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Tag: Ethereum 2.0

  • Ethereum 2.0 – Here’s what you NEED to know

    Ethereum 2.0 – Here’s what you NEED to know

    Ethereum 2.0 (Formerly known as ETH2) is a series of upgrades to the Ethereum Blockchain which will improve its speed, efficiency, and scalability. This will allow Ethereum to handle significantly more transactions, improve smart contract stability and reduce network fees. Upon reaching the final phase of the upgrade, Ethereum will meet its goals of becoming a transparent and open network for Decentralized Finance (DeFi). This article breaks down the roadmap for this upgrade and key milestones of when they are released. The next big update coming in the second half of 2023 is the “Shanghai upgrade” which will have a significant economic impact.

    What is Ethereum 2.0?

    Ethereum 2.0 will involve sharding to drastically increase network bandwidth and reduce gas costs, making it cheaper to send cryptocurrencies and interact with smart contracts. There will be fundamental economic changes too, Ethereum 2.0 will allow support to stake nodes and to earn Ethereum as passive income. The Ethereum 2.0 upgrade will be done in 3 distinct phases starting with Phase 0 (after all, developers count from 0 instead of 1). Over the past few years, opponents of Ethereum have often criticized the network’s high transaction costs and fragility during peak usage. This guide will cover the timeline for the upgrade to ETH2.0 and the solutions proposed.

    Ethereum 2.0 Key features and what you need to know video

    Key Features of Ethereum 2.0

    • Efficiency – Ethereum will become 99.95% more energy efficient. It is estimated that after the upgrade, the network will no longer require an entire country’s worth of power.
    • Sharding – Ethereum will be broken into 18 “Shards” that operate simultaneously. This will drastically improve efficiency.
    • Staking – Ethereum will move to Proof-of-Stake Consensus, so everyone can stake and help secure the network.
    • Security – Compromising the network will become much more expensive under Proof-of-Stake. 51% of attackers will also be easily identifiable with validator addresses and can be forked away from the network.

    The 3 Phases of Ethereum 2.0

    Ethereum 2.0 will be launched in 3 phases:

    • Phase 0- Beacon Chain – Completed in 2020
    • Phase 1- The Merge – Completed September 2022
    • Phase 2- Sharding

    Phase 0: Beacon Chain

    Launched on 1st December 2020, the Beacon Chain introduced Proof-of-Stake to the Ethereum ecosystem. The purpose of the Beacon Chain is to coordinate the Ethereum network and serve as the consensus layer. This Beacon chain is necessary to generate the randomness that actual proof of stake uses. It also acts as a crucial precursor to upcoming phases such as sharding.

    Learn more with our Ethereum mining guide and learn how to stake Ethereum 2.0 on Allnodes.

    Phase 1: The Merge

    The Ethereum Merge was completed on the 15th of September 2022. This merged the Beacon chain from phase 0 into the original proof-of-work mainnet (i.e. the “execution layer”, formerly known as “Eth1”). After the Merge is completed, ETH1 and ETH2 become the same network that uses the same ETH coin. Why the merge is so important and such a difficult task because it involved switching consensus mechanisms. An analogy for this would be switching the engine of a car from a gas to an electric-powered engine – whilst the car is still moving.

    The Merge made the Ethereum network substantially more energy efficient as it no longer required cryptocurrency miners that consumed a huge amount of electrical power. It is calculated that there is an incredible 99.988% reduction in the energy necessary to run the network, meaning that current Ethereum Staking Nodes are incredibly energy efficient. It will also set the stage for future upgrades to the scalability of Ethereum such as sharding.

    Phase 2: Sharding

    By then, the Beacon Chain has already been launched and merged with the Ethereum Mainnet. The next stage will introduce sharding to the Ethereum Network.

    Sharding on Ethereum means the database would be split horizontally to spread the load. Sharding will work together with layer 2 rollups. This divides the burden of handling large amounts of data needed by rollups over the entire Ethereum network.

    Ethereum Sharding is realistically expected to be released in 2024.

    Main features of sharding:

    • Everyone can run a node: Validators will no longer need to store all the data themselves. This drastically reduces the cost of storing data on layer 1 by reducing the hardware requirements.
    • More network participation and security: With sharding, you will be able to run Ethereum on a laptop or phone. This means more participation, greater decentralization, and more security.

