DeutschFew events have been discussed and anticipated in the crypto community as heatedly as the introduction of Ethereum 2.0. As great as the hopes of many users may be, there are also critical voices. These critics point out that the changeover will not only bring technical advantages. The most important thing in advance: After some published statements, the developers have decided to finally launch ETH 2.0 at the beginning of December. However, the first parts of the new system are now available. This mainly concerns the contract for deposits. The formalization of the so-called “2.0” of the Ethereum network has reached its end, as the Ethereum Foundation recently announced. The deposit contract in question is then already available. The consequence is the chance for the network to now collect the necessary funds via staking.
Switch to ETH2 is Tied to Deposit Conditions
Those interested have the opportunity to lay the foundation for their own participation in ETH 2.0 through the approach to the start. By depositing 32 Ether, you can get started before the Genesis process takes its course later. The deposits are made via the specially developed launchpad. To execute the function, the system requires a total of 16,384 transactions in the amount mentioned. Depending on the exchange rate, the necessary total volume of 524,288 ETH units corresponds to a sum of a good 200 million US dollars. In order for the date for the introduction to be met, this sum must be booked at least seven days in advance. In the event that the sum is reached later, the developers foresee a date for the start postponed by seven days.
| Worth knowing:
According to the developers, Ethereum 2.0 will not directly affect the already existing blockchain in the ETH universe. |
Long Lead Time for the Launch of Ethereum 2.0
Advocates and critics alike had plenty of time to prepare for the development. In fact, there were a number of obstacles on the road to Ethereum 2.0, which repeatedly led to postponements of the launch date – in fact, many prospective users have been waiting for the implementation for years. And a failure of the concept cannot yet be completely ruled out. In the first days of November 2020, some renewed complications emerged. Many industry experts explain a lack of willingness to participate in the community with a lack of incentives in the staking approach. In addition, there were various technical difficulties reported by users during initial tests of the mainnet.
- Ethereum
(ETH) - Price $4,059.12
- Market Cap
$489.58 B
What Exactly is ETH 2.0?
The most important core statement on this point is: Ethereum 2.0 is a long-term planned change. Technically, it is important here that this is not an acute approach. Instead, the transition will take years. At the end of this year, the first step of the complex changeover will start with the already mentioned “Phase 0”. The new blockchain is called “Beacon Chain”. New functions are gradually being introduced into the system. Ethereum 1.0 – for convinced users this is an essential hint – will not be replaced, but will continue to exist. At the moment (11/2020) the underlying Medalla Testnet is in the first public test phase. The aim is, among other things, to replace the proof-of-work (PoW) with the proof-of-stake (PoS) in the upcoming blockchain system. The trigger for the current efforts is the fact that the previous protocol is characterized by certain technological limitations.
Developers Have Elimination of Vulnerabilities in Mind
This mainly concerns restrictions on the capacity with regard to the feasible transactions in the blockchain. A whole series of technical weaknesses are to be eliminated. Instead of mining as it is currently, staking is now to be used. The risk of systemic failures and possible blockchain-internal losses is to be minimized. The responsible parties have deliberately opted for a multi-phase changeover over years. The actual new system is only to start completely as planned when all essential corrections have been made.
Part of the revision are, among other things, these aspects:
- the change of the consensus procedure
- replacing miners with so-called validators → they should get new ETH
- future validators deposit 32 ETH or more
- The Beacon Chain should work in parallel to ETH 1.0
- Side chains should serve as an extension of the blockchain (keyword: Shards”)
- individual ETH nodes should no longer have to store all blockchain data
Worth knowing: There are already various test networks, including “Görli” and “Topaz”. They have been used for some time to simulate the new blockchain. This also includes the “Schlesi” format and some others. Phase 0 allows users to realize the proof-of-stake consensus right from the start. Staking is the basis for this. A disadvantage: Neither token options nor Smart Contracts are part of the test phase. A complete test is therefore not possible with ETH 2.0.
Requirements for Entry not to be Underestimated
Anyone who wants to participate in the new staking system can do so one-to-one by depositing the mentioned 32 ETH or larger amounts. The budget associated with this can be quickly calculated using the current ETH exchange rate. What is also problematic from the point of view of some skeptics: Once units have been transferred to ETH 2.0, this is an irrevocable decision. The fact that validators are selected at random for block confirmation is either an advantage or a disadvantage, depending on your point of view. In any case, the developers promise a fairer distribution of influence in the system. In the event that individual validators do not act in accordance with the community, penalty payments may be imposed. In the sense of justice and equality, this “Slashing” can lead to positive changes. A lower volume of block proposals is a major goal of ETH 2.0.
