2020 is poised to be a pivotal year for Ethereum 2.0, with the anticipated launch of Phase 0 (the Beacon Chain) set to accelerate work on subsequent phases and drive growth within the Ethereum ecosystem. Based on the current development status and the workload required to deliver Ethereum 2.0, here is a personal outlook for the year ahead.
Network Development
Ethereum 2.0 implementation consists of three phases. Although these phases will largely proceed sequentially—with Phases 1 and 2 likely completing around the same time—all three are being developed concurrently to some extent.
Phase 0 Design, Implementation, and Release
Undoubtedly, Phase 0 is the most critical task for Ethereum contributors in 2020. If the year concludes without a stable release of Ethereum 2.0 Phase 0, it would be challenging not to view the project as a setback. Conversely, a successful launch would demonstrate Ethereum 2.0’s potential to provide a trustless, high-throughput foundation for decentralized finance, computation, and the future of trust.
Design work for Phase 0 is nearly complete. No major rewrites are expected; any future modifications will address issues discovered during large-scale testing. The BLS cryptographic scheme, which underpins Ethereum’s keys, has reached an adequate level of standardization—marking the finalization of the last key technology Phase 0 relies on.
Two exceptions remain: validator interactions and rewards. With the minimum number of validators required to launch the Beacon Chain reduced from 65,536 to 16,384, the current reward system still presents challenges. Validator interactions need refinement to reduce scenarios where staked funds cannot actively participate in validation.
Implementation work for Phase 0 is well underway. Two independent teams have developed Ethereum 2.0 node software with sufficient functionality and maturity for final testing. Other teams are in advanced development stages but not yet ready for interoperability testing. As design changes are now limited to bug fixes and optimizations, the time between releasing updated Phase 0 specifications and running corresponding code has shortened to mere days.
Considering the testing required before initial implementation and the need to address emerging bugs, the Beacon Chain is expected to begin producing blocks in Q2 or Q3 of this year.
Phase 1 and Phase 2 Design and Implementation
While Phase 1 and Phase 2 designs are progressing alongside Phase 0, they are still undergoing significant changes. Phase 1 introduces sharding, distributing Ethereum 2.0’s computational load across subsets of validators. Phase 2 will provide execution functionality, creating structures for processing transactions on sharded chains.
Phase 1, in particular, has seen numerous redesigns over the past year. The current design strikes a balance between scalability and simplicity, though it remains to be seen if alternative designs will emerge. To ensure timely implementation, Phase 1 design must be finalized by the first half of 2020.
Phase 2 design is less complex than Phases 0 and 1. This phase defines the concept of execution environments—engines within Ethereum 2.0 responsible for processing transactions. However, Phase 2 itself does not specify any particular execution environment. Instead, multiple execution environments, developed by both Ethereum teams and third parties, are expected to launch alongside Phase 2. These can be categorized into two types: general-purpose and specialized execution environments.
General-purpose execution environments will offer all functionalities commonly associated with blockchains today. One might emulate Ethereum 1.0, another Bitcoin, and yet another Zcash. Users will be able to interact with these environments much as they do with existing blockchains.
While Ethereum 1.0 supports diverse transaction types—a trait Ethereum 2.0 will inherit—many share commonalities. For instance, most token contracts (e.g., ERC-20 contracts) have similar needs: holding tokens, transferring tokens, etc. In such cases, a specialized “token contract” execution environment could offer dedicated functionality more efficiently than deploying individual contracts within a general-purpose environment, as is currently done on Ethereum 1.0.
Substantial work remains in designing general-purpose execution environments and, especially, defining specialized ones for common use cases. Research is ongoing, but initial definitions should be completed by Q2 or Q3 2020 to allow for implementation and testing.
Migrating Ethereum 1.0 to Ethereum 2.0
Phase 0 of Ethereum 2.0 is a complex and resource-intensive endeavor, but it offers little utility to end-users. Indeed, Phase 0 alone does nothing for Ethereum except potentially increase inflation. Currently, the most promising proposal for merging Ethereum 1.0 with Ethereum 2.0 involves integrating Ethereum 1.0 into Ethereum 2.0 (e.g., as shard 0), eventually adapting it to function as an execution environment within Ethereum 2.0. While this may not be finalized in 2020, the push to accelerate the merger is significant and likely to conclude by late 2021.
