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

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.

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Ethereum 2.0 is coming- Here’s 5 things you MUST know

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Ethereum 2.0 has recently gone through some changes- most notably a change in terminology. Ethereum 2.0 has been re-named 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.

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.

Table of Contents

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.

A lot has happened with the Ethereum 2.0 blockchain since this article was published. Read the updates here.

The 3 phases of Ethereum 2.0

Ethereum 2.0 will be launched in 3 phases:

  • Phase 0- Beacon Chain
  • Phase 1- Shards
  • Phase 2- Execution

The Ethereum team likens these 3 stages to parts of the human body:

  • Phase 0- Heart
  • Phase 1- Limbs
  • Phase 2- Brain

Phase 0 – Beacon Chain

Phase 0 started with the official launch of the Beacon Chain on 1st December 2020. The objective of Phase 0 is to provide attestations and randomness for a shard block. 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 Beacon Chain also introduces staking to Ethereum, giving the community the option to stake 32 ETH2 on validator nodes.

Learn more with our Ethereum mining guide and learn how to stake Ethereum 2.0 on Allnodes.

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.

Phase 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 2.0 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

  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 –datadir=/data

  4. Generating a validator keypair

    docker run -it -v $HOME/prysm/validator:/data 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” –beacon-rpc-provider= –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!

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.

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 securing 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.

Mainnet Launch

Ethereum 2 Phase 0 Beacon Chain was launched on 1st December 2020, instead of early 2021 as was previously thought. To trigger the event a condition was required: there have to be at least 524,288 ETH (16384 validators), ~$210 million, in the deposit contract 7 days before the planned date. If this threshold isn’t met yet, the event will automatically trigger 7 days after the requirement will be satisfied (whenever it happens).

Following the deposit contract address post, there was been a spike on ETH price which broke the $400 barrier again (this happened the second half of October as well). The price was hovering around $410, while BTC was also pumping in the aftermath of the election and very close to reach $15000.

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

ETH2 status on Nov 22
ETH2 status on Nov 22

In an 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, which is to adjust the threshold down to around 100k+ ETH which they consider to be sufficient. This will avoid leaving the staked ETH in limbo. Ryan also noted that for those who did stake, there will be high rewards for these early adopters. Their Github page also goes into more details on other alternatives.

Threshold Reached!

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

A lot of 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 last update), we were still at 50% two days ago, but in the end the ETH believers did it! The biggest chunk of the stakes arrived in bulk in the very last days (as some predicted). As the threshold was being reached, ETH price was growing as well, going in the last week from sub $500 to a peak of $620 on the announcement.

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

Eth 2 Network Status 100%
Eth 2 Network Status 100%

Beacon Chain is live!

Today (December 1st) at 12pm UTC exactly as planned, Ethereum Phase 0 went live!!

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

Today we also had the announcement that Coinbase and Binance, among others (see the f.a.q. at the end of the article) will offer Eth 2 staking rewards!

This is a good and long awaited day for all crypto enthusiasts: today doesn’t only mark the beginning of the new era for Ethereum, it is also the day after Bitcoin has reached a new ATH after three years on some exchanges (and today has made higher ones as well)!

This is the Ethereum 2 explorer, check it out!

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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. Today, January the 17th, 2021, there are 2,537,698 $ETH (5 rattimes the threshold) deposited in the contract address, which equals more than $3 billion dollars in value. The number of active validators is 63125, with 15925 pending requests (the slashed ones are 36) and a Participation Rate around 97-99%. 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.

At this current pace, with many new validators added every day, Phase 1 (which requires a minimum of 262,144) is expected by Q3-Q4 2021.

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

How has the price reacted to the launch of ETH2?

Ethereum’s value has basically than doubled since Phase 0 launched. On December the 1st, the price was hovering around $600 while today we find it at $1220, trying to break the last weekly resistance before new price exploration in unknown territory!

What is the current state of Ethereum 2.0?

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 latest upgrade known as Altair was launched on 27th October 2021. The Altair upgrade is the first scheduled upgrade for Ethereum’s Beacon Chain and adds support for “sync committeees” which enable light clients, bring validator inactivity and slashed penalities up to their maximum values.

What’s next in the development of Ethereum 2.0?

So as we can see in the below diagram, the Ethereum development team 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.

Ethereum 2.0 setup and architecture

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, which is anticipated to happen in 2022. The purpose of this 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.

After the merge of the Beacon Chain with the Ethereum mainnet, shard chains (i.e. Phase 1) would be introduced which will expand the capacity for Ethereum to process transactions and store data. The shards will eventually gain more features which will be introduced in different phases. Shard chains are estimated to be rolled out in 2022.

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?

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

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

What is the expected APR for staking ETH?

Here you can have an idea of the APR (in ETH) as it varies with the number of ETH staked (source)

Can something go wrong with the launch of Phase 0?

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

What are the minimum hardware requirements to become a validator?

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

Are there projets that will allow me to stake even if I have less than 32 ETH?

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

Will there be any difference in using the ETH as I am used to?

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

What will happen if there won’t be 524,288 ETH (16384 validators) on November the 24th ?

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

Any news about the penalties?

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)

How long before being profitable?

With the lastest 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. According to CryptoBuzz, Vitalik sent 3200 ETH, worth almost $1,5 million


Ethereum Wallet holders: