Ethereum 2.0 is an upgrade to the Ethereum Network which improves the speed, efficiency, and scalability of the network. This will take Ethereum to new heights as it will be able to drastically more transactions, alleviating congestion, and high gas costs on the Ethereum network. Upon reaching the final phase of the upgrade, Ethereum will meet her goals of becoming a transparent and open network for decentralized applications and finance (DeFi). This article breaks down the roadmap for this upgrade, including major economic changes that will come with the introduction of a new ETH 2.0 token.
Ethereum 2.0 has recently gone through some changes- it is now called the Ethereum Merge. Check out our latest article- Ethereum ($ETH) Merge: What is it and everything you need to know
Ethereum 2.0 will involve sharding to drastically increase network bandwidth and reduce gas costs, making it cheaper to send Ethereum, tokens, and interact with smart contracts. There will be fundamental economic changes too, Ethereum 2.0 will allow supports to staking nodes and earn Ethereum as passive income. In many ways, Ethereum 2.0 is the combined effort of thousands of developers who worked for years. The Ethereum 2.0 upgrade will be done in 3 distinct phases, starting with Phase 0 (after all, developers count from 0 instead of 1). Over the past few years, opponents of Ethereum have often criticized the network’s high transaction costs and fragility during peak usage. Will Ethereum 2.0 be able to fix this problem? Will the project scale to support the huge number of Decentralised Finance (DeFi) and Blockchain games being built? This guide will cover the timeline for the upgrade to ETH2.0 and the solutions proposed.
Key Features of Ethereum 2.0
- Efficiency – Ethereum will become 99.95% more energy efficient. It is estimated that Proof of Stake will no longer require an entire country’s worth of power to secure the network.
- Sharding – Ethereum will be broken into 18 “Shards” that operate at the same time. This will drastically improve efficiency.
- Staking – Ethereum will move to Proof-of-Stake Consensus, so everyone can stake and help secure the network.
- Security – Compromising the network will become much more expensive under Proof-of-Stake. 51% attackers will also be easily identifiable with validator addresses and can be forked away from the network if there is an attack.
The 3 phases of Ethereum 2.0
Ethereum 2.0 will be launched in 3 phases:
- Phase 0- Beacon Chain
- Phase 1- The Merge
- Phase 2- Sharding
Phase 0: Beacon Chain
On 1st December 2020, the Beacon Chain was officially launched. This introduced Proof-of-Stake to the Ethereum ecosystem but does not change how we currently use Ethereum. The purpose of the Beacon Chain is to coordinate the Ethereum network and serve as the consensus layer. It also acts as a crucial precursor to upcoming phases such as sharding.
Learn more with our Ethereum mining guide and learn how to stake Ethereum 2.0 on Allnodes.
Phase 1: The Merge
The Beacon Chain (also known as the “consensus layer” and formerly known as “Eth2”) is already live. The consensus layer already exists as a separate chain from the existing Mainnet (i.e. the “execution layer”, formerly known as “Eth1”). The Merge is the next step whereby the current proof-of-work algorithm on the execution layer will be replaced with the proof-of-stake consensus protocol on the Beacon Chain.
Hence this stage is known as “The Merge”, as there will be a “merge” of the new consensus layer with the existing execution layer. This will also stop the use of Ethereum mining.
The Merge will have a profound impact on the carbon footprint of the Ethereum network as it will now be a lot more energy efficient. It will also set the stage for future upgrades to the scalability of Ethereum such as sharding.
The Ethereum Merge is expected to be in September 2022.
Phase 2: Sharding
By this time, the Beacon Chain has already been launched and merged with the Ethereum Mainnet. The next stage will introduce sharding to the Ethereum Network.
Sharding on Ethereum means that a database would be split horizontally to spread the load. Sharding will work together with layer 2 rollups to divide the burden of handling large amounts of data needed by rollups over the entire Ethereum network.
Ethereum Sharding is expected to be released in 2023-2024.
Main features of sharding:
- Everyone can run a node: With this, validators will no longer need to store all the data themselves and will drastically reduce the cost of storing data on layer 1 by reducing the hardware requirements.
- More network participation and security: With sharding, you will be able to run Ethereum on a laptop or phone. This means more participation, greater decentralization, and more security.
What are layer 2 rollups?
Layer 2 rollups are an existing “layer 2” technology that allows decentralized applications (dApps) to “roll up” transactions into one off-chain for submission. The effect of this is that it reduces the data needed to execute a transaction.
The combination of layer 2 rollups and sharding is what is able to achieve a transaction speed of 100,000 tps after the Merge.
