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What Ethereum 2.0 is and how it is different from Ethereum 1.0

Blockchain technology has revolutionized global markets, disrupting finance, trade, agriculture, and healthcare. Over 14,000 different altcoins have been created since Bitcoin, which was the first widely used decentralized blockchain. Ethereum is the second-largest market capitalization and the largest general-purpose blockchain. Bitcoin’s focus is on becoming a store of value and an inflation hedge that is easy to use and secure to transfer. Smart contracts and decentralized applications (Dapps) are the focus of Ethereum, on the other hand. Although Ethereum is an excellent product, it is not perfect, and the Ethereum Foundation has the ability to improve aspects such as performance and security, which it is doing with Ethereum 2.0.

Ethereum 2.0 versus Ethereum #

Serenity, also known as Ethereum 2.0, is the first upgrade to the Ethereum blockchain. It is designed to increase the Ethereum network’s speed, efficiency, and scalability, as well as to boost security and make the network more sustainable.  ETH holders need not worry; there is nothing they have to do; the ETH 2.0 upgrade is happening in the background, and holders shouldn’t even notice the change.

There is a need to increase the number of possible transactions/second (currently 15 to 45) due to bottlenecks with ETH-1.0.  There are two major structural changes in ETH 2.0:

  • Validators are facilitators of the Ethereum blockchain who check ongoing transactions instead of Ethereum Proof of Work miners doing this. Validators must post a bond of 32 ETH to prevent malpractice.
  • Sharding-It is the splitting of a blockchain into different blockchains (shards). Sharding makes it easier for the validators to maintain their own blockchain. To avoid manipulation and strengthen security, validators will also be shuffled between shards, with beacon chains being used to communicate between them.

ETH 2.0‘s Infrastructure #

The Network’s infrastructure and maintenance are the responsibility of 128 Validators (called committees on each Shard). Signing and withdrawal keys confirm their position, enabling them to verify each transaction’s validity; this process of validating each transaction is called “attesting.”.  The Validator committee decides whether or not the blockchain is valid. The committee proposes and validates new shard blocks every 12 seconds, or a “slot.”

ETH 2.0 will initially have 64 shards.  Therefore, each slot has the potential to reward a shard validator for adding a block.  The Shards consist of 64 shard blocks (one per Shard) and one beacon chain block per Shard.

Image courtesy of London Blockchain Labs

Each Epoch is made up of 32 slots and lasts approximately 6.4 minutes.

Each epoch, a new set of validators is chosen through a semi-random process called RANDAO using the 128-validator committee.  It removes malicious validators’ control over the final outcome of proposed blocks by changing the committee.

ETH 1.0 vs. ETH 2.0: What’s the Difference? #

The main difference is in the “consensus mechanism” used (confirming a transaction). Ethereum 2.0 uses Proof of Stake (PoS) instead of proof of work (PoW).

Currently, Ethereum’s Proof of Work (PoW) mechanism is a computationally and energy-intensive process that solves a complex mathematical puzzle for the validation of transactions. Whoever solves the puzzle fastest gets rewarded. The PoW mechanism should foster innovation in the renewable energy sector.

The Validators verify transactions instead of miners in Proof of Stake. Due to the fact that PoS uses much less computing power for block creation, PoS is more energy-efficient than PoW.  ETH 2.0 is estimated to use 99.95% less energy than ETH 1.0.

Graph Courtesy of Decrypt.co
Graph Courtesy of Decrypt.co

PoW mining with Ethereum is a very competitive business that requires a great deal of investment in mining hardware and power consumption; this will change with the switch to Eth 2.0, making it easier to participate.

The Future of Ethereum 2.0 #

Ethereum 2.0 will be introduced in three or three and a half phases from the end of 2020 to 2022:

  • Phase 0, which was launched in December 2020, implemented the Beacon Chain, the registry of validators, and deployed the Proof of Work mechanism.
  • In Phase 1, 64 shards will be launched in the first iteration in 2021.
  • During Phase 1.5, the existing Ethereum 1.0 chain will merge into an ETH 2.0 shard. Validators at this point are free to enter and exit. This will be known as “The merge”
  • During Phase 2, 64 shards will be fully functional with smart contract compatibility, and other features will be added. Phase 2 Shard Chains will be complete by the end of 2021 or 2022.
Graphic courtesy of SCN
Graphic courtesy of SCN

ETH 2.0: Transactions Per Second #

The scalability and throughput of even second-generation cryptocurrencies like Ethereum are limited. Currently, Bitcoin can handle only seven transactions per second and guarantees only 4.6, whereas Ethereum can handle between 15-45, which is a bottleneck if usage exceeds this, which it sometimes does. VISA claims to be able to handle 24,000 transactions per second, while the ETH 2.0 network could scale up to 100,000 transactions/sec.

ETH 2.0’s Impact #

As a result of the fee structure change, Ethereum users will pay less for a transaction. In other words, the current miners will make less per transaction for the new inclusion fee than Ethereum’s auction-style fee market. However, the expectation is that their cost per transaction will decrease due to the improved energy efficiency of PoS, and the number of transactions will increase due to their lower cost, which will benefit both the user and the Validator.

The lower costs and higher speed of ETH 2.0 make more types of Defi transactions possible and give opportunities to new and different kinds of Security Tokens, NFTs, and other Distributed Finance applications that were not economical feasible with ETH 1.0.

ETH 2.0 will also provide more complex and cheaper smart contracts using zero-knowledge rollups and optimistic rollups. Rollups make it possible to bundle and make available all transaction data on Ethereum in a cheaper way than regular blockchain-based transactions would. The computation load of rollups is done off-chain, thus increasing transactional efficiency and throughput.

Sharding will democratize the network, eventually enabling ordinary users to operate Ethereum on a personal device.  This further decentralizes the network.  We will also see a decrease in ETH issuance; 

Ethereum co-founder Vitalik Buterin has said that new token issuance under ETH 2.0 should be between 100,000 and 2 million a year, down from its current 4.7 million a year, potentially resulting in an increase in coin demand.

Conclusion #

With the upgrade to ETH 2.0, this helpful global decentralized smart contract system will move forward with its vision of speed, security, and reliability, while reducing its carbon footprint and leveling the playing field for investors to have a democratic say in ETH’s future by staking their ETH.

 Ethereum 2.0 is a needed upgrade to a blockchain network that is already the most widely used for smart contracts.  As cryptocurrencies, smart contracts, Dapps and NFTs become more widely accepted, the scalability of the Ethereum 2.0 network will undoubtedly attract more users, thus making it the service of choice.


Berkowitz, B. (2021, May 27). What Is Ethereum 2.0 and When Will It Happen? The Motley Fool. https://www.fool.com/investing/2021/05/27/what-is-ethereum-20-and-when-will-it-happen/

Ethereum. (2021, May 1). The Eth2 upgrades. Ethereum.Org. https://ethereum.org/en/eth2/

Updated on January 22, 2022
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