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Welcome. I would use a half inch shank. But I'd rough cut the circle on a jig saw, keeping 1/8th or so outside the marked circle. I would also make a circle jig exactly the correct size with perfected and smooth edges (mdf). I'd tape this down with several strips of double stick tape, then use the trim bit with top mounted bearing, to clean up and smooth the edges of your final cut. I personally would hesitate to cut the circle on a 2 inch block with a router. You can do it making multiple, multiple passes using a plunge router to increase the depth of cut a little at a time. But to do that properly will require placing centering hole in the block, or attaching a small block with center hole with tape so you can use a circle cutter.

Much easier to make a perfect circle jig, trim with a bandsaw, then use a trim bit (1/2 inch shank) to perfect the circle and produce the final edge. Put effort into the jig to reduce risks to the final block.
 
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