Ethereum 2.0 – an Internet Bond? What you need to know about “proof of stake”
The long-awaited release of Ethereum 2.0 is just around the corner. The mighty DeFi (Decentralized Finance) powerhouse Etherum released the Eth2 Phase 0 deposit contract earlier this week and crypto fans are buzzing about the latest iteration of this powerful network.
In a nutshell, Eth2 – known as “Serenity” is designed to provide an upgrade to the scalability and security of the Ethereum network. The network is expected to launch December 1.
“Eth2 will reduce energy consumption, allow the network to process more transactions, and increase security,” the platform recently stated on its site. “Technically speaking, Ethereum will become a proof-of-stake blockchain and introduce shard chains. This is a huge change to how Ethereum works and it should bring equally huge benefits.”
Shard chains are designed to help speed the process along on the network.
“Phase 0” of Eth2 went live this week with an announcement from the Ethereum Foundation that “staking” was live. “To trigger genesis at this time, there must be at least 16384 32-ETH validator deposits 7 days prior to December 1,” the Ethereum Foundation stated in a Nov. 4 blog post. “ If not, genesis will be triggered 7 days after this threshold has been met (whenever that may be).”
To reduce energy consumption, Eth2 will use a proof-of-stake model, which essentially means transactions are completed by “validators,” or holders of Ethereum coins who commit their ETH holdings to validate the transactions. “Proof of stake keeps the network secure by replaces energy consumption with a financial commitment,” Ethereum explains.
Prospective stakers who will become validators can now deposit 32 ETH to the contract through the launchpad on the ETH site. And those who hold ETH really don’t have to do anything to become a validator – their ETH will automatically turn over to Eth2 once the new coin launch is complete.
Showing some crypto-sentimentality, word was that Eth2 would launch on June 3, the 12th anniversary of the Bitcoin launch. But recent blog posts by the Ethereum Foundation’s Danny Ryan showed the project was moving quicker than originally expected.
The heart of the Eth2 upgrade lies in the blockchain. Currently, ETHR uses a proof-of-work model, which is what most cyrpto currency networks like Bitcoin use to verify transactions. These long blockchains created through proof-of-work consume a tremendous amount of energy in order to mine coins. In August and September, Crypto traders complained about gas on the Ethereum network, as the network slowed and gas prices skyrocketed.
Yahoo!finance reports that Ethereum gas usage grew 113% YTD, but the price of gas has dropped 91% since their all-time high on September 2, according to bitinfocharts.com.
Current gas prices on the ETH network are 57 gwei for a standard transaction to 68 gwei for the fastest transaction according to ethgasstation.info.
The argument over which of the two models – proof of work vs. proof of stake continues within the crypto community. Crypto purists seem to hold that proof of work is the best way to validate transactions on a network, even though the amount of energy it takes to validate a transaction is high. Ethereum fans see the proof-of-stake model as a more efficient way to leverage their holdings. The current number of Ethereum addresses with 32 ETH or more has hit an all-time high of 125,540, according to glassnode, as coin holders appear to be getting ready for the Eth2 launch.
Interestingly, many in the crypto community liken the new Eth2 to the a more traditional old school financial instrument: the bond.
“Welcome to the dawn of the internet bond,” @BanklessHQ tweeted. “The launch of Eth2 staking is like the initial bond offering of the decentralized economy.”
“This is the initial bond offering for the largest non-sovereign global economy the world has ever seen,” @RyanSAdams wrote. “No longer a commodity. No longer a money. ETH becomes a capital asset too. ETH is a triple-point asset.”
Whatever the pundits say, Eth2 is expected to move the crypto network into new directions with its staking model.
In a recent article, Ethereum’s Danny Ryan earlier told CoinDesk, “This has been a long time coming, and countless researchers, engineers, and community members have put blood, sweat, and tears into this project. Feels good to finally bootstrap Ethereum’s long-awaited proof-of-stake consensus.”
Joyce Pavia Hanson