Before Ethereum came Bitoin. Satoshi Nakamoto solved the complex problem of double-spending in decentralized systems by creating Bitcoin and introducing blockchain technology to the world.
Soon enough, people realized that blockchain technology is not just limited to digital currencies and has many more use cases like smart-contracts, personal identity security, voting and proving provenance for art to name a few.
Blockchains become more secure the more people use it. Bitcoin, for example, a peer-to-peer digital currency application, has been running steadily for the past 12 years. With every new user that joins the network, the Bitcoin blockchain becomes a little more secure.
Creating a separate blockchain for every single application is not possible as smaller blockchains are more vulnerable to attacks.
Ethereum is a platform that supports the functioning of hundreds of decentralized applications (dApps) on a single blockchain, providing these applications with the benefits of decentralization while also retaining the security and immutability of blockchain technologies.
Vitalik Buterin, the inventor and co-founder of Ethereum calls it the ‘general purpose’ blockchain with no features.
It is an open-source, programmable blockchain for decentralized applications.
Technically speaking, it is a software running on a network of computers that ensures data is replicated and processed on all the computers of the network without a central coordinator.
To define it broadly, Ethereum is an ecosystem of dApps where users use the blockchain’s native token ether (ETH) as a vehicle to move around the platform.
Think of it as an operating system like iOS or Android. If you have an iPhone, you can access all apps available in the Appstore. If you have an Android, you can access Google’s Play Store applications. If you have ETH, you can access dApps running on Ethereum.
Thanks to the distributed nature of blockchains, dApps have zero downtime and are resistant to fraud, control and censorship from a third party.
Ethereum currently runs the Proof-of-Work (PoW) consensus mechanism where miners around the world compete for the right to create the next block in the Ethereum chain by using expensive hardware and spending large amounts of electricity.
Miners that create a block are rewarded 2 ETH along with the transaction fees collected in the block they created.
PoW is a mechanism that allows the decentralized Ethereum network to come to an agreement (consensus) about transactions and account balances while preventing double-spending and making it difficult to attack the blockchain.
Ethereum has gone through many significant events and changes in its protocol since the day it was launched.
Also co-founded by Vitalik, the Bitcoin Magazine first published the idea of Ethereum in 2013. Vitalik was 19 years old when he wrote this article. The non-profit Ethereum foundation was established in 2014 and the mainnet was officially launched on July 30, 2015.
During this initial phase which was named ‘Frontier,’ developers made no guarantees about the security of the platform and had set up a contract system that allowed them to undo user actions on the network.
‘Homestead,’ March 15, 2016, was the first planned update that allowed users to transact ETH and create smart contracts on the chain.
DAO or a Decentralized Autonomous Organization is a company that functions on its own using smart contracts. Those who own governance tokens of a DAO can propose and vote for changes to the company.
The developers of Ethereum along with developers of a start-up called Slock.it created a company called ‘The DAO’ on the Ethereum blockchain which was able to raise $150 million in its crowd sale on April 30, 2016. On June 17, the company was attacked and hackers got away with $50 million worth of ETH by exploiting a bug in the protocol.
To recover the stolen funds, the majority of miners agreed to a hard fork which would return the system to the state before the creation of ‘the DAO,’ rendering the stolen ETH invalid.
This very controversial decision violated the blockchain principle of immutability and a part of the Ethereum community that did not agree with the decision separated themselves from the main blockchain.
Ethereum Classic that preserved the original blockchain comes into existence. The Ethereum Classic community still functions and has made its own eventful way to what it is today.
The unexpected DAO split did not stop the Ethereum community from working towards improving the platform. One important milestone was the ‘Metropolis’ update which was divided into two phases – the Byzantium and Constantinople hard fork.
A hard fork is the split of a blockchain into two blockchains running at the same time — one with updated protocol and one without. This usually ends up in the eventual death of the older chain when all the miners move to the newly updated chain.
The Byzantium hard fork became live on the mainnet on October 16, 2017. It reduced mining difficulty which had risen to unsustainable heights, optimized gas costs and reduced block rewards from 5 to 3 ETH.
The Constantinople hard fork was held on February 28, 2019, which brought its own set of protocol improvements and reduced block rewards from 3 to 2 ETH.
Constantinople was followed by the Istanbul hard fork that went live on December 8, 2019.
The final update to ETH 1.x called ‘Berlin’ is scheduled to take place sometime in January 2021, which will be a necessary update for the transition to ETH 2.0
Moving from Proof-of-work (PoW) to Proof-of-stake (PoS) consensus mechanism has always been the long term goal of the Ethereum Community and is key to the scalability of the platform.
The current Ethereum ecosystem is secure and decentralized but is not scalable — meaning that it cannot match the transactions per second (TPS) speed of centralized service providers like Visa and MasterCard. Currently, Ethereum can handle 15 transactions per second while Visa can do 1,700.
