Tag: Ethereum 2.0

Categories
Crypto Daily Topic Cryptocurrencies

How to Take Advantage of Ethereum 2.0

Ethereum, the decentralized blockchain that features smart contracts, will be getting a series of upgrades that will see improved scalability, security, and sustainability. This massive upgrade will create new opportunities for investors. Apart from allowing Ethereum users to earn passively from staking, smart investors can take advantage of price changes during the launch of Ethereum 2.0 and multiply their investments. 

Ethereum, the decentralized blockchain that features smart contracts, will be getting a series of upgrades that will see improved scalability, security, and sustainability. This massive upgrade will create new opportunities for investors. Apart from allowing Ethereum users to earn passively from staking, smart investors can take advantage of price changes during the launch of Ethereum 2.0 and multiply their investments. 

Ethereum, the decentralized blockchain that features smart contracts, will be getting a series of upgrades that will see improved scalability, security, and sustainability. This massive upgrade will create new opportunities for investors. Apart from allowing Ethereum users to earn passively from staking, smart investors can take advantage of price changes during the launch of Ethereum 2.0 and multiply their investments. 

In this article, we will look at what is Ethereum 2.0, what investment opportunities it creates, and how you can be part of this development.

What is Etherum 2.0 All About?

Also known as Eth2, Ethereum 2.0 is fundamentally a shift from the current proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model. In the PoW model, the generation of new blocks relies on the computing power of each node on the network that is taking part in transaction validation. On the other hand, PoS relies on virtual miners (also called validators) and Ether deposits to achieve consensus. 

Besides changing the consensus mechanism, Eth2 also introduces shard chains – a mechanism that ‘splits’ the Ethereum blockchain and shares the processing task among different nodes. This approach increases the network’s processing capability by allowing concurrent processing of transactions – a shift from the traditional sequential processing. 

While the upgrade is squarely technical, its economic and financial implications will be far-reaching. 

How Will Eth 2.0 Affect Prices?

Whenever a major event happens on certain crypto, its prices are bound to change due to increased speculation. In the wake of the anticipated Eth2 launch, upward price movements were observed. The launch was set to happen on 1st December, and a week to this launch, ETH prices had gone as high as $600. While this rally might have been due to other factors, such as the general positive sentiment on cryptocurrencies, the surge observed just a week before the event can’t be coincidental. 

Speculation aside, Eth2 is bringing improved transaction speeds and lower costs – factors likely to increase demand for the crypto. Already, exchanges are reporting declined sell pressure, which indicates that investors are not eager to sell ETH at the moment. The speed and transaction cost improvements will also automatically cascade to tokens that run on the Ethereum blockchain. This will trigger even more demand for the crypto and, thus, better prices. 

Staking in Eth 2.0

The introduction of staking in Eth2 creates a new opportunity for investors to earn by validating transactions, and this is the latest investment opportunity we would like to discuss. 

Simply put, staking in Eth2 implies depositing 32 ETH to activate validator software – the tool you will be using to process transactions. As a validator, you will have the power (and duty) to process transactions and add new blocks to the blockchain, and earn rewards while at it.

Rewards are given to validators for pushing transaction batches into new blocks and validating other validators’ work. While there are bountiful rewards in staking, you might lose ETH if you are unavailable to perform validations or if you use your stake against Eth2 validation specifications. 

How to Stake in Eth 2.0

Staking involves sending 32 ETH to the following address: 

0x00000000219ab540356cbb839cbe05303d7705fa

However, you will need to use the launchpad dedicated for this purpose. The address above is for verification purposes only. The process involves several distinct steps, summarized as follows:

  1. Review Eth2 staking agreement/ terms and conditions
    1. Sign up on the launchpad. This will involve depositing the 32 ETH.
    2. Agree that it is your responsibility to keep your validator online.
    3. Agree that you are liable to slashing (incurring a large penalty) if you act against validation specifications.
    4. Agree that you understand that your mnemonic (or seed) is the only way to access your funds and that you will keep it safe.
    5. Agree to safeguard your key stores, which will hold your keys, and provide the public keys to the launchpad site to activate your validator.
    6. Agree that you cannot transfer your staked ETH until Phase 1 and that you cannot withdraw until Phase 2.
    7. Agree that once you exit, you cannot rejoin as staking is a long-term commitment. (The completion of each phase depends on reaching a certain amount of staked ETH. Thus, withdrawals will keep extending timelines for this smart contract).
    8. Accept early adoption risks, i.e., software and design flaws that may result in the loss of your ETH.
    9. Agree that you are technically capable of configuring a validator.
  2. Select an Eth1 client that will run parallel to your Eth2 client. This is necessary to process deposit transactions coming from the Eth1 chain.
  3. Select an Eth2 client and set up a node. You can choose between Prysm, Nimbus, Lighthouse, and Teku. Nimbus is one of the most versatile as it can run even on older smartphones.
  4. Select the number of validators you would like to run and the operating system you will use. Remember, to operate each validator, you will need 64 ETH.
  5. Upload the validator which you downloaded/ built from the previous step.
  6. Finally, connect your wallet.

While staking in Eth2 is quite technical, especially for the average user, a comprehensive step-by-step guide is provided on the Ethereum launchpad website. It is also worth acknowledging the thoroughness with which the documentation was put together by the Eth2 team to guide potential validators. If you use this guide, you are unlikely to get stuck simply due to technical difficulty. 

Is Eth 2.0 Staking a Good Idea?

Staking in Eth2 is a double-edged sword – it comes with both benefits and risks. When you commit your ETH to the staking contract, you are almost guaranteed returns just from staking. However, returns are highly variable. In fact, it is impossible to tell how much you can earn by staking a fixed amount of ETH until you actually receive the reward. Even so, if you stake and consistently participate in validation, you will get rewarded. 

Secondly, staking means locking your ETH to the network for some time, without the possibility of withdrawing it at least until Phase 1.5. This is akin to depositing with a fixed account, whose interest can be compared to the growth of ETH in the near future. 

While staking is a good way to earn from Eth2, you might want to consider the following risks:

  • Staking is a one-way deposit. ETH you send to the contract address cannot be withdrawn until an unknown future date (this is until Phase 1.5 of the upgrade is reached).
  • Profits you earn from staking also remain staked until this unknown future date.
  • Validation is a responsibility that all stakers must undertake. By being offline, you will lose as much as you would have earned if you were available for validation.

Final Thoughts

The coming of Eth2 brings with it exciting investment opportunities. Other than the traditional trading and HODLing, Eth2 allows you to commit some funds to the network and join other validators and earn exclusive rewards from it. Risks, including early-adoption software bugs and slashing due to being offline, exist. However, all considered, staking is a worthy venture that ETH investors should consider. 

Categories
Cryptocurrencies

What’s Ethereum 2.0 and Why Does it Matter? 

After a years-long wait, Ethereum 2.0 is finally here. Well, almost. The major upgrade will see the Ethereum network fix various scalability and security issues. The most notable shift will perhaps be moving from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) protocol. 

After a years-long wait, Ethereum 2.0 is finally here. Well, almost. The major upgrade will see the Ethereum network fix various scalability and security issues. The most notable shift will perhaps be moving from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) protocol. 

After a years-long wait, Ethereum 2.0 is finally here. Well, almost. The major upgrade will see the Ethereum network fix various scalability and security issues. The most notable shift will perhaps be moving from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) protocol. 

But this is just a scratch on the surface. With Ethereum being one of the most important cryptocurrencies in the world, Ethereum 2.0 is set to shake up not just the Ethereum ecosystem but cryptoverse in general. 

Understanding Ethereum 2.0

Ethereum 2.0 is an upgrade to the Ethereum protocol. Also known as Eth2 or Serenity, the update is meant to improve the scalability and security of Ethereum. The current Ethereum blockchain, with the scalability of 15 transactions per second (TPS), can simply not handle the volume that would be required to handle millions of transactions per second. Eth2 will not just power dramatically more than that; it will also remove bottlenecks for developers and users.

