The Ethereum 2.0 Beacon Chain is here. Now what?
The first block came from Validator 19026, with the enigmatic graffiti, “Mr F was here.” Twelve seconds later came the next block, graffiti indicating the validator might be located in Zug, Switzerland. The Eth2 Beacon Chain grew steadily, block by block every 12 seconds. Then came the next hurdle: would enough validators be online to finalize the first Epoch? Yes! 82.27% of the validators attested to the validity of the Epoch 0, the proverbial ground floor of the Beacon Chain. The first Epoch became immutably finalized. Eth2 is here; Serenity now!
Admittedly, the excitement for this first major step in launching the Eth2 Beacon Chain can be lost on those not fully steeped in the technical lexicon of Eth2 — slots, epochs, finality? While the terms are new to Eth2, the concepts are not new to those who know a little about blockchains. Over 21,063 validators from across the globe (think of nodes in a network) were online to agree that the first blocks on a new chain are valid. This new chain is called Ethereum 2.0’s Beacon Chain, which coordinates the network, and introduces Proof of Stake into Ethereum.
What will the Beacon Chain do?
Think of the Beacon Chain as a big lighthouse, rising above a blue sea of transaction data. It’s constantly scanning, validating, collecting votes, and doling out rewards to the validators that correctly attest to blocks, deducting rewards for those not online, and slashing the ETH from malicious actors.
The beacon chain doesn’t change the Ethereum you use today. You can still send ETH to a friend, swap tokens on MetaMask or Uniswap, play with your Axies, mint NFTs on Mintbase, and yield farm on your favorite DeFi protocol. Ethereum as you know it is still live and fully functional, and will continue to be so until it merges with the new Eth2 blockchain and becomes a separate shard. Meanwhile, a massive new structure is being built alongside Ethereum. The core of this structure is the Beacon Chain, which reforms the consensus model from Proof of work to Proof of Stake. The Beacon Chain is now alive, and at the time of this writing, 20 epochs in (one epoch is 6.4 minutes long, and each epoch contains 32 randomly assigned validators to propose a block in each slot).
The Beacon Chain is the coordination mechanism of the new network, responsible for creating new blocks, making sure those new blocks are valid, and rewarding validators with ETH for keeping the network secure. Proof of Stake has long been part of Ethereum’s roadmap, and addresses some of the weaknesses of Proof of Work blockchains such as accessibility, centralization, and scalability. Instead of miners expending energy to validate blocks, randomly selected validators (each containing their stake of 32 ETH) propose new blocks, which are voted on by other validators. Each block includes a source of randomness, which is mixed with the other random data in the epoch.
Next up: Shard Chains
With the Beacon Chain and Proof of Stake system now in place, the next stage of Ethereum 2.0 is establishing shard chains, which will upgrade Ethereum’s data capacity, making the network faster and more scalable. Sharding as a concept is not new to Ethereum. It’s a common database or search engine technique to break up huge amounts of data into smaller chunks. Ethereum 2.0 will spread the network load across 64 separate shards.
According to the Ethereum Foundation, “Shard chains should ship sometime in 2021, depending on how quickly work progresses after the Beacon Chain is launched. These shards will give Ethereum more capacity to store and access data, but they won’t be used for executing code.” Establishing Ethereum 2.0’s shard chains is referred to as Phase1 in the technical roadmap.
Eventually the Beacon Chain will also be responsible for randomly assigning stakers to validate shard chains. This means it is extremely difficult for stakers to collude and take over a shard (According to Chih-Cheng Liang, the likelihood is less than 1 in a trillion).
The Great Merge
After the Ethereum 2.0 network establishes shard chains, the next major step will be to merge the current Ethereum mainnet to Ethereum 2.0. Lately, the term for this has been “docking.” This will be a significant event, because it will mark the official end of Proof of Work on Ethereum, and could occur in late 2021, or early 2022.
At this point, there is still a lot of research that is ongoing, and the roadmap might change depending on what the community of Eth2 developers decide is the best path forward. Just yesterday, Mikhail Kalinin of ConsenSys’s Teku client published a proposal for an executable beacon chain. Depending on how this proposal is received and examined, it could mean Eth1 could merge with Eth2, turning off Proof of Work, even before sharding is complete.
As Ben explains is his essential Eth2 Newsletter, “This is all part of Eth2 transitioning towards a rollup-centric roadmap. To that end another colleague, Alexandre Belling, published Rollups on a data-sharded Ethereum 2: linking the data availability with the execution. It’s about proving ‘that the transactions put on the data shards are the same as the ones used in the execution shard, without providing these transactions to the smart contract.’”
When can validators on the Beacon Chain collect rewards?
As predicted by many in the Ethereum ecosystem, centralized exchanges are beginning to hint at offering staking services to Eth2. Codefi Staking built an API for exchanges, custodians, and institutions to provide staking to their customers, so they can earn rewards while keeping Eth2 secure. Coinbase recently announced that staking rewards are coming soon.
Everyone that committed ETH to stake and validate on the Beacon Chain went in knowing that they might not be able to withdraw this ETH until Phase 1.5 or later. However, there are already a number of solutions that may come in handy for stakers wanting more liquidity. LiquidStake, for example, allows users to take out a USDC loan on their staked ETH. Coinbase is promising the ability to trade a derivative version of ETH on the ETH a user locks in the Beacon Chain.
There are also new proposals on how validator stakes and rewards might be withdrawn from the beacon chain in future:
- Dirt Simple Withdrawal Contract by Jeff Coleman.
- Simple eth1 withdrawals (beacon-chain centric) is an alternative proposal from Danny Ryan.
- Jim McDonald proposes Simple Transfers of Excess Balance to avoid validator churn when withdrawals become enabled.
Do know, there is not going to be a new ETH on Ethereum. ETH is ETH, no matter on Ethereum 1.0 or Ethereum 2.0. There is no such thing as “ETH2 tokens” (tsk tsk Coinbase), however, there indeed are plans to create derivative tokens based on the ETH locked in the Beacon Chain smart contract. RocketPool plans to issue rETH, which are token derivatives that represent staked ETH on the Beacon Chain. It also appears that Coinbase and other exchanges will do the same. But for those of you that haven’t staked on Eth2, don’t worry, nothing is happening to your ETH. If you’re a holder, the transition to Ethereum 2.0 will happen and your ETH locked up in cold storage will be the same ETH that will be able to use a new Ethereum 2.0 system.
Until then, check out our Eth2 Knowledge Base to learn more about our products and the phases of Eth2, subscribe to the Teku newsletter for critical patches and releases, and subscribe to Ben Edgington’s Eth2 newsletter to stay up to date on the latest research and developments. Happy staking.