What Happens to My ETH on Ethereum 2.0?
In 2020, the first phase of the Ethereum 2.0 network will go live. Called Phase 0, this initial evolution of the 2.0 network will launch the beacon chain and enable the Proof of Stake consensus mechanism.
The whole blockchain ecosystem, and Ethereum in particular, has evolved considerably in its early years, with a lively history of hard forks, airdrops, ICOs, wrapped tokens, and token migrations. Reasonably, even the short history of this technology can be confusing to ether holders who simply wish to know what, if anything, they need to do to ensure their crypto is safe and where it should be.
With an eye towards the launch of Ethereum 2.0, therefore, the natural questions for most ETH holders are: what happens to the ether I have bought over the years on the current Ethereum blockchain? Do I need to worry about a hard fork, or will I need to manage a token migration? Does it matter if my ether is on an exchange like Coinbase or in a hardware wallet like Ledger?
For most ETH holders––i.e. the HODLers, the dapp users, the traders––the answers are: No, you don’t need to do anything. No, there won’t be a hard fork or a migration. No, it does not matter if your ether is on an exchange or not.
For ETH holders who are interested in staking, there is an opportunity to be more active with your ETH in this first stage of the Ethereum 2.0 rollout.
ETH on Ethereum 2.0
Ethereum 2.0 will go live in phases: Phase 0, Phase 1 (including Phase 1.5), Phase 2, and beyond. Phase 0 is going live in 2020, and will initiate the Proof of Stake mechanism. It is during Phase 0 that ETH holders who are interested in staking will be able to do so (more details below). For ETH holders who are not interested in staking, however, the upcoming launch of Ethereum 2.0 will not significantly impact their interactions with blockchain dapps, exchanges, or services.
ETH holders only need to start paying attention at Phase 1.5 (which is part of Phase 1), which is likely to arrive at least a year after Phase 0. During Phase 1, the Ethereum blockchain will be partitioned into 64 shard chains that run alongside one another. This will significantly increase the scalability and throughput of the future Ethereum mainnet (see our Ethereum 2.0 FAQ or What is Proof of Stake? blog posts for more information about sharding).
Phase 1.5 is part of Phase 1, but is specifically named because it marks the moment when Ethereum 1.0 merges with Ethereum 2.0. Specifically, the Ethereum 1.0 chain will become one of the 64 shards that make up Ethereum 2.0. This means that the entire data history will be preserved.
For ETH holders, this means no particular action is needed to “transfer” ETH from the 1.0 to the 2.0 chain. Ethereum 1.0 will simply become part of the 2.0 chain (“simply,” referring to the effort of the end user––not to the extraordinary protocol development work going into this transition), meaning ETH holders can continue using (or HODLing) their ETH just as they were before––but on a chain that is more secure and scalable than they’re used to.
ETH Holders and Staking on Ethereum 2.0
As previously stated, the ETH holders who are interested only in holding, trading, or using their ETH on dapps do not have to actively do anything to prepare for Ethereum 2.0. For ETH holders who are interested in staking on the new Ethereum 2.0 network, however, there is an opportunity for involvement starting at Phase 0 instead of waiting for Phase 1.5.
Staking is the process by which validators commit ETH to the Ethereum 2.0 blockchain in order to propose and attest new blocks into existence. To become a full validator on Ethereum 2.0, ETH holders must stake 32 ETH by depositing the funds into the official deposit contract that has been developed by the Ethereum Foundation.
ETH holders who wish to stake do not need to stake during Phase 0: they can join the network as a validator whenever they wish. However––unlike other ETH holders who have to wait until Phase 1.5 to see their ETH on the Ethereum 2.0 chain––validators can commit their funds to the blockchain starting at genesis. The incentive is the potential for higher block rewards.
There are many opportunities for people with ETH to begin staking on the Ethereum 2.0 network and earn rewards. To become a full validator, they must stake 32 ETH in the deposit contract, generate deposit keys, and then run their own client. Clients such as PegaSys Teku offer this opportunity for businesses. If they do not wish to run their own client, they can offload the technical requirement by depositing 32 ETH to a staking service such as Codefi Activate, which will then manage the validator node. Lastly, if ETH holders do not have 32 ETH, they may join a staking pool and combine their funds with other people to reach 32 ETH.
Read the Ethereum 2.0 Staking Report
With thanks to Mally Anderson, Ben Edgington, and James Beck.