November 25, 2020

What is Ethereum 2.0?

Ethereum 2.0, also known as Eth2 or “Serenity”, it is the planned upgrade to the Ethereum network that aims to make the blockchain more scalable, secure, and sustainable.
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by Alex Manolov, VP Product at METACO

Ethereum 2.0, also known as Eth2 or “Serenity”, is the planned upgrade to the Ethereum network that aims to make the blockchain more scalable, secure, and sustainable. The upgrade is planned to be implemented in three phases:

  • Phase 0: The Beacon Chain (Launch date: December 1, 2020)
  • Phase 1: Shard chains (Estimate: 2021)
  • Phase 2: The docking (Estimate: 2022)

Ethereum 2.0: Scalabilty

Currently, the Ethereum network has a limit of 15-45 transactions per second which is not enough for all the Dapps on the blockchain. After the Shard chains are introduced in Phase 1, the network load will be spread across 64 new chains reducing congestion and improving  transaction speed to potentially thousands of transactions per second.

Furthermore, because there will be more chains, the validators, the maintainers of the network, will be responsible only for their respective shard, and therefore the nodes will be more lightweight, allowing Ethereum to scale better and remain decentralized.

Ethereum 2.0: Security

One of the main changes for Ethereum 2.0 is the transition from proof-of-work to proof-of-stake. This means that the validators that secure the network will have to stake significant amounts of ETH onto the protocol and in the case of network attack, they can lose their entire stake. This cannot be achieved with the current proof-of-work consensus mechanism.

With the introduction of the Beacon Chain and the Shard Chains, the validators will be randomly assigned to different shards, making it virtually impossible for validators to collude by attacking a specific shard.

Finally, because the proof-of-stake will allow to keep the nodes lightweight, more people will be able to become validators, increasing the network’s decentralization and decreasing the attack surface area.

Ethereum 2.0: Sustainability

Many proof-of-work blockchains are very energy intensive because of mining. With the move from proof-of-work to proof-of-stake, Ethereum will be secured by ETH rather than computing power – via staking and proof-of-stake, and thus drastically increase its energy efficiency.

Phase 0: The Beacon Chain

Launch date: December 1, 2020

The newly launched Beacon Chain is the first step towards a complete shift of the Ethereum network. It will store and manage the registry of validators as well as deploying the proof-of-stake consensus mechanism for Ethereum 2.0. The original Ethereum proof-of-work chain will run alongside this so there is no break in data continuity. The regular Ethereum transactions will continue to work as usual, no disruption is expected.

Phase 1: Shard Chains

Estimate: 2021

Shard chains will be the second major Ethereum 2.0 upgrade. These chains will increase the capacity of the network and improve transaction speed by extending the network to 64 blockchains. The Beacon Chain, Phase 0 of Ethereum 2.0, is an important first step in introducing shard chains, because they require staking to work securely.

Eventually the Beacon Chain will also be responsible for randomly assigning stakers to validate shard chains. This is key to making it difficult for stakers to collude and initiate a hostile takeover of a shard, with a less than 1 in a trillion chance of doing so.

Phase 2: The Docking

Estimate: 2022

The Beacon Chain, at first, will exist separately to the Ethereum mainnet we use today. But eventually they will be connected. The plan is to “dock” the Ethereum mainnet onto the proof-of-stake system that is controlled and coordinated by the Beacon Chain.

What is staking?

In broad terms, staking is the act of locking native network currency on a network in order to support the security and operations of a blockchain network. To activate validator software on Ethereum 2.0, one must stake 32ETH on the network. As a validator, one will be responsible for storing data, processing transactions, and adding new blocks to the blockchain. This will keep Ethereum secure for everyone and allow the validators to earn ETH in the process.

Rewards

Rewards are given for actions that help the network reach consensus. The validators will get rewards for batching transactions into a new block or checking the work of other validators because that’s what keeps the chain running securely. The size of the rewards will be inversely related to the number of validators in the system. The estimated yield, depending on how many stakers join the network, is 8%-15%.

 

What is Ethereum 2.0 and staking
Source: https://launchpad.ethereum.org/

 

Risks

Although the validators can earn rewards for doing work that benefits the network, they can also lose ETH for malicious actions, going offline, and failing to validate. Furthermore, the staked ETH will be locked up, and therefore illiquid, for an indefinite period.

Requirements

One will need 32ETH in order to become a full validator, or alternatively stake a smaller amount of ETH as part of a staking pool. They will also need to run a Beacon node and one or more validator clients.

 

How can you become a validator and earn rewards?

  • There are three ways to become a validator:
    Deposit 32 ETH and run your own node – this option in theory will bring the highest rewards to the validators, however it requires having both the proper infrastructure and technical expertise.
  • Use a third party staking provider – there are a number of third party service providers that offer delegated staking. They can ensure the proper running of the nodes and reduce the risk for their clients. In return, they will typically charge a percentage of the rewards earned by their clients.
  • Participate in a pool – in case you don’t have 32ETH, but would like to earn rewards as a validator, there is an option of joining staking pools that aggregate smaller amounts of ETH.

STAKING IN SILO®

METACO’s clients will be able to stake their funds by choosing a staking service provider. For more detailed information, let's discuss.

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