Ethereum founder Vitalik Buterin and the team have been working on Eth2 for years now. This is because scaling a blockchain without sacrificing security and decentralization is not an easy task. Eth2 will address these issues through several important features that will be starkly different from the Ethereum we have now. 

What’s the difference between Ethereum and Ethereum 2.0? 

What will mainly distinguish the two versions is that Ethereum 2.0 will feature a proof-of-stake consensus, implementing shard chains and the beacon chain. Let’s look at each of these features in more detail. 

#1. Proof-of-stake 

Ethereum currently implements a proof-of-work consensus model to secure the network and maintain and facilitate an incentive mechanism to reward miners who confirm and validate transactions on the network. Unfortunately, PoW requires huge amounts of energy – which is not sustainable in the long run. 

PoS is a far faster and sustainable alternative to PoW. PoS involves granting stakers in the network the right to become a validator and get paid to verify transactions. Other validators can confirm the “minting” of the block. If there are enough confirmations, the block can be added to the blockchain. Validators will then be rewarded with block rewards for the successful block. 

PoS is a lot of times better than PoW when it comes to energy-efficiency. This is because, unlike PoW, there isn’t an energy-intensive process required to validate blocks. This is also good news for individuals who want to help secure the network. 

Another feature that a PoS model will enable security on Ethereum 2.0 not previously possible with PoW. PoW is susceptible to a 51% attack. The PoS model will not only reward validators for being honest; it will penalize attempts at fraud. One such penalty will be ‘slashing,’ which will not only involve the validator in question being forced out, but all/part of their stake will be penalized. 

#2. Sharding 

Individuals who wish to access the Ethereum network have to do that via a node. Nodes store a copy of the entire Ethereum network, meaning they have to download it. This takes up too much storage and slows things down. 

Shard chains act like the blockchain but only hold a specific subset of the blockchain in question. This means nodes only have to manage a ‘shard’ of the entire network. This goes a long way in increasing transaction throughput and enhancing scalability. 

#3. The beacon chain 

Shard chains will work in a parallel version. This necessitates a mechanism of sorts to keep them in sync with one another. Enter the beacon chain, which will facilitate consensus to shard chains. 

Beacon chain is a completely new, proof-of-stake blockchain rendering that will be the coordinator of the whole ecosystem. The chain will facilitate data sharing between the shard chains and facilitate scalability. The beacon chain will be the first roll-out feature of Eth2. 

How Ethereum 2.0 Will Be Rolled Out 

Ethereum 2.0 will not be released at once but rather in three phases. Each phase will feature a crucial feature to contribute to the success of the new blockchain. 

#1. Phase 0

Phase 0 constitutes the first rollout, and it will come down to the release of the beacon chain, which is central to the network’s functioning. The beacon chain will start accepting stakers’ deposits in preparation for the proof-of-stake consensus. All registered stakers will not be able to withdraw from the contract until shard chains are put in place. Afterward, staking deposits will be locked up until the next rollout. The Phase needed a minimum threshold of 524,288 ETH to launch. This target has already been met and even passed. 

#2. Phase 1/1.5

The next phase will be two phases combined: Phase 1 and Phase 1.5. Phase 1 will bring with it shard chains, which will allow validators to produce blocks via a PoS consensus. Phase 1.5 will officially now introduce shard chains and begin the transition from proof-of-work to proof-of-stake. This phase will be released in 2021. 

#3. Phase 2 

This will be the final phase, whereby the blockchain will fully support shard chains – which will have taken on new features and capabilities. The shards will have the ability to integrate with smart contracts, allowing decentralized applications (DApps) developers to mesh seamlessly with the network. This phase will be slowly rolled out in 2021 and beyond. 

When Will Ethereum 2.0 Be Released? 

The Ethereum 2.0 upgrade will start rolling out on December 1, according to a blog post by the Ethereum Foundation on November 4. The launch is conditional on at least 16,383 validators, each staking 32 ETH to make up 524,288 ETH. Vitalik Buterin led the way in depositing ETH, putting up 3,200 (worth more than $1 million), according to Etherscan, which tracks Ethereum transactions. See the launch pad where ETH is being deposited here. 

Ethereum enthusiasts are naturally excited about the launch and hope everything will fall in place. If the launch is successful, the Ethereum network as we know it will change a lot – and for the better. 

Closing Thoughts 

Ethereum 2.0 is a long-awaited update to the world’s second most popular crypto and blockchain network. Having been introduced to the world of smart contracts and DApps, the network has been the most popular go-to option for DApp developers worldwide. But in recent years, the network has been grappling with scalability issues that would have proven unsustainable in the long term.

The rollout of the new network will take a while, even longer than many expect. But as long as the train will soon leave the station – that’s good enough news for the community. 

Categories
Crypto Daily Topic

Ethereum 2.0: Ethereum’s new dawn

Ethereum, the world’s most popular blockchain platform for decentralized applications, is undergoing a revolution, and it promises to be BIG!

If you are savvy with the developments in the tech

Ethereum, the world’s most popular blockchain platform for decentralized applications, is undergoing a revolution, and it promises to be BIG!

If you are savvy with the developments in the tech

Ethereum, the world’s most popular blockchain platform for decentralized applications, is undergoing a revolution, and it promises to be BIG!

If you are savvy with the developments in the tech world, then you probably already know what Ethereum is and why Ethereum 2.0 is a big deal. If you don’t, Ethereum is a blockchain platform proposed in 2013 by Vitalik Buterin, the then young student at the University of Waterloo, to support application development as well as generalized scripting language.

Over the course of two years, Vitalik, together with seven other developers, created Ethereum as a robust smart contract platform on which anyone can develop and run decentralized applications. The project went live in 2015 and has generally fulfilled its promise to become a global decentralized computer on which anyone can run their code at a small fee.

Fast forward four years, and the platform is getting ready for its biggest upgrade leap since it was first rolled out. Ethereum 2.0 has been discussed since mid-2018, and the first phase is expected to be rolled out at the end of 2019. But before going to the details of the upgrade, let’s first review the current position of the Ethereum platform.

Understanding Ethereum

The first stable version of Ethereum, ‘Homestead,’ was released in March 2016. Like Bitcoin, Ethereum is essentially a distributed public ledger but with some significant differences in purpose and capability. While Bitcoin’s major and only blockchain application is of peer-to-peer electronic cash payments system online, the Ethereum blockchain platform is focused on running the programming code of third-party developers published on the platform.

Miners on the Ethereum blockchain earn Ether/ This is a form of cryptocurrency tokens that essentially fuels the network. Other than being a tradeable crypto, Ether is also used by developers on the network to pay for services and transaction fees. 

Just like the Bitcoin network, Ethereum uses a Proof of Work (PoW) consensus system.  In this system, a participant node in the network is required to submit proof that they have done some work in order to receive the rights to new transactions to the blockchain. The ‘work’ in PoW protocol refers to the computer processing time and effort that often uses power. As a result, PoW is not only hard but also expensive.

The switch from Proof-of-Work to Proof-of-Stake

The biggest change in the upgrade of Ethereum from 1.0 to 2.0 is the switch from the work-based PoW to stake-based PoS. PoS (Proof of Stake) is a low-cost, low-energy type of consensus that involves the allocation of responsibility of maintaining the blockchain ledger to a participant node based on their proportion of the virtual currency they hold. With PoW, getting the right answer is easy, but getting the wrong answer is expensive. PoW rewards the miner for finding the right answer while PoS punishes the miner for getting the wrong answer.

The switch from PoW to PoS will not only make Ethereum a more secure platform, but it will also improve its scalability. The new consensus will be less susceptible to the 51% attack, which happens when a miner or miners in a pool take control of more than half of the network’s computational power. With such an ability, malicious attackers will have the power to invalidate even valid transactions and even approve the double-spending of cryptocurrency.

Ethereum is planning a hard fork by the end of 2019 to switch from the current PoW to PoS. The switch will be implemented in three phases to minimize the risks that such development brings.

Phase 0 (Beacon Chain): The Beacon Chain will be a proof-of-stake chain that will be implemented to run parallel to the current proof-of-work chain. In the beginning, the new chain is designed for simplicity and will not support accounts or smart contracts.

