Ethereum 2.0: The Complete Guide

ethereum 2.0
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Are you interested in cryptocurrency, smart contracts, or distributed ledgers? If you are, you’ve probably heard of Ethereum. But have you heard of Ethereum 2.0?

That’s right, the stable and globally-known blockchain network is getting an upgrade. But it’s too grand to describe in a couple of words, that’s why we wrote this article.

In this article, we will cover what ETH2 is and how proof of stake is going to be of benefit as well as what makes ETH2 better.

Before you go ahead, you might consider reading more about blockchain technology or even what is blockchain. If you’ve understood the basic concept then you’re fine.

So whenever you’re ready to take your future to the next level, keep reading.

ETHEREUM 2.0 – ENTERPRISE SOLUTION

There is excitement in the Ethereum community and enthusiasm around ETH nerds. Ethereum’s shift to a new consensus mechanism is a dramatic change-maker.

As many business leaders still don’t understand the significance of ETH2, we thought we should cover this awesome opportunity for large institutions and enterprises.

The nature of the ETH2 network is changing the same as the mechanisms for securing open permissionless protocols. If you’re holding Ether (ETH) as an asset, then you already know what we’re talking about. Because now it’s really time to take a look at Ethereum 2.0 as the growth opportunity for large enterprises. But let us explain step by step.

What is Ethereum?

what is ethereum new

Ethereum is a public, open-source blockchain platform. It introduces the system of smart contracts, which are protocols defined by developers to perform tasks. Anyone can create their own on this blockchain with a little fee.

Ethereum is quite different from Bitcoin, even though both are based on Distributed Ledger Technology. Ethereum code was introduced by Vitalik Buterin, and the platform was presented at the North American Bitcoin Conference to the public in 2014.

Presume that Bitcoin is a calculation app in your iPhone, which is great for solving many mathematical problems, but nothing beyond that. Ethereum, on the other hand, is the iPhone itself, in which you can install many applications according to your own requirements and needs.

Ethereum allows everybody to create a decentralized app on the blockchain. Apps are changing the internet as we know it, so now you can spare your computing power to earn money, make use of the content, and monetize it. But that’s not even close to all of it.

Bitcoin is the first rendition of Blockchain, Ethereum is the second, known as BlockChain 2.0.

But Ethereum is getting an upgrade, so let’s find out what Ethereum 2.0 is.

What is Ethereum 2.0?

what is ethereum 2.0 new

Also known as Serenity, Ethereum 2.0 is an update to the previous network, which improves the efficiency, speed, and scalability of it. This will take Ethereum even further, alleviating congestion, allowing more transactions, and removing high gas costs.

Upon reaching the second and final phase of the update, ETH will finally meet the goal of being an open and transparent network for decentralized finance and applications.

ETH2 will have sharding that improves the network bandwidth and alleviate gas costs, making it cheaper to send tokens, Ethereum, and to interact with the contracts. This will create serious shifts in the economical foundation for the platform.

The update will allow staking nodes and passive income opportunities. In many ways, Ethereum is the effort of many years of global development processes. Ethereum will be done in three phases, starting with Phase 0.

Over the past years, opponents of the network have criticized the fragility of peak usage and high transaction costs.

Proof of Stake Explained

With blockchains like Ethereum, there is a need to ensure the decentralization of validations of transactions. Like other cryptocurrencies, ETH uses a proof of work consensus mechanism.

In this approach, miners use hardware computing power to solve mathematical puzzles and verify the transactions. The first miner to solve the puzzle adds the transaction to the public record of all transactions. They’re rewarded with crypto in return. But this process is quite energy-inefficient.

proof of work vs proof of stake

Proof of stake differs because instead of the miners, special validators stake crypto for their rights to verify. These validators are chosen to presume a block based on how much crypto they have, and for how long they’ve had it.

Others can attest to seeing this block. When there is enough attested, a block can be added to the chain. Validators are then provided with a reward for their proposition. This is called minting or forging.

The primary benefit of PoS is that it’s more efficient than PoW. That’s because energy-intensive processing is decoupled from the consensus mechanism. It also means you don’t need lots of power to secure the blockchain either.

