Dec 17, 2020
BETH vs ETH and the Merging of Two Cryptocurrencies
The ongoing upgrade of Ethereum to what is being labeled Ethereum 2.0 has many people in the cryptocurrency space very excited. The upgrade is purported to be making the original smart blockchain much more usable, scalable, and effective — but it is also laying out a long road.
The path to ETH 2.0 will not be an overnight thing, and in fact, will have a number of stages — or phases — to it. It all begins with Phase 0, which will see the Beacon Chain come into operation and the move towards a new consensus algorithm take shape.
With this change in the chain, however, there will also be a new cryptocurrency created — BETH. The creation of a new cryptocurrency on an existing chain, born of a new chain upgrade causes many logistical difficulties, but these will all have to be overcome if ETH 2.0 is to be a success.
When Phase 0 does occur, BETH will have to co-exist with the already prevalent ETH cryptocurrency. This is logistically something quite unique, but it has been planned out and factored in by those enacting ETH 2.0
So, how will BETH and ETH coexist to begin with, and what will be left when ETH 2.0 is finally complete?
ETH 2.0 is more like a recast ‘new chain’ that will coexist with ETH1.0 for quite a long time, the new chain will not instantly replace the original as that would be impractical, but this method throws up its own issues
So, the new chain of ETH 2.0 will also mint a new token, which is BETH. In other words, before ETH2.0 and ETH1.0 are completely merged, there will be two types of Ethereum Tokens in the network: ETH and BETH.
According to community planning, the generation of BETH is unidirectional. As shown in the diagram below. Users (including verification nodes) need to lock ETH into the contract to register the public key address of the Beacon Chain.
The public key registered in the contract will be recognized through ETH2.0 chain, the Ethereum asset (ETH) anchoring the master chain will be burned, and the Ethereum asset (BETH) on the Beacon Chain network will be generated.
It should be noted that at present, it is impossible for users to migrate BETH on the ETH2.0 Beacon Chain to the ETH1.0 chain before the two chains are merged. In addition, before ETH2.0 supports cross-shard transactions, BETH cannot be transferred, and it will become a non-transferable asset for validators and users.
This is also different from a normal hard fork upgrade where a duplicate is made, instead old tokens on ETH need to be manually destroyed through the smart contract, and generate a new token ‘BETH’ on ETH2.0.
The migration process is long-term and irreversible. In the past hard fork upgrade, both tokens were migrated automatically and instantaneously.
As it begins, BETH tokens will seemingly be a little bit useless as they cannot be transferred and will become a non-transferable asset for validators and users. However, BETH can be used to participate in Casper consensus for mining, and users may receive about 10% BETH staking rewards each year (the specific value is related to the total amount of network mortgage and inflation rate.
BETH is temporarily unable to transfer on the chain; while ETH Token can still be used normally, but users cannot get any staking rewards. A core concept of ETH2.0 is to lower the threshold so that more people can participate in the staging.
For example, a home laptop can also build nodes. Therefore, the number of users participating in the Beacon Chain Staking may be higher than other blockchain projects.
The plan down the road is however to have ETH and BETH merge once the two chains are merged. ETH and BETH will be integrated, so that there is only one ETH token in the entire network.
In the migration plan announced by Vitalik Buterin in October 2019, it was clearly stated that the entire user migration process will attach great importance to the ‘user experience.’ Therefore, if an ETH holder has no intention to participate in BETH Staking, he can directly wait for the merger after 2 years without manual migration, and may not even be aware of the automatic merger process.
BETH is a special token of the transitional period and a staged product. However, considering that the two adopt a one-way exchange scheme, in a long transition period (Phase 0 ~ Phase 2, about 2 years), the two may not be able to converge, so the two are two different tokens during the transition period.
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