What is Ethereum 2.0? And Why is it Important in Blockchain Space?

What is Ethereum 2.0? And Why is it Important?

Ethereum 2.0 (Eth2) is an upgrade to the Ethereum network. The upgrade improves the speed, efficiency, and scalability of the Ethereum network. With the current upgrade, Ethereum will undoubtedly be taken to new heights as the network will process more transactions, alleviate congestions, and high gas costs.

Ethereum 2.0

Once it reaches the final phase of upgrade known as “phase 2,” Ethereum will achieve its goals of being an open network for decentralized finance (DeFi). This article explores the features of Ethereum 2.0 and its importance to the blockchain and cryptocurrency industry.

What is Ethereum 2.0?

While we have been watching Bitcoin’s price soar to an all-time high, another cryptocurrency is doing its underground work to take the crypto industry by storm. Ethereum (Ether) is the second-largest cryptocurrency by market capitalization. Since the start of this year, it has been up by about 350%. Within the past week, it briefly went past the $600 mark for the first time since June 2018. This week, it slumped sharply and also went up to touch that level again.

Also Read: Proof-of-work vs proof-of-stake: Which is better for scaling blockchains

Investors have been keeping an eye on the upcoming upgrade to the underlying Ethereum network called Ethereum 2.0. It is a major upgrade to the current Ethereum public mainnet. The upgrade aims to accelerate Ethereum’s usage and adoption by improving its overall performance. Eth2 upgrade comes in phases, and they are as follows:

  • Phase 0

Phase 0 begins in 2020 with the launch of the “beacon chain” of the Ethereum network. The job of the beacon chain is to implement Proof-of-Stake. It will also manage the validators, which will begin attesting blocks into existence on Eth2. Before the beacon chain launches its genesis block, at least 524 288 ETH must be staked on the Ethereum network. These staked ETH will be divided among a minimum of 16 384 validators. The numbers were selected to ensure sufficient security and decentralization.

There will not be any distribution of staking rewards until the threshold is reached. For such reason, some altruistic behavior is needed among early participants in “Phase 0.” Meanwhile, as the beacon chain is launched and Proof-of-Stake is implemented, the original Ethereum Proof-of-Work blockchain will continue to exist. At this stage, the beacon chain will be unable to process transactions, execute smart contracts, or host dapps.

  • Phase 1

There is currently no specified date for the launch of Phase 1, but it is hoped that it will follow the beacon chain’s launch in phase 0. Phase 1 comes with implementing shard chains, which serves as the scalability solution in Ethereum 2.0. To implement sharding, the Ethereum blockchain will be partitioned into 64 separate chains called shard chains. These shard chains will run parallel to one another and interoperate seamlessly. To address the issue of scalability, sharding allows the Ethereum network to process multiple transactions at the same time. In theory, it will be 64 blocks at a time.

Currently, Ethereum and other Proof-of-Work chains can only process one block at a time. With multiple chains interoperating with one another, the data burden will be spread across all processed blocks simultaneously.

  • Phase 1.5

In the Ethereum community, this is the phase where the original proof-of-work (PoW) blockchain will be merged with the new proof-of-stake chain. The PoW Ethereum blockchain will exist as one of the 64 shard chains in the new Ethereum 2.0 chain. This means there will be no break in continuity or data history. It also means that ETH holders will not need to undergo token transfer or swap between Ethereum 1.0 and 2.0.

Also related: The evolution of DeFi and the impact on global financial system

ETH holders will use their ETH on Ethereum 2.0 without stress or their ETH risk becoming obsolete. Although the original proof-of-work chain’s history will still be in existence, it will no longer need the PoW consensus mechanism to be maintained.

  • Phase 2

Currently, phase 2 is less defined than phases 0, 1, and 1.5. We know that with the successful implementation of sharding and proof-of-stake, phase 2 will enable transactions, transfers, withdrawals, ether accounts, and smart contract execution.

What is the Current State of Ethereum 2.0?

The final testnet called “Medalla” for the new Ethereum has been deployed. Medalla is open to the general public and will also allow any of its five clients to connect to the network and communicate with one another. The five clients include Prysmatic Labs’ Prysm, PegaSys’ Teku, Status’ Nimbus, ChainSafe’s Lodestar, and Sigma Prime’s Lighthouse.

Since the network is public, network validators will not be centrally coordinated by developer teams. About 30,000 validators have so far joined the network, and more than 946,000 ETH has been staked. This test will run till the end of 2020, after which the mainnet will be officially deployed.

What is the implication for Blockchain and Crypto Investors?

Currently, more ether (ETH) is being stashed away for a restrictive multi-year “lockup” by holders who seek to become validators. This could impact the supply of ether, hence increasing the asset’s value once demand outpaces supply. There is also a great possibility that it will lead to innovation in the DeFi space. This occurs as investors seek to get some liquidity by borrowing against their locked up ether holdings.


There has been much discussion about Ethereum 2.0 in the blockchain space. With proof-of-stake and sharding, the new network will help improve scalability, security, and accessibility. For Ethereum holders, the upgrade presents them with opportunities to participate and receive rewards for maintaining the network. Kindly share you thought using the comment space provided below.




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