Learn more: Understanding layer 2 & scaling solutions: Arbitrum, Boba, Optimism, Polygon, Ethereum 2.0
ETH2 Multi-client network testnet
Ethereum 2.0 is a multi-lab and group initiative. As part of the plan to keep Ethereum decentralized, different labs and companies are developing their own implementation of ETH 2.0 clients. This means there are multiple codebases that all communicate with the same protocol. In the end, Ethereum will be able to support multi-clients that are all able to talk and communicate with each other via the multi-client network.
On the 28th of April 2020, a multi-client testnet for Ethereum 2.0 was released by Prysm and Lighthouse. This test allows ETH2 clients developed by different labs (such as Prysm, Lighthouse or Casper) to communicate with each other.
Testnet incident
On 14th August 2020 “Medalla” went through a series of incidents which stressed incredibly the testnet (you can read more here). In a subsequent Ethereum blog, it was stated that “Prysm nodes lost track of time when one of the time servers they were using as a reference suddenly jumped one day into the future”. This created a cascade of events which eventually lead to major fixes. Looking forward to the Ethereum 2.0 release date, and as Danny Ryan said, this was a very good thing: “I can honestly say that client software is much more robust following this incident. I’ll actually sleep a little bit better now leading up to eth2 Mainnet launch.”
This incident urged developers to point out that client diversity is a must for the future of ETH2 and its decentralization, considering that if more than 33% of validators go offline at the same moment, epochs cannot be finalized anymore.
How to set up an Ethereum Validator Node
Check out our LIVE demonstration on how to set up an Ethereum 2.0 Node.
In addition, I’ve also set up something called a validator node for Ethereum 2.0. These nodes are going to be the future of how Ethereum would run and how transactions are going to be validated, which is to rely on staking. So we’re going to explore all of these concepts as well in this guide.
Currently you can test out Ethereum staking on the ETH 2.0 Testnet set up by Prysmatic labs (aka Topaz). Since it’s a test, Ethereum will not be used, instead it will use Göerli ETH, a testnet version of Ethereum that is free to obtain.
Time needed: 2 days.
Setting up an Ethereum Validator Node
This guide has been adapted from the Prysm ‘Topaz’ Testnet Guide
- Get some Göerli ETH
Göerli ETH is free to obtain and will be used to stake the 32 ETH required for the node. The easiest way to obtain the Göerli ETH is to use the social faucet.
- Spin up a Server
You’ll need to be familiar with running a VPS server (you can use AWS, Hetzner or Linode). Recommended specs include an Intel Core i7 processor with 100 GB of SSD storage
- Start your Beacon Node
Easiest way we found to do this is via Docker
docker run -it -v $HOME/prysm/beacon:/data -p 4000:4000 -p 13000:13000 gcr.io/prysmaticlabs/prysm/beacon-chain:latest –datadir=/data - Generating a validator keypair
docker run -it -v $HOME/prysm/validator:/data gcr.io/prysmaticlabs/prysm/validator:latest accounts create –keystore-path=/data
Complete the steps here to stake the ETH
- Starting up the validator client
docker run -it -v $HOME/prysm/validator:/data –network=”host” gcr.io/prysmaticlabs/prysm/validator:latest –beacon-rpc-provider=127.0.0.1:4000 –keymanager=keystore –keymanageropts='{“path”:”/data”,”passphrase”:”changeme”}’
- Finish the activation
Wait (roughly 2 days) to get activated, and then you’re good to go!
Staking Ethereum on a validator node
Ethereum 2.0 will migrate to proof of stake consensus. In the above paragraph “Phase 0- Beacon Chain” we mentioned that 32 ETH can be staked by the community on validator nodes. The staked 32 ETH2 is used to validate the transactions and states on the network, as well as acting as a guarantee that the validator node will be honest and operational. In return, those who stake will be rewarded with Ethereum for their efforts. This means that validators will generate Ethereum as passive income and receive ETH payouts slowly over time. Current calculations of Ethereum 2.0 staking show an annual 14.2% Return on Investment (ROI). This will be great for those who stake ETH who can enjoy the benefits of passive income whilst personally holding their funds on the validator node. Analysts predict greater demand for ETH once proof of stake is implemented due to additional demand for ETH from staking and validator nodes, whilst at the same time, reduced demand for GPUs as Ethereum mining will eventually be phased out.
You can see the status of our Ethereum validator node in the image above. We had some initial downtime for the node, so we actually lost 0.01333 Ether as a penalty for missing our votes. So it is important to remember that votes are mandatory once a node is activated. An offline node will mean that votes are missed, resulting in a penalty of loss of ETH.
