Ethereum 2.0 is the highly-anticipated developments and upgrades that are coming for the Ethereum blockchain, scheduled for release at the end of this year. These changes have been coming for years, and investors are keen to see how they will shape the future use of the chain. Although the upgrade is happening in stages, the first stage, the introduction of Ethereum 2.0, is the part that is generating the most interest.
When Ethereum 2.0 does drop, it will have a minimal direct effect on Ethereum users. This is because most of the change that it will create will occur on an entirely different blockchain, the beacon chain. This is a proof-of-stake (PoS) chain for investors where users can choose to lock their funds long-term to receive interest on their tokens.
This is also known as staking. All users need to do is have at least 32 ETH, and be continually running a validator node (available to most people, not just high-tech mines). It is expected that staking rewards will be anywhere between 4% and 10%. To maintain the system’s success, staked investors may face penalties if they go offline for extended periods, or if they act maliciously in any way to the rest of the network.
Although there are clear benefits for investors looking to engage in a PoS model (the interest), there are potential downsides. Stakes must be held for a predetermined, extended time. If the token was to decrease in value severely over this time, there is nothing that the user can do to withdraw their stake and try to sell as quickly as possible – they would have to wait, potentially losing all of the value of their investment. Currently, this risk seems very minimal considering that cryptocurrencies have increased in value drastically this year (Ether, Ethereum’s native token, is up 81% in value this year to date) and show no signs of slowing down, it is still a potential concern.
This proof-of-stake model differs slightly from the proof-of-work model used by bitcoin, which allows users with the most computing power to confirm and validate blocks. Ethereum has used the PoW model before, but it is believed that a shift to PoS will be more energy-efficient and allows the mining process to become more decentralized. Currently, most crypto tokens are mined by a small number of large-scale farms. Changing to PoS gives a more significant amount of miners the ability to validate blocks, without top-of-the-range technology or a massive setup.
This is perhaps one of the most significant upgrades that the crypto world has seen so far. Ethereum 2.0 marks the first time that a blockchain (especially one as large as Ethereum) has attempted to move all of their users and assets to an entirely new network, while still maintaining the existing one. There are three expected phases of the entire upgrade, and this creation of the beacon chain represents the first.
In the future, Ethereum 2.0 will take over the current and original Ethereum, although it is currently uncertain when exactly this will take place. This magnitude project is likely to take years to roll out entirely, but experts believe that the hardest part is the initial launch. If they can manage that successfully, the rest of it should follow suit.