Under my review spotlight today is Ethereum 2.0.
But wait a minute… I thought we already have an Ethereum blockchain? Is Ethereum 2.0 like a new blockchain altogether?
Nah, not at all… Ethereum 2.0 is an upgrade of the existing Ethereum blockchain; not a new one.
This upgrade is done with increasing its scalability and security in mind.
But let’s not rush things now… In subsequent subheadings, you will read about what Ethereum 2.0 is and how it works..
Let’s hit the road post haste!
Ethereum 2.0 Post Outline
Just as the title of this subheading states, I outlined the itinerary we will follow to fully discuss today’s post.
- What is Ethereum 2.0?
- The Beacon Chain: Introducing A Proof of Stake Functionality
- The Shard Chains: Spreading The Network’s Load Across New Chains
- The Docking: Merging Mainnet With Eth2
- What Risks Are Involved With Using Ethereum 2.0?
- Frequently Asked Questions (FAQs) About Ethereum 2.0
You already know that a click on any of the subheadings opens up to its details, right?
Alright then, let’s head over to the first subheading.
What is Ethereum 2.0?
Before we head off, a piece of background knowledge of Ethereum is required for you to flow with me in this post.
I suggest you read through this most comprehensive review of Ethereum to get yourself up to par.
But if you are a renowned Ethereumist, bravo!
Now let’s get on with the post.
As I mentioned above, Ethereum 2.0 (also known as Eth2 or Serenity) is an upgrade of the already existing Ethereum blockchain.
These upgrades are being added to make the Ethereum network more scalable, more secure, and more sustainable.
This way, the network will be able to address the bottlenecks it is facing and also increase transactions.
Ethereum 2.0 is centered on making some fundamental changes in Ethereum’s structure and design.
The changes are structured to come in 3 sets:
- The Beacon Chain
- The Docking
Let’s look at what each set is meant to do together.
The Beacon Chain: Introducing The Proof of Stake Functionality
The Beacon Chain, which is sometimes referred to as a coordination layer for Ethereum 2.0, it is a central element of the ETH 2.0 architecture.
It was launched on 1st December 2020.
Beacon Chain contains the core functionality that will introduce the Proof-of-Stake consensus mechanism to the Ethereum blockchain.
I will digress a bit to briefly explain the concept of consensus mechanism.
In distributed ledgers, a Consensus Mechanism is a way in which the members of a network agree on the value of a piece of data or a proposed transaction, which then updates the ledger.
There are different known types ranging from Proof of Work(PoW), Proof of Stake(PoS), Proof of Authority(PoA), etc.
Our interest today is in the PoW and PoS mechanisms.
In the PoW model, you are required to solve cryptographic puzzles before you are able to add a block.
But PoS makes you a validator depending on your stake i.e the number of the required coins that you own.
Looking at the two, PoS is obviously less energy-intensive as no major technicalities abound; you only need to own a big stake.
This way, users are enticed to hold a stake in the network, rather than just contributing raw compute power.
So for PoS, validators’ votes are weighted based on their stake in the network.
Again, transactions are confirmed faster, the blockchains are more scalable, and do not expend much energy.
This is why the Ethereum blockchain is rooting for the PoS.
This PoS Beacon Chain will:
- boost the security of the Ethereum network
- make 51% percent attacks more difficult
- lead to non-excessive electricity consumption, and
- lowers the risk of centralization.
As such, the Beacon Chain can be regarded as the heartbeat of the Ethereum 2.0 network and is what will coordinate the actors using it.
More details here .
Let’s check out the other term – Sharding.
The Shard Chains: Spreading The Network’s Load Across New Chains
Sharding, a common concept in Computer Science, is the process of splitting a database horizontally to spread the load.
More like chunking a big word into bits for easy pronunciation!
In the Ethereum network, Sharding will be employed to reduce network congestion and increase transactions per second.
It will do this by creating new chains, known as Shards. This is to help the network’s scalability.
Sharding is expected to be launched sometime in 2021 depending on the success of the Beacon Chain.
This is because Shards can only function with the Proof of Stake model in place.
It is expected that Sharding, when launched, will help maintain the decentralization of the Ethereum network by enabling anyone to run a node.
It will also increase participation as people will then run Ethereum on their personal PC or mobile phones.
The Shard Chains are designed to come in two versions.
Version 1 will be for providing extra data to the network. Version 2 will allow shards to store and execute smart contracts and handle accounts.
Find more info on this here.
Moving on, we will look at The Docking to know what it is all about.
The Docking: Merging Mainnet With Eth2
The Eth2 upgrades are being implemented separately from the Eth1 mainnet.
This mainnet too will continue to run on the PoW model till Eth1 and Eth 2 are merged.