Ethereum Staking: Deposit contract address release
On 4th Nov 2020, with a new blog post and quietly while everyone was following the U.S. Election’s live results, the required specifications of ETH2 v1 and the Mainnet Deposit Contract Address for staking have been released. ETH2 users can now stake their ETH and become validators to help secure the network.
It’s important to remember that it is not possible to simply send ETH to the contract otherwise the transaction will fail. You need to go through the launchpad and follow the guide. Moreover, as we stated previously, staking and running a validator requires effort, time and technical expertise. Failing to meet requirements can end up with a loss of part of, if not all, your ETH as penalties add up.
Ethereum Staking Update: Returns?
As of June 2022, my validator node balance is at 35.45202. This means I have earned a total of around 3.45 ETH since I set it up 2 years ago in 2020. Note that results may vary and those who set up their node earlier (as was in my case) were able to enjoy a 16% APY.
Progress of Ethereum 2.0 so far
Beacon Chain launched
Ethereum 2’s Beacon Chain was launched on 1st December 2020, instead of early 2021 as previously anticipated.
To trigger the launch of the Beacon Chain a condition was required: there had to be at least 524,288 ETH (16384 validators), ~$210 million, in the deposit contract 7 days (i.e. 24th November 2020) before the planned date of 1st December 2020. If this threshold isn’t met, the event would be automatically triggered 7 days after the requirement was satisfied (whenever this happens).
Following the deposit contract address post, there was a spike in ETH prices which broke the $400 barrier again. Prices hovered around $410, while BTC prices pumped in the aftermath of the US election and almost reached $15,000.
Less than a week before the 24th November 2020 deadline, the ETH staked on the Ethereum 2 mainnet was still less than half of what’s needed to trigger the Beacon Chain launch.
On 24th November 2020 and just a few hours before the deadline, the threshold of staked ETH required to trigger the launch Ethereum’s Beacon Chain was met!
There was a lot of speculation in the days leading up to the deadline that the goal was unachievable. However, the biggest chunk of stakers arrived in bulk in the very last days (as some predicted). As the threshold was reached, ETH prices also rose from sub $500 to a peak of $620 on the announcement of the launch.
The next step was then on 1st December 2020 when the trigger for Beacon Chain will automatically be pulled.
Beacon Chain goes live on 1st December 2020
On 1st December 2020 at 12pm UTC the Ethereum Beacon Chain went live. There was excitement all over the crypto community.
It was a long-awaited day for all crypto enthusiasts, not only marking the beginning of a new era for Ethereum, but also a new ATH for Bitcoin prices.
More than 2 million $ETH staked
Almost two months after the launch of Ethereum 2 Phase 0 Beacon Chain, it could be interesting to have a look at how things are proceeding.
Everything is going smoothly and the number of tokens staked has significantly increased. As at 27th July 2022, there are 13,833,048 $ETH (5 rattimes the threshold) deposited in the contract address, which is nearly $19 billion dollars in value. The number of active validators is 410,514 and 205 pending validators and a Participation Rate of over 99%. This indicator, which measures ETH2’s network health, shows the number of validators actively participating in the consensus mechanism. A good rate would be always above 80-90% to ensure the security of the chain.
Unlike before, Ethereum 2 proceeds in epochs (32 blocks), every 6.4 minutes (if no abnormalities are detected). You can always check this metric here beaconscan.com/epochs.
How has the price reacted to the launch of ETH2?
Ethereum’s value has basically than doubled since Phase 0 Beacon Chain launched. On December the 1st, the price was hovering around $600 while today we find it at $1,449, trying to break the last weekly resistance before new price exploration in unknown territory!
What is the current state of Ethereum 2.0?
The 3 upgrades since the Beacon Chain launch
Since the launch of the Beacon Chain on 1st December 2020, 3 upgrades have been introduced: the Berlin upgrade, London upgrade, and Altair upgrade.
Berlin upgrade
The Berlin upgrade was launched on 15th April 2021 and optimized the gas costs for some EVM (Ethereum Virtual Machine) actions. The upgrade also increased support for several transaction types.
London upgrade
The London upgrade was launched on 5th August 2021 and notably bought about a reformation of the transaction fee market for the ETH 1.0 chain via EIP-1559. It also removed or reduced gas fees for specific functions.
Learn more about the London upgrade: Ethereum 2.0 London hard fork rollout.