    What are layer 2 rollups?

    Layer 2 rollups are an existing “layer 2” technology. This allows decentralized applications (dApps) to “roll up” transactions into one off-chain for submission. The effect of this is that it reduces the data needed to execute a transaction.

    The combination of layer 2 rollups and sharding is what will achieve a transaction speed of 100,000 tps.

    Learn more: Understanding layer 2 & scaling solutions: Arbitrum, Boba, Optimism, Polygon, Ethereum 2.0

    What is the current state of Ethereum 2.0?

    3 upgrades have been introduced since the launch of the Beacon Chain on 1st December 2020: the Berlin upgrade, London upgrade, Altair upgrade and Shanghai upgrade.

    The Berlin upgrade was launched on 15th April 2021 and optimized gas costs for some EVM actions and increased support for several transaction types. The London upgrade was launched on 5th August 2021 and reformed the transaction fee market for the ETH 1.0 chain via EIP-1559 and removed or reduced gas fees for specific functions (Learn more about the London upgrade). The Altair upgrade was launched on 27th October 2021 and is the first scheduled upgrade for Ethereum’s Beacon Chain. It added support for “sync committees” which enabled light clients, brought validator inactivity, and slashed penalties up to their maximum values.

    The Ethereum network’s Shanghai upgrade (also known as Shapella) was successfully completed at 22:27 UTC on 12th April 2023. To celebrate this milestone, ConsenSys launched an NFT collection called “Ethereum, Evolved: Shanghai”. The NFT claim period begins on April 12, 2023, at 9pm EST and lasts for 72 hours. Find out how to claim this FREE NFT with our guide here.

    The next major Ethereum upgrade is titled Cancun, which will feature proto-dank sharding, a feature that aims to improve scalability by improving fees and transaction times. The details of the Cancun upgrade have not yet been finalized.

    Shanghai (Shapella) upgrade

    The Ethereum network’s Shanghai (also known as Shapella) upgrade took effect at 22:27 UTC on 12th April 2023 and was very successful. This upgrade combined changes to the execution layer (i.e. Shanghai), consensus layer (i.e. Capella), and engine API at epoch 194,048. The Shapella upgrade is important because it finally enabled withdrawals of ETH stakers/validators from the Beacon Chain, ahead of the implementation of the Ethereum Improvement Proposal (EIP)-4884 related to The Surge. This will improve the security of Ethereum’s post-Merge proof-of-stake protocol.

    Additionally, a set of EIPs that upgrade the Ethereum Virtual Machine (EVM) will be included in the Shanghai upgrade, such as EIP-3651: Warm Coinbase, EIP-3855: PUSH0 instruction, EIP-3860: Limit and meter initcode and EIP-4895: Beacon chain push withdrawals as operations. The EVM Object Format (EOF) may be removed from the Shanghai upgrade if it is not ready by the time of implementation. Once the Shanghai upgrade is complete, the network’s next major event is the Sharding upgrade, which is expected to take place between 2023 and 2024.

    Learn more about the Shanghai upgrade and how it is causing liquid staking derivative tokens to pump- Ethereum Shanghai Upgrade: Why Liquid Staking Derivatives are Pumping

    How much ETH has been withdrawn since the Shanghai (Shapella) upgrade?

    Since the Shanghai (Shapella) upgrade 228.82K $ETH has been withdrawn with 100.51K $ETH deposited (as of 10:00am HKT on 14th April 2023). At the same time, the current amount of $ETH being staked is 17.38M ($34.97B). And the pending withdrawal amount (including rewards) is 981K ($2.07B). Around 60.99K ($126.89M), is expected to be withdrawn in the next 11 hours.

    You can see how much ETH has been withdrawn, deposited or staked since the Shanghai (Shapella) upgrade here.

    Ethereum ETH prices since the Shanghai (Shapella) upgrade?

    The Ethereum Shanghai (Shapella) upgrade took effect at 22:27 UTC on 12th April 2023 (06:27 on 13th April 2023 HKT). Before the upgrade, ETH was only trading at around $1,920 and remained the same a few hours after. However, the full effect of the Shanghai upgrade on Ethereum prices was seen around half a day and particularly 24 hours after the Shanghai upgrade. As of 11:30am HKT on 14th April 2023 (nearly 1.5 days after the Shanghai upgrade), Ethereum is trading at $2,109.87.

