What is Ethereum 2?

Ethereum 2 (or Ethereum 2.0) is the next generation of Ethereum: a major upgrade to the Ethereum blockchain network. This entails a change from using proof-of-work to proof-of-stake for the validation of blocks on the Ethereum blockchain. The current method of mining will then end and the network will be secured by validators who confirm transactions and include them in the blocks. Proof-of-stake will reduce the energy required to run Ethereum and helps increase its resilience to attacks. It also offers the opportunity to earn rewards by staking.

Ethereum 2 will also introduce a new structure: rather than being one chain it will consist of a beacon chain that communicates with several sharded blockchains (“shards”). This allows transactions to be carried out in parallel, increasing the transaction throughput and capacity of the network.

Ethereum 2 will be rolled out in several phases. Phase 0, the launch of the beacon chain, is expected in late 2020. For further details of the phases, see our roadmap in Ethereum 2 Matters – A Journey Through Time.

Below is a list of common questions regarding Ethereum 2.

What is Ethereum 2 (Ethereum 2.0 / Eth2)?

Eth2 is the abbreviation of Ethereum 2 / Ethereum 2.0, a major upgrade to the Ethereum blockchain network. It is also often used to refer to the ETH token which is used on the Ethereum 2 blockchain.

When will Ethereum 2 be launched?

Ethereum 2 will be rolled out in several phases over the next few years. Phase 0, the beacon chain, was released on 1 December 2020. Phases 1 and 1.5 are expected in 2021. See our roadmap in Ethereum 2 Matters – A Journey Through Time. 

How many phases are expected in Ethereum 2?

Ethereum 2 will be rolled out in three main phases:

• Phase 0: the beacon chain. Launched on 1 December 2020. This is the core chain that makes sure the shards across the network are kept in sync. It achieves this using validators.

• Phase 1: the shard chains. Expected 2021. Ethereum’s data and transactions will be run on shard chains. These are proof-of-stake blockchains that use validators to confirm transactions, create blocks and communicate with the beacon chain.  It is expected that Ethereum 2 will begin with 64 shards. At this point, they will not be supporting smart contracts or accounts.

• Phase 1.5: the legacy Ethereum chain becomes a shard on the new Ethereum blockchain. Expected 2021. In this phase, the legacy Ethereum network will transition to a proof-of-stake network and be connected to the main Ethereum 2 chain.

• Phase 2: shards fully functioning. Expected 2021+. The shard chains will be fully functioning and able to communicate with each other and run smart contracts.

How is Ethereum 2 different to the older version of Ethereum?

Up until now, Ethereum has been a proof-of-work blockchain. In Ethereum 2, the network will be upgraded to a proof-of-stake blockchain and introduce a beacon chain and shard chains. This upgrade will reduce energy consumption, increase the speed and number of transactions possible, and keep the network secure and decentralized.

Why is Ethereum being upgraded to Ethereum 2?

The legacy Ethereum network uses a proof-of-work block validation process, similar to Bitcoin. Ethereum 2 proposes a number of architectural changes, whose aim is to introduce a number of improvements to Ethereum – helping reduce the energy needed to run the chain, increase scalability and transaction throughput while also increasing the network’s attack resistance.

What are “validators” on Ethereum 2?

With a proof-of-stake block validation process, Ethereum 2 will use validators to secure the network.

A validator on Ethereum 2 runs computer software that confirms transactions on the shards, adds them to the next block in the chain and communicates with the beacon chain. A minimum of 32 ETH is required to be a validator, along with some technical skills.

Validators are rewarded for validating blocks and securing the network and are fined (“slashed”) if they behave badly or maliciously. This economic incentive helps ensure “good behaviour” and keeps the network operating in a well-coordinated manner.

What does “beacon chain” mean in Ethereum 2?

Rather than just being one blockchain, Ethereum 2 will be made up of several chains: a core beacon chain connected to several shard chains (“shards”). The beacon chain in Ethereum 2 will be launched in Phase 0.

What is a “shard” in Ethereum 2?

Shards, sharding, or shard chains refer to parallel blockchains existing inside the new Ethereum 2 structure. While previously Ethereum existed as one blockchain, the new structure consists of a core beacon chain connected to different shard chains (expected to be 64 initially). This allows parallel processing of transactions across different shards. The transactions in each shard will be verified by validators and confirmation passed to the beacon chain, thus maintaining consensus throughout the network.

What is “Serenity” in Ethereum 2?

Serenity, or the Serenity upgrade, is the original name used for Ethereum 2.

What is the Ethereum 2 deposit contract?

As part of the transition to Ethereum 2 and proof-of-stake, there will be a one-way bridge for ETH holders to move their tokens to the beacon chain. This is called the deposit contract. It needs to be filled with 524,288 ETH in order for staking to begin on the beacon chain.