Altair upgrade
The Altair upgrade was launched on 27th October 2021 and is the first scheduled upgrade for Ethereum’s Beacon Chain and adds support for “sync committees” which enable light clients, bring validator inactivity, and slashed penalties up to their maximum values.
Latest- Goerli merger scheduled for August 2022
The Goerli merger is the last step before the Merge scheduled for September 2022 and is expected to be between 6-12th August 2022 according to Tim Beiko, the lead Ethereum developer.
The Goerli merger will require node operators to update their consensus and execution layers simultaneously. This will be the final testnet (rehearsal) merge of the Ethereum mainnnet to the Beacon Chain. And consequently a transition to a proof-of-stake consensus mechanism.
The Goerli merge will only impact node operators and testnet participants. Those who hold or staked ETH will be unaffected.
If the Goerli merge goes well, then it is very likely the Ethereum Merge will go ahead as scheduled in September 2022.
Ethereum prices reacted positively to the announcement of the Goerli merge. Pre-announcement, prices were already nearly US$1,600 and on an upwards trend. Following the announcement, prices shot up further and above US$1,760. It is hoped that prices (and market excitement) can hold at above US$1,700 in the days leading up to the Goerli merger. Once the Goerli merger goes successfully between 6-12th August 2022, we might even be able to see further upwards action.
What’s next in the development of Ethereum 2.0?
So as we can see in the below diagram, the Ethereum development team is currently testing the first “layer” of the Ethereum 2.0 architecture i.e. Beacon Chain. In future months, the current Phase 0- Beacon Chain would be completed, and development would move onto building Phase 1- The Merge and Phase 2-Shard Chains.
Currently, we are in Phase 0 of the road towards Ethereum 2.0. The Beacon Chain was launched in December 2020 and exists separately from the Ethereum mainnet that we are all using today. However, the Ethereum mainnet will need to be merged with the Beacon Chain, i.e. The Merge which is anticipated to happen in September 2022. The purpose of The Merge is to enable staking features for the entire network and will signal the end of Ethereum mining. This is seen as a positive step as Ethereum mining is very energy intensive and unsustainable for the environment.
During the EthCC conference, Vitalik Buterin stated that Ethereum is currently around 40% completed. Further, the Merge of the Beacon Chain with the Ethereum mainnet is likely to be in September 2022, after which the Ethereum network will be around 55% completed. Vitalik is confident The Merge is ready to happen soon since, “the only thing left to do is to do a merge on Ropsten [test network].”
After the Merge, Ethereum will have further upgrades which Vitalik calls the “surge”, “purge” and “splurge”. This refers to Ethereum’s scaling, cleanup and evolution.
What is the “surge”, “verge” “purge” and “splurge” in the development of Ethereum 2.0?
After the Merge, Ethereum will undergo further upgrades known as the “surge”, “verge” “purge” and “splurge”.
The “surge” in the development of Ethereum 2.0 refers to adding Ethereum sharding. The purpose of this is the enable more affordable layer-2 bloackchains, reduce the cost of rollups and make it easier for users to operate nodes to secure the network. It is anticipated that once the surge is completed, the Ethereum network will be able to process transactions faster. The Ethereum network today can only process around 12 to 25 tps with an average confirmation time of 6 minutes. However, once sharding is completed, Ethereum could process up to 100,000 transactions a second. This is much faster than traditional payment systems such as Visa which can handle around 1,667 transactions per second.
The “verge” will introduce “stateless clients” and “Verkle trees”- which are a form of mathematical proof. This enables users to become network validators without storing lots of data on their machines. This is a further step in the move towards a Proof-of-Stake consensus model as any validator with staked ETH can confirm and verify transactions. This will be hugely beneficial for decentralization.
The next stage, the “purge” will involve cleaning up old network history. This is to reduce the amount of space required on your hard drive and remove the requirement of nodes to store historical information.
The final stage, the “splurge” would be several smaller upgrades and fine-tuning in order to ensure that the network operates smoothly. Or as Vitalik calls it, “all the other fun stuff”.
What will happen after ETH 2.0 is launched?
Currently, the Ethereum network can only process around 12 to 25 tps with an average confirmation time of 6 minutes. The result of this is that the Ethereum network is heavily congested with people all vying to process transactions, and consequently high gas fees.
Therefore, many “Ethereum killers” have been launched as an alternative for people to use when processing transactions. Some of these Ethereum alternatives include Solana, Avalanche, Polkadot, Algorand, and Cardano. They are seen as direct competition to Ethereum as they offer similar features but at much lower cost and higher speed.
