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

Ethereum 2.0 is an upgrade to the Ethereum network that is expected to take place during 2020.

Once launched, Ethereum 2.0 will be primarily a testnet for testing the Proof-of-Stake consensus algorithm system. Most economic activity and smart contracts will continue to work on the original Ethereum network, which will continue to be a parallel system to Ethereum 2.0. The developers implement the possibility of transition of Eth1 to Eth2, but the reverse will be impossible.

Key Features of Ethereum 2.0

There we have two significant distinctions from Ethereum 1.0:

  • Sharding. The Ethereum network is now a shared database. After the update, the blockchain will be divided into autonomous, interacting blocks – shards, each of which will process its transactions and smart contracts. In December 2018, Buterin said that this method would make the altcoin network work “a thousand times” more efficiently.
  • Staking. The Ethereum development team is planning a transition to the Proof-of-Stake algorithm. It does not require the computing power of computers to be used to validate blocks. Therefore, the need for miners automatically disappears. Instead, transactions will be confirmed by validators. These users will keep a certain amount of coins in their wallet, at least 32 ETH. Thus, the system will no longer need expensive equipment.

What is the current state of Ethereum 2.0?

Currently, the ETH 2.0 mainnet was launched in December 2020. What’s important to remember is that a single party will not develop Ethereum 2.0 clients – instead, it’ll have a robust developer ecosystem and five different client releases.

As for now, the ETH 2.0 is 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, so we expect even more community participation in the months ahead.

Phase 0 – Beacon Chain

It is aimed at checking the performance of the Proof-of-Stake algorithm. The network will be most tested in nature at this stage, although it will use real Ethereum coins.

Within the framework of a 0 phase, the following aspects of PoS should become functional:

  • Management of the set of stakers;
  • Stakeholder funds management;
  • A random number generator that helps you select block producers and staking curators;
  • Stakeholders vote for block size proposals;
  • A distribution of awards and penalties for stakers.

Phase 1 — Shard Chain

Phase 0 aims to test the necessary PoS infrastructure, then phase 1 aims to test the basic sharding model.

During this phase, 65 blockchains will operate in parallel. It means that 64 new shards will be added to the existing Beacon Chain, between which they will provide two-way interaction.

Phase 2 – Execution Engine

It is assumed that smart contracts will start working in ETH2, and economic activity will begin at this stage. Shards will no longer be raw data stores and resemble virtual machines and ETH1 smart contracts.

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 ETH 2.0 clients’ implementation. It 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.

In April 2020, the Ethereum project team launched the first Ethereum 2.0 blockchain multi-client testnet. Then his code was posted to the corresponding repository on Github. The developers argued that the multi-client testnet is needed so that the project team can make sure that all clients can typically interact on the new blockchain, which runs on the Proof-of-Stake (PoS) algorithm. They also noted that the network named after the Berlin metro station would not be the only testnet they will launch before the project goes into phase 0.

Testnet incident

On 4th August at 13:00 UTC, the Ethereum Foundation developers launched the final Ethereum 2.0 testnet called Medalla. But at some point, the network broke up into several forks and then actually went out of order. The probable cause of the crash is a bug in the Prysm client.

At some point in time in the Prysm client, the time report moved 4 hours ahead, which caused a loss of synchronization throughout the blockchain. As a result, the number of validators who received staking rewards plummeted from 75% to 5%.

Prysmatic Labs developer Raoul Jordan called the crash a good lesson “to prevent this from happening on the mainnet.”

Staking Ethereum on a validator node

Staking in Ethereum 2.0 is blocking ETH in a smart contract to participate in the network as a validator and receive a reward for confirming blocks. Staking will become possible after launching a new version of the network on the new Proof-of-Stake (PoS) consensus algorithm.

Staking is a process similar to mining in PoS-based networks, where validators perform the same functions as miners. They are engaged in creating new blocks and confirming transactions for a fee. Instead of using computational resources, validators block coins in the wallet. To become an Ethereum 2.0 validator, you need to secure at least 32 ETH for staking. At the end of November, the cost of such a deposit is about $18000.

How to set up an Ethereum Validator Node

So, we need to set up something called a validator node for Ethereum 2.0. These nodes will be the future of how Ethereum would run and how transactions will be validated, which is to rely on staking. So we’re going to explore all of these concepts as well in this guide.

