Ethereum 2.0 Phase Zero Launch: What Will Happen and What Users Should Expect
Tags: Proof Of Stake, Ethereum, Eth, Staking, Ethereum 2

Ethereum 2.0 Phase Zero Launch: What Will Happen and What Users Should Expect

At the heart of Ethereum is the idea that blockchain is capable of more than just being the backbone of decentralized money. For example, manage an entire decentralized economy.

FIVE YEARS AFTER LAUNCHING ON ETHEREUM:

hosted tens of thousands of applications (dapps);

the total capitalization of assets, taking into account the tokens of various projects, exceeds $ 100 billion;

the total volume of transactions by the end of 2020 is expected to be almost $1 trillion.

Ethereum is a key element of the Decentralized Finance (DeFi) sector and is used in most stablecoins.

Despite its obvious successes, Ethereum has problems as well. The main one is low network bandwidth. At the moment it is about 14 TPS, which is not enough for the global scaling of the decentralized financial infrastructure.

Ethereum 2.0 (ETH2) is a major network upgrade designed to increase scalability, security and energy efficiency without compromising decentralization. As conceived by the developers, the zero phase of ETH2 will become a test platform for testing the Proof-of-Stake consensus algorithm.

In this article, we’ll tell you what to expect from the launch of the update scheduled for December 1st.

Why is Ethereum 2.0 needed?

Most of the economic activity and smart contracts will continue to operate on the original Ethereum network, which will run in parallel with ETH2. The developers are implementing the possibility of moving ETH1 to ETH2, although the opposite will be impossible.

ETH2 will fundamentally change the monetary policy of Ethereum — the annual inflation rate will potentially be less than 1%. Transformation awaits the network’s native asset, which is expected to become, among other things, a tool for preserving value.

Ethereum co-founder Vitalik Buterin is convinced that noticeable improvements in network parameters can be seen much earlier than most expect.

“Merging [ETH1 and ETH2], Proof-of-Stake, tempting 100,000 TPS will all happen faster. I expect updates to ETH2 to be faster and more orderly than ETH1”, he said during a recent AMA session on Reddit, presenting his vision for the network’s future over the next two years after the transition to ETH2 began.

He also recalled that ZK-Rollups technology is already available to users, which is capable of providing up to 4000 TPS, and transactions using it can cost up to 100 times less than on the main network.

In September, this second tier solution was integrated by the stablecoin issuer Tether (USDT), providing the technical capability to compress ETH transactions, ERC-20 tokens and smart contracts.

“ZK-Rollups technology is the most comprehensive and preferred scaling solution. It allows data to be kept on the main chain without relying on the sidechain”, Paolo Ardoino, CTO of Tether and Bitfinex, said at the time.

How will this happen? The four phases of Ethereum 2.0

Phase 0: Beacon Chain

Aimed at checking the performance of the Proof-of-Stake algorithm. At this stage, the network will be mostly test in nature, although it will use real Ethereum coins.

Within the framework of the zero phase, the following aspects of PoS should become functional:

Management of the set of stakers;

Stakeholder funds management;

A random number generator that helps you select block producers and staking curators;

Stakeholders vote for block size proposals;

Distribution of awards and assignment of penalties to stakers.

Phase 1: Sharding

While phase 0 aims to test the basic PoS infrastructure, then phase 1 aims to test the basic sharding model.

During this phase, 65 blockchains will operate in parallel — 64 new shards will be added to the existing Beacon Chain, between which they will provide two-way interaction.

Phase 1.5: Merging Ethereum PoW Blockchain With New PoS Blockchain

It will not in any way affect the historical data of the current network, since in the new mechanism the PoW blockchain will be one of the fragmented chains.

Miners should keep in mind that the PoW blockchain will not support the PoW mechanism itself.

Phase 2: Implementation of the new operating mode

It is assumed that at this stage smart contracts will start working in ETH2 and economic activity will begin. Shards will no longer be stores of raw data and will begin to resemble virtual machines and ETH1 smart contracts.

Stage zero launch

On November 4, the Ethereum Foundation confirmed the launch of the ETH2 deposit contract, and also named the date for the creation of the genesis block — December 1 at 12:00 UTC (15:00 Moscow time).

