Ethereum 2.0 Migration Economics
How to design incentives to maintain consistency during system upgrades
As a follower and supporter of the Ethereum project, I always support healthy conversation around network developments and upgrades. The goal with this article is to surface a thoughtful discussion about the economic merits and challenges of the current Ethereum 2.0 ether migration design with an approach of a one-way bridge.
In my view, Ethereum’s story is equal parts technology, and equal parts finance, and with the migration to Ethereum 2.0 approaching, it is important to consider both technical and economic challenges together, and with equal scrutiny.
From a technical standpoint, the viability of a one-way bridge versus a two-way bridge is well represented and articulated; however, the discussion around the strengths and challenges of the economic design for the migration are currently underrepresented in the discussion, and deliberation over the economic aspects of a one-way migration has been limited so far.
What discussions have occurred so far?
Currently, consensus has formed in the Ethereum developer community around the mechanics for migrating ETH 1.0 ether (on the existing “proof-of-work” chain) to ETH 2.0 ether (on the developing “proof-of-stake” chain) through a one-way bridge.
Additionally, there is support for a two-way bridge, and preliminary discussions around a potential native integration down the road, but given the current spec, the intention with this article is to focus on the economics of the one-way bridge, and to introduce what I believe are a few of the key economic incentives that will be present under this approach.
What does a one-way bridge migration look like?
A one-way bridge will exist whereby current ETH 1.0 ether holders can elect to burn their ETH 1.0 ether in return for an equal amount of ETH 2.0 ether (also being referred to as beacon ether, or bETH). That is, bETH will be minted and locked in a staking deposit contract on the proof-of-stake mainnet (the “beacon chain”). The migration is scheduled to start with the first ETH 1.0 ether deposits at Devcon V in October 2019 and ETH…
