Hello, I’m Crypto Casey. In this video we will be
talking about Ethereum 2.0, the next and final upgrade
to the Ethereum network. We will break down this massive
upgrade into simple concepts together, so by the end of this video,
you will know what’s in store for the future of this exciting
blockchain technology project. If you have no idea what Ethereum is, please check
out my video guide that explains what Ethereum is first, and then watch this video if you’re
interested in seeing what’s on the horizon. I’ve broken this guide into 5 easy chapters.
So feel free to use the timestamps and table of contents into the description
area below, top around this video. Before we get started, please
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or an “Ask Me Anything” every Wednesday on my Instagram.com/CryptoCasey account. So please use the link to my
Instagram account listed in the description area to follow me and ask
me anything you want, every Wednesday. Awesome. Now that we’ve got that covered,
let’s learn about Ethereum 2.0. Chapter 1: What is Ethereum 2.0 Ethereum 2.0, also known as ETH2
or Serenity, is the long-awaited, final upgrade to the Ethereum blockchain network. This upgrade will be rolled out in
several phases over the next few years. And the initial phase, called Phase 0, begins sometime in late 2020
if everything stays on track. So why does Ethereum need a
massive update and how will this update change the existing Ethereum network? The overall goal of the ETH2 update is to
increase the performance of the network. As realization of blockchain technology’s
ability to revolutionize our society continues to unfold, demand for blockchain-based
technology will increase substantially. Questions like “what is blockchain” and “why we
would want to use it,” will eventually transform into questions like, “why isn’t blockchain
being used in this case or that case?” Currently, the Ethereum 1.0 network is not robust enough to handle the future demand
for blockchain-based technology. Problems with scalability and usability
prevent Ethereum from being a completely viable alternative to traditional centralized
systems at this time because, unfortunately, not many successful applications built on its
current foundation would likely survive long term. This is because, although transaction
fees on the network may be low right now, if a large application gained popularity
and became a wild success, there is a risk that it could inadvertently
drive the network fees up so high, that it would become too expensive
for people to continue using the app. In fact, we have actually already seen this play out back in December of 2017
with the CryptoKitties app. CryptoKitties was an experimental
app built on the Ethereum network that allows users to create and
trade unique digital kittens. And unexpectedly, within its
first week after launching, CryptoKitties went viral and clogged the Ethereum
network with a huge influx of transactions. Transaction fees to send some cryptokitties hit
a whopping 6 figures in cost during the fiasco. Can you imagine spending hundreds
of thousands of dollars just to transfer a digital cat on a computer network? That’s just insane. However, even if transaction fees were manageable
in a situation like this, only about 15 transactions per second are being processed
on the current network, which is not nearly enough to power parts of the global economy like
the Ethereum foundation envisions in the future. So, with the Ethereum 2.0 update, Ethereum could potentially process tens
of thousands of transactions per second. Going from a mere 15 transactions per second
to tens of thousands is a huge milestone. However, even then, some argue that those
numbers are still a bit low for large, global-scale systems to operate. So with further improvements and through combining
the Ethereum network with other technology in the future, sufficient transaction processing power
can hopefully be achieved in the next few years. Awesome. So now that we know why Ethereum
2.0 is going to be rolled out, let’s go through the phases of the ETH2 upgrade
together, starting with the initial phase. Chapter 2: Phase 0 - Proof
of Stake & the Beacon Chain Phase 0 is the initial phase
of the Ethereum 2.0 upgrade. Ethereum 2.0 is being built on a new
blockchain network called the Beacon chain. And the beacon chain has a connection to the
existing Ethereum 1.0 blockchain network. So, although the beacon chain is an entirely
new and separate chain, it still operates within the same ethereum ecosystem: it’s just
sort of an extension of the original network. It will run parallel with
the existing network until the upgrade is complete in a few years from now. So the beacon chain acts as a bridge
that will allow transfers of ether, and other digital assets, from the
1.0 network, to the 2.0 network. And on the Beacon chain, a new way of
validating blocks of data will be implemented. The main goal of Phase 0 is to test
the new block validation functionality, allow time for the system to stabilize,
and to determine if any changes need to be made before building out
ETH2 on this new foundation. Currently, the plan to solve the scalability issue we discussed earlier involves
switching the Ethereum network from using a proof-of-work protocol to process
transactions, to a proof-of-stake protocol. So first, let’s talk about what proof-of-work
and proof-of-stake protocols are: Proof-of-work, or PoW, and proof-of-stake, or
