Eth2's Phase 0 is set to roll out next week, but it's only the first step in a years-long process

Ethereum is on the cusp of taking the first step in its long-in-the-making transition from proof-of-work to proof-of-stake. 

On December 1, the so-called Phase 0 of Ethereum 2.0 or Eth2 is launching, after years of research and development. 

A great deal of work went into Phase 0, including several testnets and audits. The end result: the launch of the beacon chain, a kind of foundational chain upon which the wider Eth2 will be built.

"It's a big milestone," Afri Schoedon, pioneer of Eth2 multi-client testnets, told The Block. "The beacon chain is the backbone of Eth2 and will be the central point for everything that’s happening in Eth2."

While it's a significant development, there isn't much utility in the beacon chain yet beyond staking rewards for those who deposited funds in the Eth2 contract. The rewards can be withdrawn only when Phase 1.5 of Eth2 goes live.

So far, more than 730,500 ETH (worth ~$430 million) has been staked in the Eth2 contract — 40% more than the required quantity to launch the beacon chain. The high deposits reflect ETH holders' commitment towards Eth2, which is still years away from being fully developed.

"We're over half-way there," Justin Drake, Eth2 researcher at the Ethereum Foundation, told The Block. “Phase 0 was extremely difficult, and I’d say, with it, above 50% of the total Eth2 work is done."

The remaining work yet to be finished spans across the other phases of Eth2.

While the estimated timelines say the full Eth2 upgrade would take at least until 2022, the reality is different. And the journey won't be without its challenges.

Lots to do

After the beacon chain is launched, four more stages of Eth2 are yet to be completed — Phase 0.5, Phase 1, Phase 1.5, and Phase 2, Drake told The Block.

Phase 0.5 is about light client support, said Drake. Light clients, or light nodes, enable users to interact with a blockchain without syncing the full blockchain.

Drake said the research and specification work for Eth2 light client support is done, and now the implementation remains to be put together. Creating a specification involves writing technical documents, explaining exactly how a phase works, how it needs to be programmed, and how it needs to be implemented by Eth2 clients.

"This is a fairly minor change...and it's an easy one to do. So, it's the one that we're planning to do immediately as the first fork after phase 0, and that's why it could be called phase 0.5," said Drake.

Phase 1

This phase is about introducing sharding.

The idea around sharding is to "dramatically increase scalability," said Drake.

Currently, each Ethereum node stores all transaction data for the network. This in itself provides security — but greatly limits its scalability. Ethereum can currently handle around 15 transactions per second. With sharding, the capacity of Eth2 is set to "increase dramatically" as the shards can be used as a data availability layer for Layer-2 scaling solutions such as rollups, said Viktor Bunin, protocol specialist at Bison Trails, which provides Eth2 staking infrastructure.

Shards would be separate chains and help spread Ethereum's load across these 64 mini-blockchains.

In terms of its progress, Phase 1's research has been done. "It is now the matter of specification and implementation," said Drake. "We are at the very beginning with some early prototypes." Drake expects the specifications for Phase 1 to be in place sometime in 2021. 

For Eth2 client teams, the next top focus would be on delivering Phase 1. "We'll be directing our full attention to Phase 1,” Adrian Manning, director of Sigma Prime, which manages Eth2 client Lighthouse, told The Block.

“Other teams have started initial development on Phase 1. The main benefit of phase 1 is to introduce shard chains with data that could be used in conjunction with rollups and can act as a stepping stone to a fully sharded blockchain,” Manning added.

Phase 1.5

Phase 1.5 is the most crucial phase of Eth2, as this is the step during which Eth1 will merge with Eth2 and move from a proof-of-work model.

“It would be the next huge milestone after Phase 0,” said Drake. But he went on to caution: "This is the phase I'm worried about as having the most uncertainty,” said Drake, who continued:

"There's like 30 different issues that need to be addressed. Each of these issues will have a whole discussion around it and have a bunch of engineering work and a bunch of coordination work with the Eth1 team."

The coordination is going to be a challenge, said Drake. So far, the Eth2 team hasn't been working with the Eth1 squad, but "we would need to be doing that with fairly high priority if we want to roll out phase 1.5 in a reasonable time," said Drake.

Another challenge of Phase 1.5 would be to avoid any negative impact on the applications that exist on Eth1.

"We are working on a running system, so there's always this metaphor of switching engines mid-flight,” said Schoedon. “We don't want to break the existing system, and so this is not only going to be the highest priority but also the biggest challenge.”

Some strategic decisions also would need to be taken regarding Phase 1.5, said Drake. For example: whether the merger should happen at once or over a period of multiple updates.

"Maybe the right answer is that we want to do it over multiple forks, especially with the Eth1 team being very conservative and not wanting to break existing applications that are running on Eth1," said Drake.

While so far little work has been done for phase 1.5, Drake hopes for it to launch by 2022. “I think two years is more than enough to coordinate and get this stuff done,” he said.

Phase 2

This represents the final phase of Eth2's development. It will introduce fully-functioning shard chains, enable transactions and smart contracts on the 64 shards. The end result is an additional increase to scalability, said Bunin.

Phase 2 would also bring with it a new Ethereum virtual machine (EVM), which could be called EVM 2.0. The current EVM is "very suboptimal," said Drake. "There are like over a hundred different design things that we're not happy with...The new EVM would be 10 times better than the current one."

Phase 2, however, is “not a priority” right now, said Drake. "We have a lot on our plate in terms of getting Phase 1 out and doing the merge."