    How to set up an Ethereum Validator Node

    Check out our LIVE demonstration on how to set up an Ethereum 2.0 Node

    How to set up an Ethereum 2.0 node

    I’ve also set up something called an Ethereum validator node for Ethereum 2.0. These nodes will be how Ethereum would run and how transactions are going to be validated in the future. So we’re going to explore all of these concepts as well in this guide.

    Currently you can test out Ethereum staking on the ETH 2.0 Testnet set up by Prysmatic labs (aka Topaz). Since it’s a test, Ethereum will not be used, instead, it will use Göerli ETH, a free testnet version of ETH.

    Time needed: 2 days

    How to set up an Ethereum (ETH) Validator Node
    This guide has been adapted from the Prysm ‘Topaz’ Testnet Guide

    1. Get some Göerli ETH

      Göerli ETH is free to obtain and will be used to stake the 32 ETH required for the node. The easiest way to obtain the Göerli ETH is to use the social faucet.

    2. Spin up a Server

      You’ll need to be familiar with running a VPS server (you can use AWS, Hetzner or Linode). Recommended specs include an Intel Core i7 processor with 100 GB of SSD storage

    3. Start your Beacon Node

      Easiest way we found to do this is via Docker
      docker run -it -v $HOME/prysm/beacon:/data -p 4000:4000 -p 13000:13000 \ gcr.io/prysmaticlabs/prysm/beacon-chain:latest \ –datadir=/data

    4. Generating a validator keypair

      docker run -it -v $HOME/prysm/validator:/data \ gcr.io/prysmaticlabs/prysm/validator:latest \ accounts create –keystore-path=/data

      Complete the steps here to stake the ETH

    5. Starting up the validator client

      docker run -it -v $HOME/prysm/validator:/data –network=”host” \ gcr.io/prysmaticlabs/prysm/validator:latest \ –beacon-rpc-provider=127.0.0.1:4000 \ –keymanager=keystore \ –keymanageropts='{“path”:”/data”,”passphrase”:”changeme”}’

    6. Finish the activation

      Wait (roughly 2 days) to get activated, and then you’re good to go!

    Staking Ethereum on a validator node

    Ethereum 2.0 migrated the network consensus to a proof of stake mechanism. The staked 32 ETH2 is used to validate the transactions and states on the network. It also acts as a guarantee that the validator node will be honest and operational. In return, stakers will be rewarded with Ethereum.

    This means that validators will generate Ethereum as passive income and receive ETH payouts slowly over time. Current calculations of Ethereum 2.0 staking show an annual 14.2% Return on Investment (ROI).

    This will be great for those who stake ETH. This is because they can enjoy the benefits of passive income whilst personally holding their funds on the validator node. Analysts predict greater demand for ETH once proof of stake is implemented. This is due to additional demand for ETH from staking and validator nodes. Whilst at the same time, reduced demand for GPUs as Ethereum mining will eventually be phased out.

    You can see the status of our Ethereum validator node in the image above. We had some initial downtime for the node, so we actually lost 0.01333 Ether. This was a penalty for missing our votes. So it is important to remember that votes are mandatory once a node is activated. An offline node will mean that votes are missed, resulting in a penalty of loss of ETH.

    Ethereum Staking: Deposit contract address release

    On 4th Nov 2020 the required specifications of ETH2 v1 and the Mainnet Deposit Contract Address for staking were released. This allowed ETH2 users to stake their ETH and become validators to help secure the network.

    It’s important to remember that it is not possible to simply send ETH to the contract. This will result in your transaction failing. You need to go through the launchpad and follow the guide. Moreover, as we stated previously, staking and running a validator requires effort, time and technical expertise. Failing to meet requirements can result in loss of part of, if not all, your ETH as penalties add up.

    Ethereum Staking Update: Yields?

    As of April 2023, I have earned around 4.373 ETH since setting it up 3 years ago. Note that results may vary. Those who set up their node earlier (as was in my case) were able to enjoy 16% APY. The current APR yield for staking ETH is around 5.16%. You can check the current APR, total ETH staked, and number of validators here.

