Ethereum 2.0 is coming – Here’s what you NEED to know

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Ethereum 2.0 (“Serenity”) 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, dubbed “phase 2”, 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 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.

Testing for Ethereum 2.0’s deployment is currently underway with the “Medalla Testnet” – a multi client test that involves the participation of 20,000+ validators worldwide. This will be the final official public test before Ethereum 2.0 Phase 0 is deployed.

You can also check out my video on things you NEED to know about Ethereum 2.0.

Ethereum 2.0 is coming- Here’s what you NEED to know

Key Features of Ethereum 2.0

  • 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, a much more energy efficient method of maintaining the network.

ETH2.0 will fundamentally change the current economics. In fact, the Ethereum update will completely erase the concept of mining. So my Ethereum miner will be retired once the Ethereum 2.0 update is fully completed.

Here is the detailed roadmap for Ethereum 2.0’s (Ethereum Serenity) release.

What is the current state of Ethereum. 2.0?

As of the 4th of August, the “Final” testnet for Ethereum 2.0 named “Medalla” has been deployed. This test is open to the public and will allow any of the 5 clients – Prysmatic Labs’ Prysm, ChainSafe’s Lodestar, PegaSys’ Teku, Status’ Nimbus and Sigma Prime’s Lighthouse – to connect to the network and communicate with each other. The test is expected to run until the end of this year, after which Ethereum 2.0 Phase0 will officially be deployed (mainnet). What’s important to remember is that Ethereum 2.0 clients will not be developed by a single party – instead, it’ll have a robust developer ecosystem and 5 different client releases.

Ethereum 2.0 Roadmap (via Consensys)

So based on the above Ethereum 2.0 Roadmap diagram, we are working through Serenity Phase 0. Reception to the testnet has been overwhelming, with more than 20,000 validators signing up and dedicating their resources to help with the Beacon Chain Testnet. Vitalik Buterin- the Founder of Ethereum has stated that this will not be the “Final” test of the Beacon Chain, so we expect even more community participation in the months ahead.

So as we can see in the below diagram, we are 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- Shard Chain and finally Phase 2- Execution Engine, as will be detailed below.

Ethereum 2.0 setup and architecture

Phase 0 – Beacon Chain

Phase 0 will start with the official launch of Beacon Chain. Currently this is scheduled for Q2 of 2020. The objective of Phase 0 is to provide attestations and randomness for a shard block. With the launch of Phase 0 comes a new token, ETH2. Users of Ethereum will be able to convert to ETH2 (at a 1:1 ratio) via a registration contract (which effectively burns the ETH you used to hold). The community will have the option to stake 32 ETH2 on validator nodes.

Phase 1- Shard Chain

Phase 1 would allow Ethereum to scale immensely via “shards”. The network will be split into 64 shards that operate at the same time, meaning they will all be processing transactions and computation. Phase 1 will also allow the shards to communicate with each other via crosslinking.

Phrase 2 – Execution Engine

Phase 2 will bring about the final form of Ethereum 2.0. This is when the existing proof of work (legacy) and newer proof of stake network comes together. From here onwards ETH will be merged into ETH2 and begin a new era for Ethereum.

ETH2 Multi-client network testnet

Ethereum 2 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.

Staking Ethereum on a validator node

Ethereum 2.0 Staking rewards

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.

Beacon Node status showing Income and Attestations

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.

How to set up an Ethereum Validator 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

  1. 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.

  2. 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

  3. 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

  4. 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

  5. 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”}’

  6. Finish the activation

    Wait (roughly 2 days) to get activated, and then you’re good to go!

Updated on 27th May 2020

Frequently Asked Questions (FAQ)

Can we transfer ETH2 to the Topaz Testnet?

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

Can you withdraw ETH2 back to regular ETH?

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

Can I lose my ETH Deposit in the Node?

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.

What is being “Slashed”?

In addition, there are “slashed” penalties for deliberate malicious actions done by the node, such as two conflicting votes.

When will Ethereum mining end

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.

Resources:

https://medium.com/prysmatic-labs/how-to-scale-ethereum-sharding-explained-ba2e283b7fce

Ethereum Wallet holders: https://bitinfocharts.com/comparison/activeaddresses-eth.html

The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.

8 COMMENTS

  1. Keep in mind than docker containers don’t have persistence unless you create persistent volumes manually.

  2. You say that ETH mining will continue “for quite a few years” and then in the next sentence you say ” Ethereum will retain mining on the main chain until at least 2020″… it is my understanding that ETH mining (PoW) will continue until phase 2 is complete and the chains are finally merger. What say you?

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