Beacon Chain: How Ethereum Plans to Build a More Secure and Scalable Blockchain

Ethereum Use Cases

Since launching its mainnet in 2015, the Ethereum protocol is providing the foundation for the development of the cryptocurrency industry. From Initial Coin Offerings (ICO) that launched many of the leading decentralized platforms and applications (dApps), to decentralized autonomous organizations (DAOs), decentralized finance (DeFi), stablecoins and now non-fungible tokens (NFTs), Ethereum is a force driving all of these trends in the crypto market.

The exponential growth of protocols that use the Ethereum network results in the potentializing of some technical problems – the main one is known as the “scalability trilemma”, in which decentralization and security are privileged over scalability. This results in low transaction speed and high transaction cost.

Ethereum Use Cases
Taxonomy and comparison of blockchain scalability solutions. Source:researchgate.net

Ethereum Development History

During its development, the network passed through four major upgrades: Homestead (March 2016); Metropolis Byzantium (October 2017); Metropolis Constantinople (February 2019), and Istanbul (December 2019) to ensure the development of the crypto ecosystem.

As the trends rise meteorically, there is great pressure for Ethereum network scalability and new upgrades. Otherwise, Ethereum’s assassins, who support smart contracts and don’t use Proof of Work (PoS) mechanisms, could steal ETH’s market.

Blockchain scalability is emerging as a challenging issue. Ethereum proposes to solve the challenge through a series of updates known as ” Ethereum 2.0 or Serenity”.

The Eth2/Serenity phases

Ethereum 2.0 is a set of updates that aims to improve the scalability, security and sustainability of the Ethereum network. The update plans to achieve these goals by transitioning the Ethereum from Proof of Work (PoW) to Proof of Stake (PoS) and introducing the shard chains.

The upgrade to ETH.2 will be divided into some phases:

  • Phase: Beacon Chain and PoS validation on testnet (live – 1 December 2020)
  • Phase: ETH1 merged with ETH2 (~2021)
  • Phase: Shard Chains (~2022)

Beacon Chain

The Beacon Chain phase introduces Proof of Stake to the Ethereum network through a separate chain from the ”old” Ethereum (we’ll call it Eth 1).

Beacon Chain started in November and was officially launched in December 2020, with a deposit agreement in which investors can lock Ether to run the Beacon chain nodes. The existing PoW ethereum blockchain will continue to exist at this stage and Beacon will not be Ethereum mainnet. At this stage, Beacoin cannot handle dApps, execute smart contracts, or process transactions.

The transition to Proof-of-Stake will change the incentive system of blockchain security The users will lock Eth in the protocol and in exchange for the lock, Beacon Chain stakers will earn returns ranging from 3% to 12%, depending on market conditions. Furthermore, the transition to the PoS model directly responds to current environmental issues, drastically reducing the energy needs of the Ethereum network.

The migration to PoS allows lightweight devices such as laptops and phones to become network validators, removing the need for computing-intensive hardware to be a network validator.

There are currently about 5 million ETH blocked (~5% of total supply) on Beacon Chain testnet.
Beacon Chain phase introduces Proof of Stake to the Ethereum

Merge

Currently, the Beacon chain exists separately from the Ethereum mainnet, but the next phase plans to “merge” the mainnet into the Beacon Proof of Stake. Essentially, the merge between Ethereum 1 and the Beacon Chain will make the Beacon blockchain the “real” Ethereum, while Eth1 will become just another fragment of the network. At this stage, Ethereum will become a PoS blockchain and mining will no longer be necessary to maintain network security.

Shard Chains

When Ethereum 2.0 was first proposed, the plan was to develop the fragmentation chains before the networks merged. However, the plan has recently changed to prioritize switching from proof of work to proof of wager through the merger.

Shard Chains are a scalability mechanism that introduces 64 fragmentations into the Ethereum blockchain, allowing network transactions to be processed in parallel rather than consecutively.

Currently, the Ethereum blockchain alone is responsible for consecutively processing transactions. In times of high demand on the network, fees rise and prevent the ecosystem from functioning properly. Imagine this as a highway congested by traffic. What shard chains do is add multiple lanes to this single-lane road.

Beacon Proof of Stake

After working on the shards, the Beacon chain will organize the validators and assign them to different shard chains, optimizing the overall performance of the network.

It’s expected that the sharding would allow Ethereum throughput to increase 100-fold.

Conclusion

Beacon Chain will change the Ethereum network to Proof of Stake (PoS) and Shard Chains will help increase its scalability, making ETH 2.0 more efficient than its previous version.

However, despite the apparent definition of upcoming developments, the complexity and combination of the project requires a gradual development. There is currently great indecision regarding dates and most of the new upgrades are still in the research and development phase. There is still a lot of effort for the full implementation of ETH2 to happen.

In addition, there are numerous developments going on in parallel to improve Ethereum, such as layer 2 solutions and the changes brought about by the London Update Ethereum Improvement Proposal (EIP) 1559, which will burn off a portion of Ethereum’s transaction fees, pushing down the rate of inflation.

There is still uncertainty and many questions, but the world’s biggest blockchain network will invariably always need to be updated.

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