This act of merging the 2 systems together (i.e Eth1 and Eth2) is what is called ‘The Docking’.
Think of Eth1 as a car with a weak engine that cannot be used to go on very long-distance journeys.
With Beacon Chain and the Shard Chains, the Ethereum team has built a new engine and replacements for the old parts.
When it is time, the old car will be coupled with the new engine and parts making it one strong car.
It can now be used to take on very long distance road trips.
The docking will mark the end of the the PoW consensus mechanism on the Ethereum network.
This stage is proposed to go live in 2021/22 and will follow the arrival of the Shard Chains.
Find more details on this here.
Having gone through the stages of the deployment of Eth2, let’s look at some risks that come with these upgrades.
What Risks Are Involved With Using Ethereum 2.0?
Inasmuch as the Ethereum 2.0 upgrade comes with many advantages for the Ethereum network, there are also risks involved.
Some of the risks are listed below:
1. Failure threats
There have been expressions of concern over the success of the 2.0 upgrades.
Many fear that the plan might fail and this will result in a network split or a security breach due to a code vulnerability.
2. Potential expenses might exceed gains
The Ethereum road map states that staking rewards may be as low as 1.56%.
At this percentage, considering the price volatility, it could result to losses instead of gains.
Though there is a chance of winning on the side of the staker, you might not be so lucky to earn from the price surge.
This is because the opportunity might pass you by while unstaking your coins.
3. Hackers and Scammers
This transition can provide a feasting ground for scammers and hackers.
They will just look out for minor coding mistakes and system vulnerabilities and pitch their ball from there.
Again, there are Exit Scams where a fake staking pool makes away with people’s funds.
So be mindful of the pools you are using to stake your coins. To be on the safe side, you can stake through Trusted exchanges like Binance.
4. Miners will become irrelevant
Despite having a field day during the bull period, things will fall apart for Ethereum miners after the Eth2 update.
This is because the PoW model will be scrapped entirely thus, no need for the miners.
Some might have to sell off their mining hardware and with the funds gotten, purchase ETH to become validators.
For the others, they might go into the mining of other coins or carve a different pathway for themselves.
5. Staking returns might not be worth the risks
More people are interested in becoming validators and setting up staking nodes in the Eth2.
This might just result in lesser returns.
Here are some of the risks that might come with the Ethereum 2.0 upgrade.
Below, I provided answers to the FAQs about Ethereum 2.0 below.
Frequently Asked Questions (FAQs) About Ethereum 2.0
No….not at all!
As I pointed out before, Eth2 is just an upgrade of the Ethereum network; not like a second blockchain for Ethereum.
The upgrades are separate from the Ethereum mainnet but will eventually be ‘docked’ or ‘merged’ with Eth2.
You don’t have to do anything right now to prepare for Eth2 especially if you are a hodler.
Your ETH will not need changing or upgrading.
There’s almost certain to be scams telling you otherwise.
Be careful and do not fall into their trap.
A validator is one who is responsible for storing data, processing transactions, and adding new blocks to the blockchain. This will keep Ethereum secure for everyone and earn you new ETH in the process.
To become a full validator on the network, you’ll need to stake 32 ETH.
You will need to use the staking launchpad or join a staking pool.
If you are not willing or don’t have up to 32 ETH to stake, you can join staking pools.
These pools will let you stake less and earn fractions of the total rewards.
You can check out this list of Staking Services.
You can withdraw your stake ONLY when the Ethereum mainnet has fully transitioned to a Proof-of-Stake system.
Contributing to the Eth2 does not require you to have any special knowledge or skills.
The most active role you can play is to stake your ETH.
If you will want to run a second client to help improve client diversity, check out the Eth2 clients.
If you are more technical, you can help catch bugs in the new clients. View the bug bounty program here.
You can also weigh in on the technical discussions with Ethereum researchers at ethresear.ch
There are different teams working on the various upgrades; it is not a one-man thing.
The Eth2 client teams include:
* Trinity (Python implementation)
* Lighthouse (Rust implementation)
* Nimbus (Nim implementation)
* Prysm (Go implementation)
* Cortex (.NET implementation)
* Teku (Java implementation)
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Here is the concluding part of the post of today.
So far, I explained Eth2 as a set of interconnected upgrades aimed at making the Ethereum network better.
I also explained the sets of upgrade, what risks it may bring, and answered questions about Eth2.
Guess after perusing through, you’ve things to say. I’ve got a few more too!
How do you think this upgrade will affect the trajectory of the Ether-verse?
From your perspective, do you think the Proof of Stake model is really what Ethereum needs? Any further suggestions for the team?
How will you be staking your ETH: as a validator or with a staking pool?
Let me in on your thoughts in the comment box below.
Got questions? Put them in the box too.
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