Everything You Need to Know About Ethereum 2.0
The launch of Ethereum 2.0, also known as Serenity, is near the finish line. After years of waiting, the second-biggest blockchain is about to release its long-awaited upgrade that will change the rules of the game completely. Serenity update is dedicated to making Ethereum’s blockchain more scalable, stable, and beneficial. Not only will lower gas fees contribute to cost-effectiveness, but also ETH holders will be able to stake their coins and get rewards.
We’ve collected all the important information that you need to know about Ethereum’s transition and explained how it will affect you as a user and holder.
Ethereum 2.0: Staking
Proof of Stake will take the place of the energy-consuming Proof of Work algorithm, which means two things: miners will eventually disappear, and you can earn passive income with your Ether. In order to get those rewards, you’ll have to lock your coins and then a protocol will determine who gets to validate a block. The more you stake, the higher your reward is.
So what will you need in order to participate in ETH staking?
- 32 ETH that you’re willing to lock away for a while (keep in mind that in the early stages you won’t be able to get these funds back, and will have to wait until at least phase 1).
- Regular PC or laptop, but no need for special equipment.
- Be constantly online, otherwise, you’ll have to pay fines.
The possible income from staking can be somewhere between 4% to 10% and since setting up a validator’s node is easier and cheaper than purchasing mining equipment, you have to think this through. When locked, your coins can’t just be transferred back anytime, so if the market suddenly crashes, you won’t be able to sell your coins. As for the rewards, you will be able to receive them after some time, not immediately.
Right now you can practice with staking and running a node for free using Ethereum’s testnet.
Ethereum 2.0: Sharding
Apart from staking, Ethereum 2.0 is going to implement a sharding technique that can make the blockchain a lot more efficient by increasing the number of transactions it can process.
Sharding suggests that the nodes can store only some of the data, not the whole ledger. This way the nodes can rely on each other to get the necessary information and speed up the transaction process. In the Ethereum 2.0 update, there will be 64 shards working in parallel and sharing information with each other.
So what about the whole picture, how and when will everything be released? You can check the detailed roadmap here, but we’ll break it down to you below.
3 Phases of Serenity
Such a major transition is going to take time, so you won’t need to wake up tomorrow and fuss over what you should do with all your GPUs and Ether miners. Ethereum 2.0 will come in three phases and during all of them, the PoW chain will stay active. At the same time, all the transitioning will take place on the new ETH2 chain. So both miners and ‘stakers’ will get their rewards.
During phase zero — scheduled for the second quarter of 2020 — the Beacon chain will be officially launched. The Beacon chain is the key element of Ethereum 2.0 that will finally bring scalability to the network.
Right now, every node has to verify and process transactions and the network load can be too high. This leads to low speed and high fees. So what’s the solution? If you make the nodes more powerful, you might lose in terms of decentralization.
The other way, and that’s what Ethereum 2.0 is about to implement, is to add more nodes. To make sure those nodes are secure and won’t mess with the chain, you need to choose the validators randomly. Besides, these validators will have their own coins at stake.
Apart from the Beacon chain, the new ETH2 token will be available to the public. In order to stake Ethereum, you’ll have to exchange your ETH to ETH2. In case you want to engage in staking, not only you need to have 32 ETH, but also keep in mind that you won’t be able to get it back until the last phase when ETH merges with ETH2.
Phase one will implement the shard chains, all 64 of them. And that’s when scaling will improve drastically. In the future, more shards can be added.
Once we reach phase two, everything comes into place. The Proof of Stake chain will merge with the original one that still runs on the Proof of Work algorithm, and ETH2 will replace ETH for good.
Overall, it’s going to take more than a year before the transition finalizes.
Ethereum 2.0: Fast Facts
In case you want a brief introduction to Ethereum 2.0, here are the highlights:
- Ethereum 2.0 is a major event. Not only will it make the network faster and more efficient, but it might also set a new standard for the entire blockchain space.
- The new model will use the sharding technique for better scalability and implement Proof of Stake instead of Proof of Work.
- Ethereum miners shouldn’t worry that their hardware will no longer bring them profit any time soon, as the transition will happen gradually and the PoW chain will still be running during the whole process.
- Ethereum holders who have managed to accumulate 32 ETH will have a chance to run a validator node on your PC and earn passive income. However, you need to be a little tech-savvy and make sure you’re always online otherwise you’ll have to pay penalties.
Originally published at https://blog.lumiwallet.com on June 9, 2020.