What is Ethereum 2.0 and what will happen to this cryptocurrency

Ethereum blockchain platform developers have planned a large-scale network update called Ethereum 2.0. The update should take place in 2020. We decided to launch a series of articles dedicated to this update. In this introductory article, we tell you what Ethereum 2.0 is, what it means for investors and cryptocurrency holders, and why it is developed.

What is Ethereum 2.0 and why it is so important

The Proof-of-Work (PoW) algorithm that ETH is currently running on is economically inefficient and requires huge expenses to maintain the network. Developers are reengineering the Ethereum platform, the main goal of which is to switch to a more efficient Proof-of-Stake (PoS) consensus algorithm. This will allow the blockchain network to scale up to 1000 transactions per second against 15 in the current network. The new algorithm assumes that users allocate their cryptocurrency in their wallet to participate in the blockchain work, receiving a reward for this. But the transition from PoW to PoS is only a part of the project implementation. There will be three stages in the Ethereum 2.0 implementation:

Stage 0. Beacon Chain – testing stage of the new PoS mechanism. Testing the updated network and its algorithms.

Stage 1. Sharding is the deployment of a large-scale network with 65 different blockchains, including the Beacon Chain, working in parallel and interacting with each other.

Each pool can include up to 2048 participants. As soon as the network reaches the maximum number of participants and the total pool size reaches 8.4 million ETH, the pool size will begin to increase.

Stage 2. Enabling smart contracts – at this stage, it is planned to launch an economic model with smart contracts.

Later, we will talk about how staking will work for the updated platform.

What is the current status of Ethereum 2.0 and when will it be finished?

The network is currently under development and stage 0 was recently launched. During the entire stage, the new algorithm will be tested, but users will already be able to participate in the network using real ETH coins. Stakers will be able to take part in voting for the amount of rewards, and during the phase, the network will manage the stakes, distribute rewards and assign penalties.

 

Why does Ethereum make such an upgrade?

 

As we have already said, PoW mining is inefficient. PoS will help decentralize the platform and help speed up the operation of the Ethereum network. The main goal of the cryptocurrency concept was decentralization, but as the complexity of PoW mining increased, computing power was concentrated in the hands of several large mining pools, while ordinary miners were virtually left out. In the case of PoS, any ordinary user who has ETH coins can become a network validator. It is much cheaper and more efficient from the of energy costs point of view.

 

How will staking work?

 

Ethereum 2.0 PoS will work similarly to other platforms. The difference will only be in the reward amount, which will be determined during the Beacon Chain testing. To participate in staking, you will have to reserve coins. For a single node, the minimum threshold is 32 ETH. But you don’t have to become a validator to participate in PoS. If users do not have required amount, they can delegate their coins to validators. We will talk about validators and how ETH can be staked in the next article.

 

As we said earlier, stakers will be fined if they are disconnected from the network. Your rewards will depend on this. Therefore, it is important to choose a reliable validator, such as Everstake. We’ve learned what Ethereum 2.0 is and why this update is needed. Learn more in the next article. 

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