Phase 1 (Basic Sharding): Sharding will divide the network across multiple shards to enable the network to process the many transactions on the network concurrently. This is necessary to help transactions to scale.

Phase 2 (eWasm): eWasm is the new rebuilt Ethereum Virtual Machine. It will fully support the proof-of-stake consensus as well as sharding. This phase will introduce accounts and smart contracts to Ethereum 2.0.

Sharding will help Ethereum to scale by partitioning the network’s database into smaller and faster pieces called shards. Each of these shards will have a chain of transactions, and accounts on the network will be assigned to a shard. They will then be able to seamlessly transact with other accounts within and outside the shard.

The planned rollout of the Ethereum 2.0 will be implemented in phases to test every element of the network in a safe environment to uphold the integrity and security of the system. 

Design Goals of Ethereum 2.0

Ethereum 2.0 was developed with five core design goals.

  1. Simplicity: The platform will be less complex compared to the current network. However, this will be at the cost of some network efficiency.
  2. Resilience: The network will stay live even when undergoing major partitions or when large portions of network nodes go offline.
  3. Longevity: All components of the network will be quantum secure. Those that are not will be easily and safely replaced with quantum secure ones when available.
  4. Security: Ethereum 2.0 uses cryptographic and design techniques that facilitate greater participation of validators per unit time.
  5. Decentralization: The network will allow for a typical consumer laptop with O(C) resources to validate (process) O(1)  shards (this includes system-level validation).

What the rollout of Ethereum 2.0 means

Vitalik shared a broken-down overview of what network users should expect during and after the transition from Ethereum 1.0 to Ethereum 2.0. Here is a summary of what you should expect:

☑️ It may be possible to move ETH from the new to the old network for a short time.

Since it may take a couple of years for the new PoS platform to be fully merged with the older PoW platform, users may be able to move their crypto back and forth within this time. However, during the transition period, the transfer of ETH between the old and new chains will be disabled largely due to the complexities involved in creating a two-way bridge between the two chains.

☑️ A complete transition from Ethereum 1.0 to Ethereum 2.0 is expected by Jan 03, 2020.

The switch from PoW-based to PoS-based consensus will be officially launched on December 4th, 2019 and is expected to take a month. To avoid any hiccups, all developers, stakeholders, and major Ethereum clients are expected to have completed the transition during the switchover month.

☑️ You need to have 32 ETH to be a master node

To be eligible to stake or perform the functions of a master node, you would need to own 32 ETH on the network. The new economic model of the Ethereum network suggests that validators will be able to earn between 4.6% and 10.3% in annual returns. You can use the ETH 2.0 Calculator available on the Telegram app to estimate net returns based on the adjusted dynamic rewards scale.

☑️ It will be more expensive to recall data on the Ethereum blockchain

If you are a DApp developer, recalling and accessing data on Ethereum 2.0 will incur increased transaction costs. This is because of the changes in how the Ethereum state (the full account of transactions) is stored on the PoS network. However, there are ways in which developers can minimize these costs.

☑️ Ethereum will no longer be able to execute transactions atomically

The upgrade will break the ability for Ethereum transactions to occur all at once. To developers, this means it will no longer be possible to execute transactions between two or more applications such that when they fail, they can recover the entire series of transactions. Ethereum 2.0 will break up transaction loads into different shards, unlike the current network, which has all the dapps on one shared chain.

Ethereum 1.0 has the capacity to process roughly 25 transactions per second (TPS). The old PoW consensus clearly is not capable of taking the blockchain platform mainstream. For comparison, Visa has the capacity to process 24,000 transactions per second.

During the transition period, Ethereum 2.0 is expected to be capable of only half the total speed of transaction processing speed of 1,024 shards. Depending on the number of shard chains and the shard block sizes, this can translate to as much as 15,000 transactions per second. This limit is put in place to enable simpler and faster communication between shards in the early stages of Ethereum 2.0.

Ethereum 2.0, even after launch, will remain a work-in-progress. The hard fork will be a major leap in the lifetime of the network, and while it is expected to go smoothly, there is always a risk in implementing something new. As such, users and stakeholders are advised to stay updated on the upgrade.