    Ethereum staking since the Shanghai Upgrade

    The APR yield for staking ETH since the Shanghai Upgrade is still very good at around 5.16%. So I am planning to continue staking ETH so I don’t miss out on this opportunity to earn more yield.

    Progress of Ethereum 2.0 so far

    More than 17.3 million $ETH is currently staked. Since the Shanghai Upgrade on 12th April 2023, over 107K $ETH has been deposited in the contract address. There are currently 568,291 validators and a Participation Rate of over 99%. The Participation Rate is a measure of ETH2’s network health as it shows the number of validators actively participating in the consensus mechanism. A good rate would be always above 80-90% to ensure the security of the chain.

    Unlike before, Ethereum 2 proceeds in epochs (32 blocks), every 6.4 minutes (if no abnormalities are detected). You can always check this metric here: beaconscan.com/epochs.

    What’s next in the development of Ethereum 2.0?

    Phase 0 – Beacon Chain is already completed, and development would move onto building Phase 1- The Merge and Phase 2-Shard Chains.

    Ethereum 2.0 setup and architecture

    Currently, we are in Phase 1 of the roadmap the road towards Ethereum 2.0. The Ethereum network is now around 55% complete following the Merge of the Beacon Chain with the Ethereum mainnet in September 2022.

    After the Merge, Ethereum will have further upgrades which Vitalik calls the “surge”, “scourge”, “verge”,”purge” and “splurge”. This refers to Ethereum’s scaling, cleanup and evolution.

    What is the “surge”, “scourge”, “verge” “purge” and “splurge” in the development of Ethereum 2.0?

    After the Merge, Ethereum will undergo further upgrades known as the “surge”, “scourge”, “verge” “purge” and “splurge”.

    The “surge” in the development of Ethereum 2.0 refers to adding Ethereum sharding. The purpose of this is to enable more affordable layer-2 blockchains, reduce the cost of rollups, and make it easier for users to operate nodes to secure the network. Once the surge is completed, the Ethereum network is expected to be able to process transactions faster. Ethereum could process up to 100,000 transactions a second once sharding is completed. This is much faster than traditional payment systems such as Visa which can handle around 1,667 transactions per second.

    The “scourge” is a new phase announced by Vitalik on 5th November 2022. The purpose of this stage is to ensure reliable and credibly neutral transaction inclusion. Also, to avoid centralization and other protocol risks from MEV.

    The “verge” will introduce “stateless clients” and “Verkle trees”- which are a form of mathematical proof. This enables users to become network validators without storing lots of data on their machines. This is a further step in the move toward a Proof-of-Stake consensus model as any validator with staked ETH can confirm and verify transactions. This will be hugely beneficial for decentralization.

    The next stage, the “purge” will involve cleaning up old network history. This is to reduce the amount of space required on your hard drive and remove the requirement of nodes to store historical information.

    The “splurge” would be several smaller upgrades and fine-tuning in order to ensure that the network operates smoothly. Or as Vitalik calls it, “all the other fun stuff”.

    Updated Ethereum roadmap

    What will happen after ETH 2.0 is launched?

    Currently, the Ethereum network can only process around 12 to 25 tps with an average confirmation time of 6 minutes. The result is that the Ethereum network is heavily congested with people all vying to process transactions, resulting in high gas fees.

    Many “Ethereum killers” have therefore been launched. These are alternatives people can use for processing transactions. Some Ethereum alternatives include Solana, Avalanche, Polkadot, Algorand, and Cardano. They are a direct competitor to Ethereum as they offer similar features but at lower cost and higher speed.

    Eventually, the number of transactions per second will drastically increase to over 100,000 tps. So the question would be, what would happen to the competition i.e. the “Ethereum killers”? Find out more in our article: Ethereum Merge is coming, is this the end of Ethereum killers?

    Frequently Asked Questions (FAQ)

    Will Ethereum 2.0 replace Ethereum?

    Ethereum 2.0 will not replace Ethereum. Rather, Ethereum and Ethereum 2.0 will be merged together into 2 layers of the same blockchain. Ethereum as we know it will be the execution layer, whilst Ethereum 2.0 will be the consensus layer.