It would be easy to increase Ethereum’s TPS simply by increasing the size and power of Ethereum nodes but this would put a barrier to entry into the ecosystem thus making Ethereum secure, scalable but centralized, invalidating the community’s morals of decentralization.
Similarly, being decentralized and scaling TPS can be done by reducing mining difficulty but this makes the blockchain less secure and easier to attack.
The problem of achieving decentralization, security and scalability simultaneously is known as the scalability trilemma and this is exactly what ETH 2.0 is zeroing in on.
As opposed to PoW, PoS does not require expensive hardware. People wanting to become a node in the network need to make a minimum deposit of 32 ETH and get activated as a validator.
Instead of spending computational power and competing for the right to create the next block, validators are chosen at random to create a block and otherwise validate when they are not creating. There is no competition.
With the PoS mechanism, there are fewer barriers to entry in terms of cost. If you don’t have enough ETH to become a validator, you can always join a staking pool. Staking has better immunity to centralization and is more environmentally sustainable as much less electricity is spent.
A common concept in computer science, sharding, means horizontally splitting a database. Sharding is important to scale the Ethereum network and make it faster.
Currently, every node on the blockchain has to verify every single transaction. With sharding, validators will be randomly assigned to a shard (chain) and are responsible for only verifying the transactions in that chain.
To better understand sharding, picture a toll booth on a busy two-lane road. The single booth is responsible for collecting tolls from every vehicle. Now picture an eight-lane highway, with eight toll booths assigned to every single lane. Traffic is able to pass much faster through the toll booths as compared to a two-lane road.
ETH 2.0 also known as Serenity is set to launch in multiple phases. There are no fixed dates for the launch of these phases but only potential timelines. The key to building foundations of crypto is to take it slow.
A timeline of updates and phases provided by launchpad.ethereum.org
A deposit contract has been launched for people wanting to stake ETH and earn rewards. More on this ahead!
The Beacon chain acts as a manager of shard chains. It collects and stores data that is accessible by the other shard chains. It also is responsible for assigning validators to specific shards. This is where PoS begins.
The ETH 2.0 deposit contract reached it’s goal of 524,000 ETH ~$314M USD on Monday November 23rd. This is great news, as without achieving a goal of 524,000 ETH deposited in the contract, the Beacon chain would not have been able to go live.
This phase is set to launch sometime in 2021. Shard chains in this phase will provide more data to the network.
Currently scheduled for 2022, the present-day Ethereum mainnet will become a shard chain and will be docked into the beacon chain. This will completely end the PoW mechanism and PoS will run on all of Ethereum. End of an era! This is when the ETH 2.0 vision of decentralization, security and scalability will have become a reality.
It is important to note that phase 0 and phase 1 will take place independent of the Ethereum mainnet that we use today. Until phase 1.5 goes live, the mainnet will continue to function on the PoW mechanism.
Not much is decided as to what happens in this phase. Still ‘years’ away, it’s tough to tell right now what this phase will look like when it’s implemented. As the name suggests, this phase will bring the ultimate ‘serenity’ to the Ethereum blockchain.
Ethereum has made an easy to use application for setting up the ETH 2.0 validator known as the Eth2 Launchpad. The application is designed for those looking to stake from home using their own computer.
This is an overview to give you an idea of the step-by-step process made available on the launchpad. Please note that the ETH deposit contract is currently over subscribed, so this may not be something that can be done for much longer!
The first and one of the most important steps to staking ETH 2.0 is getting a minimum of 32 ETH. You can do this by buying Ethereum on Bitbuy. If you don’t already have an account, simply register for one.
You can deposit your funds into your Bitbuy account either by Interac-e transfer or a bank wire.
Two things – 1) 32 ETH is a big amount and you can only send a maximum of $10,000 in one transaction using Interac and 2) It is recommended that you buy some extra ETH to pay for gas while depositing your ETH into the deposit contract.
You can also deposit other cryptocurrency like Bitcoin and swap it for Ethereum on Bitbuy.
Metamask is a web3 wallet that works as an extension of your web browser. Metamask is required to interact with the deposit smart contract and stake Ethereum. You can download the extension and set up the wallet by clicking here.
Head on over to the launchpad website to get started. A list of things that you will need to do to start staking is further explained in detail on the launchpad.
Ethereum is the largest cryptocurrency, second only to Bitcoin and has huge potential to grow. There are still so many unexplored applications and use cases for this platform and with the unprecedented power that ETH 2.0 will bring, only the sky’s the limit.
It’s important to remember, ETH 2.0 is a new network that is still being worked on and although unlikely, might have potential bugs that can cause glitches and loss of funds.
Bitbuy continues to be involved with the community to drive change. Start your journey with Bitbuy and stay up to date with the crypto industry.
Bitbuy now offers Ethereum staking for Canadians in a safe and regulated environment. Learn more on how you can effortlessly start earning staking rewards here.