring three major upgrades to the Ethereum blockchain. 

Ethereum Proof-of-Stake (PoS)

Under the Ethereum PoS model, users, called validator nodes, can lock ETH cryptocurrency in a smart contract, which then would earn rewards for solving computations needed to add new blocks to the blockchain. 

The minimum amount of cryptocurrency required to become a validator node is 32 ETH, which allows them to support the network by verifying transactions, storing data and adding new blocks to the blockchain. 

Of note, Kraken users can stake less than 32 ETH on its platform, contribute to its network and earn a portion of the staking rewards. For more information on Ethereum staking, please visit our crypto staking page. 

Ethereum Sharding

Sharding refers to the process by which Ethereum’s infrastructure will be split into several interconnected pieces to support more transactions. 

Each piece, or shard, acts as its own blockchain and allows validators assigned to them to store data, process transactions and add new blocks to their specific shard chain.

This means that shard nodes contain a specific subset of the Ethereum blockchain, and are no longer required to store Ethereum’s entire history.

ETH 2.0 Beacon Chain

The Beacon Chain is the foundational chain of Ethereum 2.0 and plays an important managerial role by coordinating validator nodes in the network and keeping shards secure and in sync. 

After a user stakes 32 ETH, the Beacon Chain randomly assigns validator nodes to specific shard chains, and then ensures that the nodes act in good faith.

For example, validator nodes can lose ETH for malicious actions, going offline or failing to validate transactions. 

Each shard will be linked to the Beacon Chain, where validators will take turns creating and validating new shard blocks before adding them to the rest of the network.
 

Developers are currently working on new Ethereum 2.0 features, to be rolled out during phases.

Phase 0

This phase saw the launch of the beacon chain, enabling ETH holders to become validator nodes and stake their ETH to earn additional income. 

For the beacon chain to launch, 16,384 validators needed to stake a minimum of 32 ETH on the beacon chain, a milestone that occurred on November 24, 2020. The code was then deployed on December 1, 2020. 

The beacon chain has limited functionality during phase 0 since there is no transaction or smart contract support.

Phase 1

This phase would split the Ethereum blockchain into 64 shard chains (a number likely to increase once the full version of Ethereum 2.0 is released).

Further, phase 1 will extend the beacon chain’s PoS consensus across all shards, allowing validators to create blocks on their specific chain.

While shard chains will still not be able to process transactions or smart contract support, they will be able to store Ethereum data.

Phase 1.5

In Phase 1.5, Ethereum will be merged into a single, unified network.

This phase will see the addition of the current Ethereum chain, which contains the full Ethereum history, as one of the shards in the new ethereum 2.0 system and fully transition Ethereum from proof-of-work to proof-of-stake.

Phase 2
This is the final phase of Ethereum’s roadmap to 2.0, where the upgrade will become the official Ethereum network. 

Phase 2 involves adding functionality to shard chains, enabling them to process transactions and execute smart contracts so that dapp developers can deploy their applications on shards.

If you are interested in learning more about Ethereum, please visit Kraken’s “What is Ethereum?” pages.

If you want to learn more about the consensus mechanisms that power Ethereum and Ethereum 2.0, then the “Proof of Work vs. Proof of Stake” page is where you want to go! 

Want more in depth information on other cryptocurrencies and blockchain projects? If so, visit our Learn Center to further your education on this ever-growing space.
 

If you are ready to take the next step and want to buy some Ether, click the button below!

Curious about Ethereum staking on Kraken? Staking is a safe and easy way to earn rewards on the ETH in your Kraken account.