How will ETH2 Scale Better than ETH?

One of the primary reasons the ETH2 update is coming is scalability. With ETH, the network can only support 30 transactions each second. This results in congestion and delay. Let’s have a look at how a traditional blockchain network looked like on Ethereum. The following image illustrates a single chain of data blocks:

ethereum blockchain dlt

ETH2 is promising over 100,000 transactions each second. This is done via the shard chain implementation. The current ETH network has a blockchain with a single chain of blocks. This is quite secure but very inefficient and slow.

With the shard chains, the blockchain will be split, enabling transactions to occur in parallel chains instead of consequential ones. This allows for better scaling and network speeds. Scaling has been lacking on the Ethereum network, but for not much longer.

Now let’s have a look on how ETH2 will look like:

ethereum 2.0 blockchain dlt
Created with GIMP

In reality, instead of two shard chains, there will be 64. All shard chains will use the beacon chain for coordination.

Amazing! Isn’t it? So don’t miss out on the potential of this new way to code smart contracts using distributed ledger technology.

Who created ETH2?

ETH2 was created by different companies and engineering teams. This makes the use of ETH2 even more attractive. 9 different teams, funded by the Ethereum Foundation, are building not just the new network but brand new applications called clients. These “clients” are very similar to web browsers. Instead of accessing any website, you’re accessing the ETH2 network.

The mentioned teams are working hard to come up with different clients. Hence, the network cannot go down if one or the other client breaks or has a bug. Furthermore, each client is focusing on different use cases in different niches. For example, client A is optimized for dApps, distributed applications for smartphone users. Then client B on the other hand is optimized to build enterprise applications.

We’d like to take the chance and shout out a big thank you to the development teams who have created ETH2:

  • PegaSys – A global development team backed from ConsenSys, the largest driver behind the Ethereum ecosystem
  • Parity – A company based in Germany, who was also in charge of the Parity client in ETH1
  • ChainSafe – This Canadian company is building the Lodestar client as well
  • Nethermind – The team behind a .NET Windows client for ETH2
  • Sigma Prime – Their cybersecurity experts building the Lighthouse client for mainstream use cases
  • Trinity – A team of contractors working on a prototype client
  • Prysmatic Labs – This team is based in the US and launching the Prysm client which will be similar to Geth
  • Status – A European team, working on the Nimbus client for dApps on smartphones
  • Harmony – Their Russian team is building a Java client for ETH2

Ethereum 2.0 Roadmap & Release Date

ETH2 will be launched in three important phases. The process will reduce the technical risk of breaking things. These three phases containing the following milestones:

Phase 0

  • Launch of the beacon chain including PoS validation
  • ETH1 will still operate as normal
  • Shipping Q2 or Q3 2020

Phase 1

  • Launch of shard chains including the allowance of storing data
  • ETH1 might get merged into ETH2
  • Shipping in 2021

Phase 2

  • Enabling transaction processing on the shards
  • ETH1 might finally be transitioned into ETH2
  • Shipping early 2022

As you might have realized from the different phases, the launch of ETH2 is leaving some open questions about what’s going to happen with ETH1. We’re pretty sure that Ethereum will continue to evolve beyond of these three phases.

ETHEREUM 2.0 PRICE EFFECT

eth2 effect on cryptocurrency price

For some people, the update of ETH is exactly what the crypto world needs. Once ETH2 comes with layer-2 tech scalability, almost all questions are resolved.

In other words, scalability means more usage, which means more demand. In theory, this should propel the price of Ethereum to greater heights. By the time that ETH2 and any rollups cooperate, there will be 100,000 transactions each second.

This proposes a seamless experience for billions of people. The advantage of reduced transaction fees and increasing throughput on the network is unhindered, but a possibility on the network.

Not to mention, the ecosystem is taking a milestone approach to reinforce the Ethereum network. This will have a long-term effect on the price of ETH, not extrapolating the short-term volatility, which is the core of crypto-asset evaluation.

ETHEREUM 2.0 STAKING

ethereum 2.0 staking process
Ethereum Staking Process

Ethereum has introduced staking rewards in November 2020. The proof-of-stake is giving Ethereum coin-holders the possibility to earn a return on their investment. Let us explain how this works.