    Will there be any difference in using the ETH as I am used to?

    No, ETH1 will continue as it is with no differences. ETH2 is setting up on a parallel line and the two will merge in the future. The merge will happen without ETH users being able to notice it

    When will Ethereum mining end?

    Ethereum mining will not end for quite a few years. Ethereum will retain mining on the main chain until at least 2020. The main ETH1 chain will continue to use mining and run parallel to the ETH2.0 chain. This is to ensure stability during the migration

    Should I stake my ETH for ETH2?

    It does not cost any money to set up a validator node to stake ETH for ETH2. Staking ETH will allow you to generate passive income. However, you will need to stake at least 32 ETH, and if your node suffers downtime your ETH will be partially deducted as penalties. Also, your staked ETH cannot be unstaked until after the Ethereum Shanghai Upgrade.

    What are the minimum hardware requirements to become an ETH validator?

    Following this list on Prysm website to install the client:

    Minimum specifications

    Operating System: 64-bit Linux, Mac OS X 10.14+, Windows 64-bit
    Processor: Intel Core i5–760 or AMD FX-8100 or better
    Memory: 8GB RAM
    Storage: 20GB available space SSD
    Internet: Broadband connection

    Recommended specifications

    Processor: Intel Core i7–4770 or AMD FX-8310 or better
    Memory: 16GB RAM
    Storage: 100GB available space SSD
    Internet: Broadband connection







    Can I lose my ETH Deposit in the Node?

    Yes. The 32 ETH staked for the validator node is designed as an insurance that the validator node is operational and online at all times. Penalties will be given if the node is offline, and small amounts of ETH will be deducted over time.

    What is the expected APR yield for staking ETH?

    The current APR yield for staking ETH is 3.7%. Here you can have an idea of the APR (in ETH) as it varies with the number of ETH staked (source).

    Is staking ETH for ETH2 safe or risky?

    Staking ETH for ETH2 is safe and does not have any significant risks. However, stakers will not be able to withdraw their staked ETH until after the Shanghai hard fork in March 2023. Also, if your validator node goes offline, you will be penalised by a deduction of your staked ETH.

    Are there projects that will allow me to stake even if I have less than 32 ETH?

    If you want to participate in ETH2 staking but you don’t own the minimum amount required to become a validator, or you don’t want to stake an exact multiple of 32 ETH, don’t worry. There will be possibilities through Centralized Exchanges (like Binance and Coinbase) and not only. A big advantage in this case, is to receive liquidity for your staked ETH.
    RoocketPool ($RPL), now in beta, will correspond rETH (1:1 with ETH), a tokenized asset that you will be able to trade freely. Lido Finance will do a similar thing through their stETH. LiquidStake will instead let you borrow USDC for your staked ETH collateral. Many other solutions will arise as ETH2 will start its journey; for example, Cream Finance ($CREAM) has recently released an article explaining that user will receive the ETH2P token when joining ETH2 staking through them

    Can you withdraw ETH2 back to regular ETH?

    In Phase 0, ETH2 cannot be withdrawn back to regular ETH. Once converted, ETH2 will only be usable on the Staking Chain until Phase 3.

    What can I do with my ETH2?

    At the moment you cannot do anything with your ETH2. They are just “digital receipts”. Transactions or other features we have now on ETH won’t be available on ETH2 for probably years. There are rumors of a possible secondary market where to trade them though.

    When can I buy and sell ETH2?

    You cannot buy or sell ETH2 yet. ETH2 will only be available for trading or transfer until Phase 3 when the upgrade of the Ethereum protocol is complete.

    Should I buy ETH2 or ETH?

    ETH2 is not available for sale yet, so users should be careful of any places that offer ETH2 for sale. ETH on the other hand can be bought and traded at almost every cryptocurrency exchange.

    Is testnet ETH worth the same as ETH?

    ETH on testnets do not have any monetary value. They essentially allow developers to test and troubleshoot DApps and protocols before going live on the Ethereum mainnet. As a result, there are no markets for testnet ETHs.

    Will Ethereum gas fees be cheaper after The Merge?

    The Merge will not make Ethereum gas fees cheaper. This is because The Merge is only a change in the consensus mechanism from Proof-of-Work to Proof-of-Stake. Only an expansion of the Ethereum network capacity and throughput would lower the gas fees. However, this is still in development.