PoS, are what’s known as “consensus mechanisms.” And a consensus mechanism is simply a
way that all computers within a network can come to an agreement on things,
like, the validity of transaction data. You can see how consensus mechanisms are a key
aspect of blockchain technology’s foundation. Because, if multiple computers all around
the world are maintaining a global network, then a consensus mechanism that keeps them
all in agreement is extremely crucial. Next, let’s talk about the key differences between how transactions are validated using
proof-of-work versus proof-of-stake. Proof-of-work, which is commonly referred
to as mining, involves using computing power to perform guesswork to ultimately
validate blocks of transaction data, and publish the data to a network
of computers around the world. At the time of this video,
proof-of-work is currently how both bitcoin and Ethereum 1.0
transaction data is processed. The problem with using proof-of-work to process
transactions on Ethereum is essentially threefold: One, proof-of-work consumes a lot of
time and a lot of energy due to the amount of electricity these computers use
from constantly performing mathematical algorithms to compete with each
other to validate transactions. Two, it can potentially lead to
more centralization of the network, as big mining operations become the only miners that can compete and actually make a
profit from performing proof-of-work. And three, proof-of-work takes a long time
to confirm transactions, so it does not allow for instantaneous transactions, which hinders
Ethereum’s potential use-cases dramatically. Nice. Now let’s talk about how proof-of-stake works. So instead of computers competing with each
other to be the first to validate a block, proof of stake uses an algorithm that selects
which computers will validate the next block. Computers that participate in the proof of
stake consensus are known as validators. And proof of stake requires validators to stake cryptocurrency on the network
basically as a form of collateral. Staking with regard to cryptocurrency, simply
means holding cryptocurrency in a wallet or smart contract for an extended period of time
in exchange for interest, rewards, or similar. So the proof of stake algorithm that selects
which validators will verify the next block, can consider variables like the amount
of cryptocurrency the validator has staked on the network, the amount of time the
cryptocurrency has been staked on the network, and it can randomly select validators to ensure
decentralization of the validation process. So, in most cases, the more cryptocurrency
a particular validator has staked, and the longer the cryptocurrency has been staked, the more likely that validator will be
selected by the algorithm to validate blocks. And if the block the validator verifies
is approved by the rest of the network, and ultimately added to the blockchain, then the
validator earns a reward for verifying the block. In proof of stake, people describe a newly
verified block being added to the blockchain, as having been forged by the validator,
as opposed to mined by the miner. However, if the block proposed to the network had
some inconsistencies or fraudulent transactions, the validator is penalized by losing
some of their staked cryptocurrency. So, you can start to see how proof of
stake’s virtual verification process is much more energy efficient than proof
of work, where computers use a lot of electricity to compete with each other to
be the first to verify a block of data. And it’s important to note that each
blockchain project that uses proof of stake protocols has their own unique algorithm, with different rules and methods, that dictate
their particular network’s functionality. So in the case of Ethereum 2.0, their
unique proof of stake protocol is called the Casper Protocol, which
brings us to the next chapter. Chapter 3: Casper Proof of Stake Protocol Let’s walk through Casper’s proof of stake block
verification process together in more detail. So, in staking, an algorithm assigns each newly formed block of transaction
data to different validators. When a validator is chosen to verify a block, the validator checks to make sure all of
the transactions in the block are valid. And if everything checks out, the validator signs off on the block and then proposes
to add the block to the blockchain. If the network agrees with the validator’s
proposal that the newly forged block is valid, then the validator that signed
off on it receives a reward. And these rewards are typically from
the transaction fees collected from the transactions within the validated block. However, if the network detects an
inconsistency with the newly forged block, the validator that signed off on it and proposed
it will lose some of its staked cryptocurrency. So an important security feature of
the Casper proof of stake protocol is that if fraudulent blocks
are proposed by a validator, the network will detect the inconsistency,
and the validator will be penalized by: One, losing some of their staked cryptocurrency; and two, by having their rights to participate
in the network limited or revoked completely. So, when considering the word “stake”
in proof of stake, you can see how, in order to become a validator, a validator must
put their cryptocurrency at stake, so to speak. Because if a validator makes a mistake, does
something wrong, or deliberately tries to forge fraudulent data, they will be penalized
and lose some of their staked cryptocurrency. There are also penalties if a