However, after the Merge, the number of transactions per second will drastically increase to over 100,000 tps. So the question would be, what would happen to the competition i.e. the “Ethereum killers”? Find out more in our article: Ethereum Merge is coming, is this the end of Ethereum killers?
What will happen to Ethereum mining?
Ethereum mining is the process where blocks of transactions are added to the Ethereum blockchain. This is to help secure the Ethereum network through a Proof-of-Work (PoW) mechanism. In return, miners are rewarded with ether (ETH) which can be traded on cryptocurrency exchanges. Therefore, there are many who run Ethereum miners for profit.
However, the launch of ETH2.0 will fundamentally change the current economics. The current Proof-of-Work (PoW) consensus mechanism will be replaced by Proof-of-Stake (PoS). Therefore, the Ethereum update will completely erase the concept of mining. So Ethereum miners will be retired once the Ethereum 2.0 update is fully completed.
Frequently Asked Questions (FAQ)
Currently, transfers of real Ethereum / ETH2 is not enabled for the Beacon Chain Testnet. The testnet is run on Göerli and uses Göerli ETH which you can obtain for free
In Phase 0, ETH2 cannot be withdrawn back to regular ETH. Once converted, ETH2 will only be usable on the Staking Chain until Phase 3
As said, at the moment there is nothing you can do with them, they are just “digital receipts”, and transactions or other features we have now on ETH won’t be available on ETH2 for probably years. There are rumors of a possible secondary market where to trade them though
Yes. The 32 ETH staked for the validator node is designed as an insurance that the validator node is operational and online at all times. Penalties will be given if the node is offline, and small amounts of ETH will be deducted over time
In addition, there are “slashed” penalties for deliberate malicious actions done by the node, such as two conflicting votes
Ethereum mining will not end for quite a few years. Ethereum will retain mining on the main chain until at least 2020. The main ETH1 chain will continue to use mining and run parallel to the ETH2.0 chain. This is to ensure stability during the migration
Here you can have an idea of the APR (in ETH) as it varies with the number of ETH staked (source)
Everything should proceed quite smoothly, as there have been many tests during the previous phase leading to the launch. Specifically, 2 tests were exclusively dedicated to test the genesis of Beacon Chain
Following this list on Prysm website to install the client:
Minimum specifications
Operating System: 64-bit Linux, Mac OS X 10.14+, Windows 64-bit
Processor: Intel Core i5–760 or AMD FX-8100 or better
Memory: 8GB RAM
Storage: 20GB available space SSD
Internet: Broadband connection
Recommended specifications
Processor: Intel Core i7–4770 or AMD FX-8310 or better
Memory: 16GB RAM
Storage: 100GB available space SSD
Internet: Broadband connection
If you want to participate in ETH2 staking but you don’t own the minimum amount required to become a validator, or you don’t want to stake an exact multiple of 32 ETH, don’t worry. There will be possibilities through Centralized Exchanges (like Binance and Coinbase) and not only. A big advantage in this case, is to receive liquidity for your staked ETH.
RoocketPool ($RPL), now in beta, will correspond rETH (1:1 with ETH), a tokenized asset that you will be able to trade freely. Lido Finance will do a similar thing through their stETH. LiquidStake will instead let you borrow USDC for your staked ETH collateral. Many other solutions will arise as ETH2 will start its journey; for example, Cream Finance ($CREAM) has recently released an article explaining that user will receive the ETH2P token when joining ETH2 staking through them
No, ETH1 will continue as it is with no differences. ETH2 is setting up on a parallel line and the two will merge in the future. The merge will happen without ETH users being able to notice it
If this threshold isn’t met yet, the event will automatically trigger 7 days after the requirement will be satisfied (whenever it happens). The staking rate is expected to be not linear, as many people will continue to use their ETH to lock in profits, maximizing the opportunity cost offered by Defi for example, until the last moment. The staking rate will probably increase as we get closer to deadline
In a recent tweet Vitalik Buterin has announced that penalties for early months have been reduced of around 25% to 33% compared to the Medalla levels. Additionally, if the threshold will be met, rewards (APR) are now estimated around 25% (instead of around 14% as previously thought)
With the lastest estimation, you should be net profitable in three weeks
Yes of course, he is staking himself as we all were expecting him to do. According to CryptoBuzz, Vitalik sent 3200 ETH, worth almost $1,5 million
The latest predictions is that the Merge is expected to happen in September 2022.
Resources:
https://medium.com/prysmatic-labs/how-to-scale-ethereum-sharding-explained-ba2e283b7fce
Ethereum Wallet holders: https://bitinfocharts.com/comparison/activeaddresses-eth.html
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