    Will I be able to withdraw my staked ETH after The Merge?

    There is currently locked staked ETH (stETH) on the Beacon Chain. stETH is backed 1:1 by Ether (ETH). However, developers have confirmed that users will not be able to withdraw their locked stETH after The Merge. Withdrawal of stETH will instead be possible after the Shanghai Upgrade which is expected to be in second half of 2023.

    Will Ethereum transactions be faster after The Merge?

    Ethereum developers believe that transitioning to Proof-of-Stake will result in a 10% increase in block production. However, users are unlikely to be able to notice this slight improvement.

    Will Ethereum ETH 2.0 be a new coin?

    No. There will not be a new ETH coin after the launch of Ethereum 2.0. Therefore, existing ETH holders, users of dApps, and traders do not have to do anything in anticipation of Ethereum 2.0.
    Therefore, users should be wary of websites or services claiming that they will allow users to trade, invest, mine, swap, or stake the ETH2 token. This is because the ETH2 token doesn’t actually exist.

    Will there be any tax implications resulting from The Merge?

    If The Merge does not result in a hard fork, then there are no tax implications because no new tokens would be created.

    However, if the Merge results in a hard fork, ETH holders would be sent duplicate tokens which may have tax implications. If the ETH is held in user-owned wallets, new proof-of-work ETH tokens would be considered as income, and its valuation calculated at the time the user comes into possession of the tokens. On the other hand, if the ETH is held in custodial wallets such as cryptocurrency exchanges, the implications would depend on the custodians’ stance on supporting the forked ETH chain.

    Will dApps or exchanges be affected by Ethereum 2.0?

    The launch of Ethereum 2.0 will not cause a huge impact on users’ interactions with blockchain dApps or cryptocurrency exchanges and services.

    Will exchanges be shut down during the ETH Merge?

    Ethereum developers have confirmed that during the Merge, there would not be any downtime.

    When was the Ethereum Merge?

    On 15th September 2022 at 06:42:42 UTC at block 15537393, the Ethereum Merge was completed.

    Will ETH holders be airdropped new tokens after Ethereum 2.0?

    There are currently no plans for an airdrop of new tokens for ETH holders after the launch of Ethereum 2.0. So far, Vitalik Buterin and the Ethereum Foundation have expressed that they are firmly against any forked ETH tokens.

    Therefore, any websites or social media accounts purporting to airdrop Ethereum tokens are most likely a scam.

    What is the ETHPOW or ETHW token?

    ETHPOW or ETHW is the token that will emerge if there is a fork of the Ethereum blockchain. During the Merge, some community members may disagree (e.g. want to stay with the Proof of Work mechanism) and fork ETH. What they may do, is “copy and paste” the Ethereum blockchain. The result of this is there would be 2 blockchains and 2 tokens. There would be the existing Ethereum blockchain that goes through the Merge with the ETH token. And then there would be the forked chain with a new token called ETHPOW or ETHW.

    How can I get the airdropped free ETHPOW/ETHW token?

    If you held Ethereum prior to the Ethereum Merge, you will be airdropped (via the fork) free ETHPOW tokens

    When can I stop staking my ETH?

    Those who have staked their ETH cannot stop staking until the Shanghai hard fork, which is expected in the second half of 2023.

    Where can I buy or trade the EthereumPoW ($ETHW) token?

    The EthereumPoW ($ETHW) token is not widely traded on cryptocurrency exchanges. However, you can buy or trade the EthereumPoW ($ETHW) on these exchanges: OKX, ByBit, Kraken, Huobi, MEXC Global, Gate.io, Bitfinex, Bittrex, Poloniex and Hotbit.

    What is the next upgrade to the Ethereum network

    The next upgrade to the Ethereum network is known as the Shanghai upgrade. A major anticipated feature of this upgrade is that withdrawals of ETH stakers/validators from the Beacon Chain will be enabled. The Ethereum network Shanghai upgrade is expected to be in March 2023.

    Will there be an Ethereum hard fork after the Merge?