Until November 24, users had to deposit a total of 524,288 ETH into the deposit contract (with a minimum threshold for participating in staking of 32 ETH).

Another condition for the launch of the zero phase of ETH2 was the participation of 16 384 validators.

Despite the somewhat sluggish process of making deposits, by the specified date all conditions were met, and the required threshold was even exceeded.

“We have liftoff.

Thank you to the devs, the researchers, educators and community members who made this happen.

See you on December 1st @ noon UTC.”, wrote the @DepositEth on Twitter.

A day earlier, the lead developer of the Ethereum Foundation, Hudson Jameson, recalled that although the launch of phase zero marks the transition to ETH2, this does not mean that everything will change overnight:

“1/ The launch of the Eth 2.0 beacon chain is nearly here and you should be hype! However, there are some nuances that you need to know about. This thread will go over some timelines around the beacon chain genesis event and what needs to happen to create a successful launch.”

“2/ The beacon chain marks the beginning of the transition to Eth 2.0, but that doesn’t mean that everything immediately changes. Eth 2.0 is a multi-year process and the first few pieces of that process won’t heavily affect the current Ethereum mainnet.”

As of 09:00 UTC on Monday, November 30, the balance of the deposit contract exceeded 850,000 ETH, the number of validators exceeded 26.5 thousand.

Staking, security and decentralization

Staking (from the ‘stake’ — “rate”, “part of the profit”) means receiving passive income from cryptocurrencies on the PoS algorithm and its variations. The essence of the process is to keep the coins in the wallet by the validators in order to obtain the right to participate in the mining of cryptocurrency and make a profit in exchange for ensuring the security of the network.

In September, network security expert Chase Wright expressed doubts about the advisability of participating in staking after the launch of phase 0 of ETH2. He built his arguments based on the validator’s experience based on Prysm and Lighthouse clients in the Onyx, Witti, Altona and Medalla test networks, drawing attention to the lack of the required code audit.

As an example, he cited a bug in the Medalla testnet, due to which validators began to release blocks earlier than the allotted time, and also could no longer collect rewards. A similar problem is possible on the mainnet, Wright said.

“Are you going to go into the commercial stage, potentially with hundreds of millions of dollars a day, with untouched and unaudited code just to deal with forks later? No thanks. The DAO part 2 awaits you. The only question is when”, Wright said then.

Another bottleneck of ETH2, he called the lack of quality of interaction between different customers, saying that instead of solving this problem, the development teams are more concerned with the desire to meet deadlines.

A likely response to his concerns could be the creation of a dedicated security team for ETH2, as well as audits by Least Authority and others ahead of the launch of Phase 0.

Another feature of PoS networks is that validators are not only rewarded for their contributions, but they can also be subject to penalties (slashing) in case of dishonest or unscrupulous behavior.

Earlier in November, Vitalik Buterin clarified that in the first months of the ETH2 protocol operation, the fines will not exceed a quarter of the size of the stake in the Medalla test network. At the same time, the annual profitability of staking in the network with a minimum deposit threshold will be about 25%. All of this, he said, provides enough advantages to become a validator.

However, according to one of the versions, ETH2 may face another problem: a barrier to attracting users to staking ETH2 after the launch of phase zero may become the growing popularity of DeFi with the possibility of providing liquidity at a high percentage.

“It can be assumed that ETH holders (at best) will wait and see how early staking returns compare to DeFi’s. Or (in the worst case) they decide not to ‘risk’ their ETH at all until phase 1.5 (which is likely to happen no sooner than a year from now)”, said Consensys Codefi in October.

Despite assurances that the launch of ETH2 will not have a negative impact on the decentralization of the network, the recent disruption to Infura, a leading provider of infrastructure solutions for the Ethereum network, suggests that the ecosystem needs a major overhaul.

The solution may be to replace all centralized elements, including Infura, with decentralized alternatives. This can increase privacy, censorship resistance, and financial sovereignty of users.

*****

The launch of ETH2 phase zero can be considered a turning point for both the cryptocurrency itself and the blockchain industry as a whole. Moving from one phase to another, the network, as planned by the developers, will achieve real scaling.

The current 14 TPS throughput imposes obvious limitations, but a potential 100,000 TPS could help Ethereum realize its stated ambitions in the past and thus become a “world computer”.

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