Like Bitcoin and other major cryptocurrencies, Ethereum saw a large spike in adoption in recent years, mostly driven by eager investors.
The digital currency is the second-biggest in the world behind Bitcoin, but it is significantly different in terms of design.
Both cryptocurrencies are based on blockchain technology, but Ethereum’s underlying vision is to build a decentralised virtual computer rather than a currency.
This has led its developers to telegraph a move away from ubiquitous proof-of-work consensus mechanisms, where miners solve cryptographic puzzles to vote on blocks which are then added to the ledger.
Instead, Ethereum was designed from the start to migrate to a proof-of-stake consensus mechanism, where participants vote on which block should be added to the blockchain by staking their own cryptocurrency.
Implementing proof-of-stake presents a number of challenges, but it also has many advantages if it is done correctly – it reduces the wasted energy of GPU and ASIC mining while also improving accessibility for users.
The original plan for Ethereum’s original proof-of-stake migration was a rough idea of implementing a hard fork that changed the base consensus mechanism of the blockchain – similar to how many other technology upgrades are delivered.
However, the new plan is to move to Ethereum 2.0 – a new blockchain which will migrate old Ethereum users’ wallets and balances and will be powered by a proof-of-stake consensus mechanism enabled through sharding.
Sharding refers to blockchains which are linked together and can communicate freely to improve scalability and performance.
When it is completely implemented, Ethereum 2.0 will include sharding, proof-of-stake, a new virtual machine, and many other technologies which would be much harder to implement on the existing Ethereum blockchain.
The first phase – Phase 0 – of the Ethereum 2.0 implementation is already in testing and is named the Beacon Chain.
This Beacon Chain will manage the proof-of-stake protocol for both its own transactions and those of all its shard blockchains.
Phase 0 will also introduce ETH2 – an asset which can be earned for validating the Beacon Chain and purchased by sending standard Ethereum to a special smart contract.
The Beacon Chain is expected to go live this year, with users able to convert their ETH into ETH2 and to validate blocks using the proof-of-stake protocol.
Phase 1 will link the Beacon Chain with shard chains to enable parallel transaction throughput, greatly improving scalability and performance.
Phase 2 will reintroduce smart contracts and add virtual machines to each shard chain. This will support all the applications Ethereum users would be familiar with, such as dApps, broker contracts, and ENS.
According to the sharding protocol roadmap, the next phases will introduce a light client state protocol, cross-shard transactions, improved security, and super-quadratic sharding.
While the roadmap for the launch of Ethereum 2.0 is mutable, Consensys co-founder Andrew Keys said that he expects Ethereum 2.0 to move from Phase 0 to Phase 1 and launch shard chains.
“2020 will see Ethereum move stridently beyond Phase 0 of Ethereum 2.0, onto Phase 1 and the launch of shard chains,” Keys said. “Then, it’s game on. ”