Eth2 is a Proof of Stake blockchain that aims to be a more secure and scalable version of today’s Ethereum mainnet without sacrificing accessibility or decentralization.
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Today, Ethereum is a Proof of Work blockchain that enables developers to build and deploy decentralized applications. With eth2, the protocol is transitioning to Proof of Stake and improving its scalability and decentralization without sacrificing security. The new protocol design allows Ethereum to remain accessible for regular users to run validators and secure the network. It is optimized for hundreds of thousands of validators with low startup costs and forgiving slashing and downtime penalties.
The eth2 research team has planned a phased transition that will allow all current users to shift to the new consensus mechanism without interruption. During the early phases of the transition, Ethereum 1.x and eth2 chains will run in parallel, with their own state and inflation; eventually, Ethereum 1.x will be merged into eth2.
Eth2 will have a Beacon Chain in Phase 0 and 64 shard chains in Phase 1. The Beacon Chain holds the shards together and enables consensus and cross-shard communication. It has a registry of validator addresses, the state and balance of each validator, attestations, and links to shards; it is the central controller of the eth2 system.
→ For more on the phased roll-out, read our guide to eth2.
Eth2 allows participation on the network for a broader set of token holders than most PoS chains. 32 ETH represents a relatively low staking requirement and low entry point for running a validator that earns rewards. Please note: there is no delegation or stake pooling at the protocol level.
Only 900 validators can be activated a day (4 per epoch) until 327,680 active validators are in the network. Once that goal is achieved, 1125 validators a day (5 per epoch) can be activated in an epoch.
The number of validators that can be activated every day increases by 225 (an additional 1 per epoch) with every additional 64k validators. The same pattern applies to validator exits. This could result in congestion—a wait of a few hours or days—if validators attempt to join or leave the network simultaneously.
Validators earn three types of rewards for participating in consensus.
The inflation rate on eth2 decreases as the staking rate increases. Because so much depends on how many people lock up ETH to support the transition to eth2, it is difficult to clearly identify a rate of inflation and reward rate. Given the risks and opportunities apparent with eth2, we assume that:
Rewards are designed to incentivize early validators starting at a 23% rate of reward at network launch. Anyone considering participating on eth2 benefits from running their validator as early as possible.
Rewards do not compound on eth2. They are earned based on the effective balance on the validator, which is capped at 32 BETH. As long as the validator is earning rewards and not being penalized, the true balance will start at 32 BETH and increase while the effective balance will remain consistent at 32 BETH. After Phase 2 is live, validators will be able to withdraw all their rewards, combine them, and run additional validators.
On eth2, validators can experience penalties and slashing. Penalties are significantly less severe than slashing.
Penalties act like negative rewards. If a well-performing validator can make a 10% reward rate in a year, a poorly-performing validator could lose 10% in the most extreme circumstances, such as being offline regularly or voting on blocks that do not get finalized. In most circumstances, the penalty for being offline is simply not earning rewards. If a validator is online greater than 53.6% of the time, assuming no inactivity leak, it will break even.
Slashing carries a heavy punishment for validators that commit a significant offense, burning a minimum 1 BETH and a maximum of the entire stake. The validator is automatically ejected from the Beacon Chain active set.
The two slashing conditions for validators are:
Emitting a slashable vote is uncommon for validators that correctly follow the protocol: forming a slashable message without malicious intent only occurs as a result of some bug or accident. Because these errors are bound to happen, eth2 minimizes the slashing amount by destroying stake in proportion to the number of validators slashed around the same time. However, if a large number of validators commit an offence at a similar time, a large amount of their stake is burnt (up to their full balance) because an attack is assumed. This is called correlated slashing. All slashed validators, whether due to a mistake or a malicious act, are forcibly exited from participating in the protocol and can not return until Phase 2.
For more on the risks associated with participating, read our eth2 guide.
→ Read our in-depth guide to eth2.
To support eth2, Bison Trails will offer a suite of enterprise products including:
Because stake and rewards are locked up for several years on eth2, choosing an infrastructure provider you trust is an important consideration. It is risky to change providers because transfering a validator requires sharing the private key, risking slashing.
The most important information about eth2, curated by Viktor Bunin, Protocol Specialist at Bison Trails.
The first edition of the most important information about eth2, curated by Viktor Bunin, Protocol Specialist at Bison Trails.
As Ethereum transitions to eth2 & Proof of Stake, Bison Trails will offer a suite of products to interact with the Beacon Chain and enable network participants to easily add validators and scale their infrastructure automatically.