Eth2 (also called Ethereum v 2.0 or ETH 2.0) refers to the substantial upgrade that is coming to the Ethereum blockchain over the next couple of years. Phase 0 — the launch of staking and the Beacon Chain — is scheduled to take place in December 2020/January 2021, with other phases to follow as they become ready. The full transition to Eth2 will not be complete until 2022, at the earliest.
What does this mean, and how is it going to affect current users of Ethereum and MEW specifically?
Currently, the Ethereum blockchain is maintained through the Proof of Work (PoW) model. This is the original blockchain model, also used by the Bitcoin blockchain. While effective, it is not the best option for scaling to a large number of transactions and requires a lot of electrical power to run. As Ethereum grows, the Proof of Work model is becoming unsustainable.
Eth2 will employ the Proof of Stake model (PoS), which will significantly improve transaction throughput and reduce dependency on electricity. In this system, users who have staked 32 ETH in the new network become validators who maintain the blockchain. Being a validator means running specific software on a computer that must be connected to the internet 24/7. Validators will be rewarded with ETH for validating blocks, and penalized if they are not performing validation duties as required. This validation process replaces the Proof of Work process.
The other big change for Eth2 is the introduction of shard chains, with Beacon Chain being the main one. Shard chains are smaller chains that will run alongside the main Ethereum blockchain, increasing the number of transactions that can be validated and improving efficiency. Block validations will happen on shard chains and will be recorded and verified on the Beacon Chain.
As these changes take place, current Ethereum users do not need to do anything for the upgrade. Eth2 will be fully compatible with the current Ethereum blockchain, ETH, ERC20 tokens, NFTs, DApps, and MEW.
However, depending on the number of funds you have available and your commitment to the Ethereum ecosystem, you may choose to stake your ETH and become part of the Proof of Stake model.
As mentioned above, to become a validator, a user needs to stake an exact amount of 32 ETH. Staking 32 ETH multiple times allows a user to run multiple validators, increasing the chances of block rewards.
Staking ETH means depositing it into an Eth2 staking contract through a specialized interface (DO NOT send funds directly to the Eth2 deposit contract). This ETH gets locked in the contract for the foreseeable future as Eth2 phases of development move forward. To become a validator, in addition to staking 32 ETH, a user needs to run their own node software and make sure that it is kept well-maintained. Staking in a pool is also possible: this way, the user does not need to perform the validation duties, but the rewards are also reduced.