validator experiences any down time. This is to ensure Ethereum’s fleet of validators
maintaining the network are stable and reliable. So, if you have an unreliable internet connection,
running a validator is probably not a good idea, as being offline will cost you some of the
cryptocurrency you have staked in the network, decrease the amount of fees you’re
able to earn when forging blocks, and/or decrease your chances of being
selected to validate blocks in the future. So, if a validator ever wants to discontinue
validating blocks and un-stake their funds, a certain amount of time from the
last block they validated needs to elapse before their staked
cryptocurrency is released. This is to ensure that the last block the
validator forged was not fraudulent and that the validator was attempting
to unstake to avoid the penalty. These built-in penalties function to deter
people from trying to hack or spam the network, as the cost of executing an attack
would outweigh the potential reward. And the only way someone could overtake
the network and successfully forge fraudulent blocks, is by having over
a 51% stake in the entire network. In the case of Ethereum, you would need to
acquire over half of the ether in circulation, which at the time of this video,
is worth over $12.9 billion. Cool. So all of this information about all of
the proof of stake validators’ activity will be on the Beacon chain we discussed earlier. The Beacon chain will also
manage and ensure consensus between all of the validators on the network. And here’s a general overview of the requirements
to become a validator on the Ethereum 2.0 network: To be a validator on ETH2, you
will need a computer capable of running the Beacon chain client software,
a near-constant connection to the internet, and at least 32 ether to stake on the network. Note that validators that register during Phase
0 will be locking up this minimum of 32 ether until Phase 1 of the Ethereum 2.0 upgrade is
rolled out, which will likely be a few years. So if you’re interested in becoming a validator,
you need to be in it for the long haul. And if you’ve got your 32 ether ready to stake, you can make a one-way transfer to a smart
contract that creates a unique cryptographic hash for you to include on the Beacon
chain to prove your ether has been staked. This is basically the registration process for
becoming one of the proof of stake validators, or participants, in Ethereum 2.0’s consensus. If you are interested in becoming
a validator on Ethereum 2.0, stay tuned for my release of a step-by-step
video guide on YouTube for beginners once Phase 0 has been officially rolled out in
late 2020, if everything stays on track. So, as a registered validator, you are agreeing to
maintain the security of the Ethereum 2.0 network by running a piece of software connected
to the ETH2 network on your computer. This software has a cryptographic key
inside of it that allows you to sign off on blocks believed to be valid and
that should be added to the blockchain. So, basically single validators
verify transaction data within a single block to then propose
to a larger group of validators that determine final approval of the
block being added to the beacon chain. And the goal is for the network
to be able to rapidly propose and agree on new blocks being added to
the beacon chain much more quickly and efficiently than the current proof
of work protocol on Ethereum 1.0. So as you can see, the advantages
proof of stake has over proof of work is energy efficiency, increased
security, increased network speed, and there’s no significant
barrier to becoming a validator, (unlike the high costs associated with mining
rigs,) as it's relatively easy and affordable. And the costs of running a validator will be proportional to the amount of
ether you stake on the network. Ethereum 2.0 validators are predicted to
earn a range between approximately 2 to 18% of the staked value of their
ether every year, more or less. And the more people that opt to become validators,
the more decentralized the network becomes. So, in summary, Phase 0 will
introduce the new beacon chain on which the Casper proof of
stake consensus will operate, and where validators can register and
stake ether to help maintain the network. In this initial phase, the beacon chain will not have much functionality outside allowing
validators to register and stake ether. This is a deliberate move by the Ethereum
foundation, so once the chain is launched, people are able to try it out, allow the
blockchain to slowly and steadily start operating, giving the network and staking mechanism time
to stabilize, and ultimately prove itself. Awesome. Now that we have a good idea about what to
expect in the Phase 0 launch in late 2020, let’s go over what we can expect from the
other phases of the Ethereum 2.0 upgrade. Chapter 4: Phase 1 - Shard Chains So in all blockchain systems there is a problem
that people often refer to as the trilemma. And the trilemma is simply the problem
of completely achieving these three aspects on the base layer of a blockchain
system without any inhibiting tradeoffs: Decentralization Consistency
And Scalability So, in Phase 1 of the ETH2 upgrade,
the trilemma problem will attempt to be solved by implementing shard chains,
which is also referred to as sharding. And sharding is a database management
technique that involves simply partitioning large databases into smaller and faster databases. Currently, all of the nodes or computers
