Know What Is Ethereum 2.0 and How It Works

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Bittime - Ethereum 2.0 is one of the biggest improvements in blockchain history. It is a multi-phase change aimed at improving the scalability, security, and efficiency of the Ethereum network. One of the key aspects of this improvement is the introduction of a staking model, which will replace the existing mining process.

Staking in Ethereum 2.0 is one way to earn passive income from your investments in ETH. In addition, you can also contribute to the improvement of the Ethereum network and support the larger blockchain ecosystem. This article will discuss what staking is in Ethereum 2.0, how it works, and what benefits it has for users and developers.

What is Ethereum 2.0?

Ethereum 2.0 or ETH2 is one of the biggest improvements in the Ethereum blockchain ecosystem. This is a multi-phase change that aims to improve the scalability and security of the Ethereum network. One of the main changes is to move from the proof-of-work (PoW) consensus system currently used by Ethereum to proof-of-stake (PoS).

Ethereum's New Consensus System

A consensus system is a mechanism used by blockchain networks to reach agreement on the state of the data stored in them. The consensus system used by Ethereum today is PoW, where miners use computing power to solve complex mathematical puzzles and build new blocks containing transactions. However, this system has some disadvantages, such as high transaction fees, large energy consumption, and the risk of centralized attacks.

To address these weaknesses, the Ethereum Foundation has been working on a network upgrade that will replace the PoW consensus system with PoS. In a PoS system, there is no more mining, but staking.

What is Ethereum Staking?

Staking is the process of active participation in the validation of transactions by placing a certain amount of Ether (ETH) as collateral. Thus, the PoS system is expected to improve the speed, security, and efficiency of the Ethereum network.

Ethereum Network Upgrade Phases

The Ethereum network upgrade does not happen all at once, but rather gradually in several phases. In January 2022, the Ethereum Foundation changed the term "Ethereum 2.0" to "consensus layer." This is not a new network building from scratch, but rather an upgrade of the existing Ethereum network. In this context, Ethereum 1.0 is referred to as the "execution layer," where network rules and smart contracts reside. The full upgrade is expected to be completed in 2023.

Here are the phases of upgrading the Ethereum network:

• Phase 0: Beacon Chain. This is the first phase launched in December 2020. Beacon Chain is a new block chain that serves as the basis for the PoS consensus system. Beacon Chain is also responsible for the coordination and management of validators participating in staking.
• Phase 1: Shard Chain. This is the second phase expected to launch in 2022. A shard chain is a chain of parallel blocks that will be connected to the Beacon Chain. Shard Chain will increase the scalability of the Ethereum network by dividing data into smaller pieces called shards. Thus, the Ethereum network can process more transactions simultaneously.
• Phase 2: Execution Layer. This is the third and final phase expected to launch in 2023. The Execution Layer is the layer that will combine Ethereum 1.0 with Ethereum 2.0. The Execution Layer will allow smart contracts and decentralized applications (DApps) to operate on top of the PoS consensus system. The Execution Layer will also introduce new features such as abstract accounts, eWASM, and gasless transactions.

How to Participate in Staking on Ethereum 2.0?

Staking is one way to support the Ethereum network and earn rewards in the form of interest on placed ETH. Staking is also one way to invest in Ethereum, as the value of ETH is expected to increase along with the increase in demand and usage of the network.

Staking Terms and Procedures

To become a validator on the Ethereum network, users must meet the following conditions and procedures:

• Have a minimum balance of 32 ETH. This amount can be earned by buying ETH on crypto exchanges, or by combining ETH balances from several accounts.
• Prepare the necessary hardware and software. The validator must have a computer that can connect to the internet stably and securely. Validators must also download and run an Ethereum client that supports staking, such as Lighthouse, Prysm, Teku, or Nimbus.
• Register as a validator. The validator must send 32 ETH to the Beacon Chain deposit contract and generate a validator key that will be used to interact with the network. Validators must also select a service or client to use for staking, such as Infura, Rocket Pool, or Lido.
• Run the validator. After registering, validators must keep their computers online and in sync with the network. Validators must also fulfill their duties and responsibilities, such as creating and verifying blocks, as well as storing data.

Staking Rewards and Risks

In exchange for their active participation, validators will receive interest on the ETH they place. This interest rate varies depending on the total amount of ETH placed on the network. The more ETH placed, the lower the interest rate, and vice versa. Currently, the annual interest rate ranges from 5% to 20%.

However, staking also has risks that validators should be aware of. One of them is the risk of punishment. If validators do not fulfill their obligations, such as offline, out of sync, or misbehave, they will lose some or all of the ETH they placed. These penalties aim to encourage positive activity within the network and maintain overall network security.

Conclusion

Ethereum 2.0 is an upgrade to the Ethereum network that aims to improve the scalability and security of the network. This upgrade involves changing the consensus system from PoW to PoS, which will replace the mining process with a staking process.

Staking is a way to support the Ethereum network and earn rewards in the form of interest on placed ETH. To become a validator, users must meet the conditions and procedures set by the network. Staking also carries the risk of penalties for validators who violate network rules.

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Also Read:

What is Ethereum?

Ethereum History Story: How Ethereum Became Popular

The Important Role of Ethereum Virtual Machine (EVM) in the Ethereum Ecosystem

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