Validators, Proof-of-Stake, and More: Here’s What You Need To Know About Ethereum 2.0
They’ve been talking about Ethereum 2.0 for so long that we started to think they were pulling our leg!
But with the rise of Proof-of-Stake and DeFi, it’s finally here — or at the very least on the horizon. Joseph Lubin, co-founder of Ethereum and founder of Consensys, said this on the Baseline Protocol YouTube channel of the highly anticipated launch:
“Ethereum 2.0 is coming. We are now in the middle of what we believe to be the final testnet. We had many smooth operations on the testnet among a lot of Ethereum 2.0 clients built by different teams.”
Since the launch of the Ethereum testnets (Medalla, Zinken, and Spadina, to name a few), the 2.0 countdown is already in motion. Having released the deposit contract, users can already begin to deposit ether into the contract, although the complete launch will be in several phases. Once 16,384 validators have deposited a total of 524,288 ETH into the contract, the Beacon chain (Ethereum 2.0’s blockchain that is interoperable with Ethereum 1.0) will kick off what’s called the “genesis” event. This is anticipated to happen over the course of the next few weeks.
But what exactly is Ethereum 2.0? How will it work, and what will it offer for the thousands of existing DeFi projects on its platform?
Ethereum is quite different from bitcoin in that it has explicitly planned a series of periodical updates since its inception. In fact, it’s been in the works since late 2017. You can think of them as software/system updates that include both minor bug fixes and major changes to its structuring as crypto technology improves.
Increased scalability, speed, efficiency, security, the addition of the Proof-of-Stake (PoS) consensus mechanism, and advanced enterprise solutions are just a few of the things Ethereum 2.0 promises. The official plan is for Ethereum 1.0 to remain as a building block for Ethereum 2.0.
How To Become A Validator On Ethereum 2.0
Essentially, Ethereum 2.0 will include the Beacon chain — a Proof-of-Stake (PoS) blockchain that runs alongside and is interoperable with Ethereum 1.0.
As a PoS blockchain, stakers (also called validators) validate transactions within the network, rather than miners, like in the Proof-of-Work (PoW) consensus algorithm. The more you stake on their platform, and the longer you hold that stake, the more transactions you validate, per a smart contract that is accessed through a node you host on your PC.
Every network is different, and the amount you earn for validating transactions ultimately depends on many factors. The latest estimates suggest that validators can anticipate 4.6% — 10.3% of what they stake per annum in rewards. Validators will also earn a portion of network transaction fees as a reward.
But, validating on the ethereum blockchain will be an expensive endeavor — at least initially — with a minimum of 32 ETH required to stake during phase one of its launch. At the time of this writing, 32 ETH equals about $12,945.
On top of that, validators are required to run client/validator nodes, which requires some computational means (albeit less than miners). You must also stake for a given amount of time, which at the time of this writing is 18 hours.
What Ethereum 2.0 Means For You And Your Business
Whether you’re a business owner or not, Ethereum 2.0 news is something you should keep an eye on, whether you’ve already integrated into the ethereum blockchain or if you’re planning on integrating into it.
It’s important to keep in mind that enterprise adoption will take some time; in fact, it probably won’t happen for a while yet. Businesses won’t even be able to onboard clients from ethereum 1.0 until late 2021.
What It Means For Everyone Else
Luckily, Ethereum 1.0 is here to stay. So Ethereum 2.0 won’t necessarily alter your routine too much. As far as noticeable changes to the average ethereum user, the new and improved Ethereum mainnet will provide users with increased scalability, throughput, and security — things that Ethereum 1.0 lacks.
For example, transaction speeds are quite low on Ethereum 1.0, which estimates roughly 30 transactions per second. With the rise of DeFi, the network can quickly become clogged and crash, similar to the Crypto Kitties congestion crisis. Ethereum 2.0 will ostensibly fix this issue, providing users with 100,000 transactions per minute.
All in all, it’s one significant step for the blockchain “world computer”. As a DeFi project that relies on the Ethereum network, we’re excited to see where Ethereum 2.0 takes us.
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