A critical consideration is that when Ethereum 1.0 merges with Ethereum 2.0, one or more entities may continue operating Ethereum 1.0 as an independent chain. Entities with substantial investments in Ethereum 1.0 infrastructure may be incentivized to maintain it, disregarding Ethereum 2.0’s development.
Although lack of user interest could cause such a chain to fade quickly, users and smart contract developers must prepare for the possibility of a persistent fork. This would affect not only ETH balances but also token balances, ENS registrations, and all other assets and data on the current Ethereum 1.0 chain. Contract owners would need to act swiftly to designate which chain hosts their official tokens and data, avoiding user confusion.
Ecosystem Growth
While the launch of Ethereum 2.0 Phase 0 is crucial, the Beacon Chain alone will not be particularly useful without supporting developments. Preparations for Phases 1 and 2 are essential to ensure they launch with the necessary infrastructure to operate effectively.
Wallets
Ethereum 2.0 uses keys similar to Ethereum 1.0 but based on different standards. This means Ethereum 1.0 keys cannot be used for Ethereum 2.0 transactions. Work is needed to build wallets supporting Ethereum 2.0 keys.
Many Ethereum 1.0 wallets were created before best practices for wallet functionality and security were well-established, leading to numerous incompatible implementations. In contrast, Ethereum 2.0 benefits from proposed standards like EIP-2333, EIP-2334, EIP-2335, EIP-2386, and EIP-2426, which provide a foundation for creating compatible wallets across different implementations.
Additionally, there is no standard yet for Ethereum 2.0 addresses. Addresses are important because they include checksums, helping protect user funds from errors in copy-pasting or transcription. Discussions on Ethereum 2.0 address formats are ongoing.
While fully functional Ethereum 2.0 wallet implementations may not emerge in 2020, standards should be finalized this year, with early participants offering essential wallet functionalities for validators. Also, watch for new hardware wallets supporting Ethereum 2.0.
Securing Withdrawal Keys
Each validator has a withdrawal key, which will be required to retrieve staked funds once withdrawals are enabled. Withdrawal keys must be securely stored until needed, ideally using offline solutions.
Expect to see various methods and companies offering withdrawal key protection services, which will become widely adopted over time.
Staking Custody Services
Ethereum 2.0 features an active staking system where validators must remain online and active to earn rewards (and avoid penalties). Although validator hardware costs are relatively low, the ongoing effort required to manage networks and software may lead many ETH holders to prefer using staking custody services for Ethereum 2.0 validation.
Various models for staking custody services will emerge, offering different security levels, fund access controls, and customer engagement. Multiple companies are expected to provide staking services based on these models, primarily within six months of the Beacon Chain launch.
Conclusion
2020 is a make-or-break year for Ethereum. Building the Ethereum 2.0 network is inherently complex, and doing so under the Ethereum name significantly increases the stakes. ETH has established itself as a store of value, and the current Ethereum chain runs smart contracts critical to many enterprises.
Do not expect a fully functional Ethereum 2.0 chain with thousands of times the throughput of Ethereum 1.0 to emerge overnight. However, significant steps toward this goal are anticipated, including an operational Beacon Chain, finalized designs for merging Ethereum 1.0 and 2.0, and comprehensive execution environment implementations. 2020 will undoubtedly be a year worth watching!
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Frequently Asked Questions
What is Ethereum 2.0?
Ethereum 2.0 is a major upgrade to the Ethereum blockchain, aimed at improving scalability, security, and sustainability. It introduces proof-of-stake and sharding to achieve these goals.
When will Ethereum 2.0 launch?
Phase 0 (the Beacon Chain) is expected to launch in Q2 or Q3 of 2020. Subsequent phases will follow, with full functionality likely arriving in 2021 or later.
How will Ethereum 1.0 and Ethereum 2.0 merge?
The current proposal involves integrating Ethereum 1.0 into Ethereum 2.0 as a shard, eventually adapting it to function as an execution environment within the new system.
What are execution environments?
Execution environments are engines within Ethereum 2.0 that process transactions. They can be general-purpose (emulating existing blockchains) or specialized (optimized for specific tasks like token contracts).
Can I use my existing Ethereum wallet for Ethereum 2.0?
No. Ethereum 2.0 uses different key standards, so existing Ethereum 1.0 wallets will not support Ethereum 2.0 transactions without updates or new implementations.
What is staking in Ethereum 2.0?
Staking involves locking up ETH to become a validator in the proof-of-stake system. Validators earn rewards for processing transactions but risk penalties for malicious or incompetent behavior.