maintaining blockchain networks, store the entire blockchain database on them. While this makes the database and
network more secure, it severely limits the blockchain network from scaling and
being able to operate robust global systems. And this is what is currently limiting the Ethereum 1.0 network to around
15 transactions per second. So, with sharding, instead of all of the computers on the blockchain network validating and
storing all of the data being processed, all of the data being processed is split up into
different partitions, which will be called shards. And each shard, simply represents a fraction
of the entire Ethereum 2.0 database. For instance, an example of how data
could be stored on different shards, or smaller databases on Ethereum, would be any
addresses starting with 0x00 stored on one shard, versus addresses starting with
0x01 stored on another shard. And all of these separate shards, or fractions
of the main database, will be connected to the Beacon chain that will ensure consensus
between all of the shards connected to it. So, in Phase 1, 64 shards will be deployed
and connected to the Beacon chain. And the goal of Phase 1, is to test
the shard chain architecture and ensure consensus between all of the shards is
maintained successfully by the Beacon chain. It will be more of a simple trial
run of the sharded structure to see if scalability can be achieved using
random bits of data that have no meaning. So, no real data or applications will operate on
the beacon chain or shards in Phase 1 of ETH2. Nice. So as you can see, Phase 1 is
pretty simple and straightforward. Let’s move on to the next phase. Chapter 5: Phase 2 & Beyond - eWASM Phase 2 is when real data and applications
start to operate on the Ethereum 2.0 network. Currently, Ethereum 1.0 uses the
EVM, or Ethereum Virtual Machine, essentially as the network’s engine built
on top of its blockchain foundation. It is responsible for executing ERC-20 tokens,
deploying decentralized applications, or dApps, running smart contracts, and a myriad of other
integral tasks for the Ethereum ecosystem. And in Phase 2, the EVM will be replaced
by a new virtual machine called eWASM, which will be Ethereum’s version
of WebAssembly code, or WASM. WebAssembly code is an open
standard instruction set for building applications on the web or internet. eWASM is a subset of WASM modified
specifically to run the Ethereum 2.0 ecosystem. It was designed to be fast,
secure, efficient, and portable. So the eWASM framework will give Ethereum
2.0 massive performance enhancements and a ton of new features, while making it widely
available and easy to use for web developers. It will support a myriad of new programming
languages, and as WASM is already used by a large number of projects outside of Ethereum,
it will open up Ethereum 2.0 to a larger, more active community of developers than
the EVM that currently manages Ethereum 1.0. In this phase, the shards will start to house
and manage real data and smart contracts. Each shard will manage a
virtual machine based on eWASM. And it is in this phase that full functionality
of Ethereum 2.0 is finally available. So you can see how the transition from the EVM to eWASM will bring about massive performance
upgrades, more development opportunities, and finally breathe life into this
long awaited Serenity upgrade. Phase 3 and beyond will
involve upgrades to consensus, upgrades to scaling,and basically any
further technical upgrades that need to be implemented to maintain
the Ethereum 2.0 ecosystem. Cool. So in light of this exciting update, if Ethereum
seems like something you would like to invest in, feel free to check out my ultimate beginner’s
guide on YouTube about how to buy ethereum. In this guide, we walk through the
process together step-by-step, making it as easy and simple as possible and ensuring
everything is set up safely and correctly. Or, if you would like to start buying
now, you can go to the description area and click on the links to safely
access my list of recommended exchanges you may like to use and that support
your specific country of residence. Note that you will receive $10 worth
of free bitcoin when you invest over $100 in cryptocurrency by using the
Coinbase link in the description area. Also, remember, it’s important
to double and triple check the URL’s you are accessing to ensure you
arrive at the correct, official website. There are many fake websites set up,
designed to look like an official site, just try to steal your
login credentials and funds. So you can click on the links
in the description area and then bookmark the sites to ensure
you always access the right one. Another important thing you should
do is invest in a hardware wallet like the Ledger Backup Pack or BC Vault for
storing your cryptocurrency safely offline. You can also access those websites by
using the links in the description area. Awesome. Thank you for taking the time to watch my video. If you enjoyed the content and would like
to see more crypto videos in the future, please make sure to like this video and click
to subscribe button to support the channel. Also, make sure you head over to my Instagram
account at Instagram.com/CryptoCasey for 1 minute daily videos and to ask me anything
every week on my Wednesday AMA’s. So what do you guys think of Ethereum 2.0? Is Ethereum something you
would consider investing in? What other questions do you
have about the Serenity update? Lots of things to think about. Be safe out there.