Validators are Considered by Chance at ETH 2.0
The Blockchain allows validators to submit new blocks in turn, with participants then deciding on the respective validity by means of a vote. Anyone who votes has the right to submit “Testates”, which in turn are not stored in the blockchain. The system itself sends validator requests based on a P2P protocol, these requests are called “Aggregate Signatures”. With this price, the developers are aiming for a lower total number of transactions, which should have a positive effect on the storage space and works. The system does not provide for gas fees, which will also be an advantage for users. If there is a sufficient amount of testates, the blockchain integrates new blocks. In a further step, the “Sharding” in Phase 1 will be considered at ETH 2.0. This point concerns the mentioned integration of the side chains as a supplement to the main blockchain.
Advantages: When the expected 64 shards are available, transactions in the upcoming chain will be significantly faster than before in the ETH1 system. Precisely because many of these are handled via side events. However, Phase 1 will only start when Phase 0 has been successful. At the end, Ethereum’s Virtual Machine will be redesigned. Associated with this: The execution of smart contracts. However, the probable start date for this step is only the year 2022. This requires some patience from prospective users.
Ethereum 2.0 should not Replace the Previous Model
Anyone who deals more closely with the project and the ideas behind the realignment recognizes: The ideas are not without risks from the developers’ point of view. The parallel existence with regard to ETH and ETH 2.0 is one factor. Anyone who relies on speculating on Ether for reasons of return could worry that the price will fluctuate. In particular, the transfer to the Beacon Chain without the right of revocation could have an impact on the ETH price. In addition, it is anything but clear whether and when crypto exchanges will integrate the new blockchain into their business models. This could leave a negative impression on investors.
Mining is Replaced by Staking at ETH2
The fact that staking works very differently than the previously common mining is also perceived mixed by Ethereum fans. Staking is not consistently positive. This is precisely because the deposited amount of coins and Tokens is blocked in such systems. The contingents cannot be used directly elsewhere. Anyone who wants to sell their blocked stock again must first trigger it. Only then are sales to take profits or minimize losses in the event of falling prices practical. In addition: Staking requirements are often high and are not suitable for every owner. The validators are also obliged to be permanently online. This is also not feasible for every user.
Staking Has some Disadvantages in Addition to Incentives
An argument for Staking at ETH 2.0 is undoubtedly the lower energy consumption. This opens the blockchain for users who do not have high-end devices. The fact that individual validators cannot easily dominate the system is also an advantage of the new approach. In addition, mining has developed into a real business model in recent years. Staking and the associated random principle, on the other hand, primarily promotes the technical side of the new blockchain. The economic background to staking – for example, with the elimination of possible interest income or lower rewards – in turn speaks against the change for some Ethereum users. On the other hand, the expected lower price fluctuations due to the departure from mining. Which return I can achieve as a staker depends on the number of participants.
Success of Ethereum 2.0 is by No Means Guaranteed at Present
We see that a new direction is characterized by both advantages and disadvantages. This is not a special feature of ETH 2.0. Nevertheless, a change in the technological design deserves detailed consideration, especially in this case. After all, ETH is still the second most important cryptocurrency after the market leader Bitcoin in terms of market capitalization. The reasons for the launch of Ethereum 2.0 are understandable. However, there are legitimate doubts that the changeover makes sense and comes at the ideal time. The fact that it is unclear whether and how successful Ethereum will be makes an objective assessment noticeably more difficult. To the same extent, the new independent ETH2 token must first establish itself. The chances are good here. After all, even the classic, the ETH 1.0 token, has been very well received on the market from the start.
ETH2 Participants may Have to be Very Patient
The unclear situation regarding inclusion in exchange portfolios could ultimately decide how the new token and thus the undoubtedly innovative blockchain will prevail. The exclusion of a reverse exchange after the transition to Ethereum 2.0 could develop into a noticeable impediment. Apart from that, ETH2 will also be associated with transaction fees. However, activities should be cheaper in any case, according to the developers. Anyone who can afford it and participates in both blockchains in parallel could become part of a promising new community without having to neglect ETH1. In any case, those interested in Ethereum 2.0 must have a long breath. Because before 2022, ETH2 will not be able to operate on an equal footing with the original model – and this does not only apply to the integration of the execution of smart contracts.
An entry hurdle for participants in the 2.0 area will last but not least be how many stakers participate. Because this is exactly what will decide which returns staking will bring. If everything succeeds as desired by the makers, Ethereum 2.0 will be an important milestone in the field of blockchain and digital currencies.