ETH tokens deposited to the deposit contract cannot be removed or transferred until Phase 1.5 of the Ethereum 2 upgrade.

What happens to the old Ethereum network when Ethereum 2 is launched?

Initially, the legacy proof-of-work version of Ethereum will continue to run after the launch of Ethereum 2. In Phase 1.5, the legacy Ethereum network will change to proof-of-stake and transition to Ethereum 2 as a shard. Existing ETH tokens become fully-fungible and transactional again.

Will my old ETH tokens become worthless after Ethereum 2?

No, you will be able to transfer your ETH to the Ethereum 2 network. Initially both networks will run in parallel, but in Phase 1.5 the legacy Ethereum network will transition to Ethereum 2 as a proof-of-stake shard.

Will I be able to use my existing ETH tokens on Ethereum 2?

Yes, you will be able to use your existing ETH tokens in the new Ethereum 2 infrastructure. There are two possibilities for using your ETH on Ethereum 2.

  1. Staking on Ethereum 2 – If you wish to participate in the validation of blocks on Ethereum 2, you may stake as a validator. In order to do this, you will need to send your ETH tokens to the Ethereum 2 deposit contract.
  2. If you do not wish to stake, but simply want to hold ETH tokens or use them in other applications, you can wait until Phase 1.5 at which point the legacy Ethereum blockchain is merged into Ethereum 2.

What happens to my old ETH tokens when Ethereum 2 is launched?

Your existing ETH tokens will be transferable to the Ethereum 2 chain. The legacy proof-of-work Ethereum chain will continue alongside the new Ethereum 2 chain initially. At a later phase (1.5) the legacy chain will be incorporated into the Ethereum 2 blockchain as a shard.

Your ETH tokens which are held on the current Ethereum chain,  will automatically be accessible on the Ethereum 2 chain and you do not need to do anything.

If you send your ETH to the deposit contract to start staking on the Ethereum 2 blockchain, they will be locked until Phase 1.5 of the Ethereum 2 transition. This means they will potentially be locked and non-transferrable for 1 year or longer.

Is Ethereum 2 a fork?

No. Since its inception, Ethereum has undergone several upgrades in the form of hard forks. With Ethereum 2, rather than forking, a whole new blockchain based on proof-of-stake is being launched. This will initially run in parallel to the legacy chain and will be rolled out in several phases.

What happens to all the applications and data on Ethereum after the launch of Ethereum 2?

Over time, all the dApps currently living on Ethereum will migrate over to Ethereum 2. No data or transaction records will be lost as a result of the move to Ethereum 2.

What is “staking” on Ethereum 2?

Staking on Ethereum 2 is the act of participating in the validation of blocks on the network by committing funds – staking them – and serving as a validator.

There are two ways to stake: become a validator, or join a staking pool.

  • Validators: A validator on the Ethereum network runs computer software that confirms transactions on the network, adds them to the next block in the chain and communicates between the shard and beacon chain. A minimum stake of 32 ETH is required to be a validator, along with software and some technical skills.
  • Staking pools: If you have less than 32 ETH or you do not wish to run a validator yourself, you can participate through a staking pool or staking service. Bitcoin Suisse offers an all-in-one staking service for clients that lets them stake with less than 32 ETH – or more. Learn more here.

When can I start staking on Ethereum 2?

Staking on the Ethereum 2 blockchain will begin with the launch of the beacon chain – after the deposit contract has been filled. This took place on 1 December 2020.

Bitcoin Suisse has offered its all-in-one staking service for Ethereum 2 from the first day of staking on the Ethereum 2 chain.

NOTE:  Initial staking on the beacon chain is a one-way process only until Ethereum 2 develops further. Staking at this phase is maintained by a smart contract on the legacy network so ETH cannot be withdrawn until the current chain becomes a shard in Ethereum 2.

At the time of writing, the launch of Ethereum 2 staking is estimated for 1 December, but this timeline may change. If you wish to stake with Bitcoin Suisse from day one of Ethereum 2, you will need to complete the staking contract process with Bitcoin Suisse by 22 November.

Is there an advantage to staking on Ethereum 2 from day one?

The benefit is to potentially earn higher rewards (up to 21.6%) than will be offered later on. To learn more, read our article on Ethereum 2 Validator Economics.

How much ETH do I need to stake on Ethereum 2?

Staking as a validator on Ethereum 2 requires a minimum of 32 ETH. When staking through a staking pool or service, such as with Bitcoin Suisse, it is possible to stake and earn rewards with less than 32 ETH. Learn more here.

Are there any risks to staking on Ethereum 2?

As misbehaviour by a validator is punished by a fine (“slashing”) there is a risk involved in staking. Get more details in our article Ethereum 2 Matters: Validator Economics.

Ethereum 2 Is Now Live!

Learn more about the changes and how you can start staking on Ethereum 2 with Bitcoin Suisse.

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