You can currently test 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.

Creating an Ethereum Validator Node

We adapt this guide 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 get the Göerli ETH is to use social faucet.

  1. 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

  1. 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

  1. Generating a validator keypair

docker run -it -v $HOME/prysm/validator:/data \ gcr.io/prysmaticlabs/prysm/validator:latest \ accounts create –keystore-path=/data

To complete the steps to stake the ETH, click here.

  1. 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”}’

  1. Finish the activation

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

Deposit contract address release

On 4th November, 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 impossible to 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.

Mainnet Launch

The launch of the deposit contract for the network upgrade took place on 1st December. It was necessary to attract 16 384 validators, who had to deposit 524 288 ETH (32 ETH each) worth about $200 million no later than 24th November.

Almost until the last moment, the intrigue remained – whether the community would manage to raise the necessary funds. And 9 hours before the X hour, the required amount was collected. The last 25% was deposited four hours on the previous day before the deadline. Over the past 14 hours, more than 200,000 ETH have been sent to the contract.

The main participants in the upcoming migration phase (phase 0) will be the stakers. Like miners, they will receive rewards for processing transactions and creating new blocks. Analysts suggest that at the start of Ethereum 2.0, the staking yield will be about 20% per annum.

Some Updates

Less than a week before the deadline, the ETH staked on the Ethereum 2 mainnet are less than half of what’s needed to trigger the start of the Beacon Phase 0. As anticipated by many sources, the community expects a decisive increase in the deposit rate in the last days before the deadline. If the minimum requirements are met by 24th November, ETH2 will launch on 1st December. Otherwise, it will automatically start 7 days after the threshold is met.

In a recent AMA, Danny Ryan, Core Researcher at the Ethereum Foundation, answered users’ concerns about the possibility of a failed launch. Ryan says the Foundation does have a solution to adjust the threshold down to around 100k+ ETH that they consider being sufficient. It’ll avoid leaving the staked ETH in limbo. Ryan also noted that there would be high rewards for these early adopters for those who did stake. Their Github page also goes into more details on other alternatives.

Threshold Reached!

On 24th November, just a few hours before the deadline, the staked ETH threshold required to launch the Ethereum Phase 0 – Beacon Chain has been met!

Many speculations were going on in the last days as many people didn’t believe the goal was achievable. Merely looking at the live network status bar (as we saw in the previous update), we were still at 50% two days ago, but in the end, the ETH believers did it! The most significant chunk of the stakes arrived in bulk in the very last days (as some predicted). ETH price was also growing, going from sub $500 to a peak of $620 on the day of the announcement.

The next step will happen on 1st December when the trigger for Phase 0 will be automatically pulled! Ethereum 2 is finally real.

Beacon Chain is live!

Today (1st December) at midnight UTC, precisely as planned, Ethereum Phase 0 began!!

After years, it has finally happened. The launch was a success. Even though users (beside stakers) won’t directly benefit from the new ecosystem for a long time, the excitement is palpable, and Crypto Twitter is euphoric!

Today we also announced that Coinbase and Binance, among others (see the f.a.q. at the end of the article), would offer ETH 2 staking rewards!

It’s an excellent and long-awaited day for all crypto enthusiasts, which doesn’t only mark the beginning of the new era for Ethereum. The day after, Bitcoin has reached a new ATH after three years on some exchanges (and today has made higher ones)!

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.

What can I do with my ETH2?

When 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 potential secondary market where to trade them, though.

Can I lose my ETH Deposit in the node?

Yes. The 32 ETH staked for the validator node is designed as 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.

Any news about the penalties?

Vitalik Buterin has announced that penalties for early months have been reduced from around 25% to 33% compared to the Medalla levels. Additionally, if the threshold will be met, rewards (APR) are now estimated at approximately 25% (instead of about 14%).

How long before being profitable?

With the latest estimation, you should be net profitable in three weeks.

Has Vitalik Buterin himself contributed to ETH2 staking?

Yes, of course, he is staking himself as we all were expecting him to do. The CryptoBuzz stated that Vitalik sent 3200 ETH, worth almost $1,5 million.