A major upgrade of the Ethereum network is close to launching its initial phase. According to ethereum.org, the vision is to make Ethereum:

• More scalable – Must be able to support 1000s of transactions per second, instead of the current level of around 15 transactions per second.
• More secure – An increased adoption of Ethereum requires an even better security protocol
• More sustainable – The current technology relies on crypto mining which requires too much energy.

Up until now, transactions on the Ethereum network have been processed by a proof-of-work concept, where transactions are verified by mining – well-known from bitcoin – which demands huge amounts of computational power. In Ethereum 2.0 this will be replaced by a proof-of-stake framework driven by validators. Each validator will be staking 32 ETH to activate the validation software. By running the software they will receive rewards for validating transactions and creating new blocks. But they will lose their staked ETH if they try to cheat and manipulate the system, if they go offline or fail to validate in some other way. It will not be possible to withdraw the stakes before the entire network has fully progressed to proof-of-stake – see timeline below. This new validation scheme may be run on a simple laptop and thus minimizes the power consumption to run the network, compared to the current requirements.

Timeline – with stake-dependent launch date

The launch of the initial phase depends on 16384 stakes of 32 ETF which must be collected at least seven days before the launch date which currently is set for December 1, 2020. If these stakes have not been received by November 24, the launch will be postponed to seven days after the threshold have been reached. As of today, only around 60 % of the required stakes have been collected, so an overrun of the planned schedule seems likely.

The timeline for the three phases is:

• Phase 0 (expected December) – The Beacon Chain: Launch of the Beacon Chain where early stages of Ethereum 2.0 with the proof-by-stake will be introduced, side-by-side with current, main proof-of-work network which will remain unaffected in this phase.

• Phase 1 (expected 2021) – Shard chains: By introducing shard chains, validators will only need to run data on a part of the entire network – on their “shard” – and will speed up the process and minize the hardware requirements.

• Phase 2 (expected 2022) – The docking: The final implementation of Ethereum 2.0 where it is merged with the main Ethereum network. This will make the end of the proof-of-work for Ethereum.

Impacts of Ethereum 2.0

The Ethereum community is hoping that the lowered requirements for participating by staking instead of by mining will increase the number of validators on the network, which eventually will make it more difficult to attack the blockchain. The major improvements of the network may attract more traders to ETH, but on the other hand the current lack of support for staking into the launch can turn out as a defeat for the Ethereum community.

Note: Current holders of ETH do not need to take any actions to account for the upcoming upgrade