The Basics of Staking Ethereum

Before you can start you need to run a validator node. Then you’ll have to lock up your ETH tokens in a deposit. This is the allowance process to participate in block creation.

You’ll need at least 32 ETH’s to stake on Ethereum 2.0. As of today, with a market price of 713 USD, that amount is worth about 22,816 USD. Small investors can join staking pools to participate in the same way. Now you’re for sure wondering, what you’ll need for Ethereum 2.0 mining and start staking. Right? So let’s move on.

Ethereum 2.0 Mining

Ethereum mining became very easy and simple. Compared to Bitcoin mining, you don’t need powerful hardware nor ASIC devices. Most consumer laptops are able to support one validator slot at least.

Just ensure that you stay online 24/7. You need to be available at any time to validate blocks. If you’re a bit tech-savvy, you can find step-by-step instructions on how to run your own node. If you need detailed instructions, then you can contact one of our experts from iMi Blockchain at any time.

Ethereum 2.0 mining of course allows withdrawing your ETH. You just need to wait at least 18 hours before you can start with that too.

Something to remember, if you start mining Ethereum 2.0, is, that if you misbehave as a validator, you get a penalty. They call it slashing. On the other side, if you behave correctly, you even get mining rewards. The balance of incentive and disincentive is completely different from proof-of-work.

Say Hello to the Ethereum Blockchain

We are more than sure that Ethereum’s future is very bright. Of course, there are other blockchains out there to build smart contracts. But so far, only the Ethereum ecosystem has reached the critical mass needed to become mainstream.

Now that you know about Ethereum 2.0, you are well on your way to deciding upon your future investment strategies. The world of tech is changing fast, and it’s always best to be on the train early, because when it leaves – it won’t be waiting for those who are late.

Ethereum is pretty much like that, and the price change can happen so drastically that many people will see tremendous net worth inductions.

If you’re interested in learning more about Blockchain or having a one-on-one strategy consultation, get in touch with us, and we will happily accommodate your needs.

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FAQ ABOUT ETHEREUM 2.0

Will Ethereum 2.0 replace Ethereum?

No, not at all. The proof-of-work chain will continue to run. In parallel, you can use the proof-of-stake shard chains. The new ETH2 will take place and you’re able to transfer ETH from POW to POS using the shard chain.

How will ETH 2.0 affect price?

ETH 2.0 will affect the price for sure. The upgrade from POW to POS will increase the value for enterprise applications. Because of faster transactions and decreased costs, it will most likely increase the demand for Ethereum. The upgrade from ETH1 to ETH2 should have a very positive effect on tokens that are already deployed.

Is now a good time to buy Ethereum?

It’s always a good time to buy Ethereum. This technology is still young and new developments coming out daily. Therefore, the longer you wait the less you can win. Just be aware that all crypto assets are very volatile. Hence, only long-term investors should buy Ethereum.

Is Ethereum overvalued?

No, not at all. If you compare the market capitalization with other assets, such as shares, then you will realize that this is just the beginning. Furthermore, the technology behind Ethereum is still new. The more it will be used, the more value will Ether generate. Taking into consideration that ETH2 is just about to launch, more and more large enterprises and institutions will use the Ethereum network. Therefore, the value and its price will most likely increase.

Will Ethereum be replaced?

Ethereum with its POW network will not be replaced. The launch of Ethereum 2.0 with the new POS network will run in parallel. Furthermore, Ethereum as a public open-source project is backed by thousands of developers around the globe.

How to stake Ethereum?

Before you can start to stake Ethereum you need to run a validator node. Then you’ll have to lock up your ETH tokens in a deposit. You need at least 32 ETH to stake on Ethereum 2.0. If you are a small investor, you can join a staking pool.

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Marcel Isler

Marcel Isler

Marcel is a Business Economist and founder of iMi Blockchain. A Consultant and international Keynote Speaker. He studied at the University of Oxford. He helps enterprises to implement Blockchain applications. On our blog, he writes about distributed ledger technology, smart contracts, cryptocurrencies, industry news, and future trends.

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