    A hard fork is a backward-compatible and permanent split or fork of the blockchain. After a hard fork, a separate version of the blockchain will emerge, as well as a new cryptocurrency token. There is speculation that the Merge may result in a hard fork. This is because some want to take advantage and profit from the Merge. Alternatively, a hard fork may be formed by those who disagree with the direction of Ethereum’s development. A group known as ETHW Core announced they will launch a hard fork within 24 hours of the Merge. This is because they oppose the change to a proof-of-stake mechanism, which essentially puts an end to ETH mining.
    Several hours after the Merge, the ETHW mainnet and fork of the Ethereum blockchain was launched.

    Tax implications resulting from The Merge or Ethereum hard fork?

    If The Merge does not result in a hard fork, then there are no tax implications because no new tokens would be created.

    How has Ethereum 2.0 impacted its price

    If all the phases are completed successfully, Ethereum prices are expected to increase. This is because each phase of the upgrade gives significant upgrades that will improve the performance of the blockchain. This will further grow its utility and value.

    What will happen to Ethereum mining?

    Ethereum mining is the process of adding blocks of transactions to the Ethereum blockchain. This is to help secure the Ethereum network through a Proof-of-Work (PoW) mechanism. Miners are then rewarded with ether (ETH) which can be traded on cryptocurrency exchanges. Therefore, many people would run Ethereum miners for profit.
    However, the launch of ETH2.0 will fundamentally change the current economics. The existing Proof-of-Work (PoW) consensus mechanism will be replaced by Proof-of-Stake (PoS). The concept of mining will be retired once the Ethereum 2.0 update is fully completed.
    For more details check out our article: The end for Ethereum miners after ETH 2.0?

    What is the status of the Ethereum Shanghai upgrade?

    The Shanghai (Shapella) network upgrade took place at 22:27 UTC on 12th April 2023.

    Will Ethereum 2.0 replace Ethereum?

    No, but how transactions will be confirmed will change. Previously Ethereum uses Proof of Work (PoW) to confirm transactions. However, Ethereum 2.0 will transition to a Proof of Stake (PoS) consensus mechanism.

    What is the Shapella upgrade?

    The Shapella upgrade is another name for the Ethereum Shanghai upgrade. It is called the Shapella upgrade because it combines changes from the Shanghai (execution layer) and Capella (consensus layer). This upgrade took place at 22:27 UTC on 12th April 2023.

    How much ETH has been withdrawn since the Shanghai (Shapella) upgrade?

    Since the Shanghai (Shapella) upgrade, 228.82K $ETH has been withdrawn (as of 10:00am HKT on 14th April 2023). The pending withdrawal amount (including rewards) is 981K ($2.07B). Around 60.99K ($126.89M), is expected to be withdrawn in the next 11 hours.

    Where can I see how much ETH has been withdrawn or staked since the Shanghai (Shapella) upgrade?

    You can see how much ETH has been withdrawn, deposited or staked since the Shanghai (Shapella) upgrade here.

    Ethereum ETH prices since the Shanghai (Shapella) upgrade?

    Ethereum ETH prices eventually received a positive boost hours after the Shanghai (Shapella) upgrade. Before the upgrade, ETH was only trading at around $1,920. Nearly 1.5 days after the Shanghai upgrade, Ethereum is trading at $2,109.87.

    What is the current APR for staking Ethereum?

    The current APR yield for staking Ethereum is around 5.16%

    Updates:

    Update Nov 2022: Ethereum 2.0 has recently gone through some changes – it is now called the Ethereum Merge.
    Update Jan 2023: Added details about Ethereum Shanghai Upgrade
    Update Apr 2023: Added details about Ethereum Shanghai Upgrade and its effect on ETH prices.

    Resources:

    Ethereum Foundation: https://ethereum.org/en/upgrades

    Pyrsmatic Labs: https://medium.com/prysmatic-labs/how-to-scale-ethereum-sharding-explained-ba2e283b7fce

    Ethereum Wallet holders: https://bitinfocharts.com/comparison/activeaddresses-eth.html

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • How To Stake Ethereum 2.0 on Allnodes?

    How To Stake Ethereum 2.0 on Allnodes?

    Staking on Ethereum 2.0 is finally live. However, the process of connecting your Ethereum (ETH) coins can be a bit tricky. It’s not all about sending 32 ETH to the contract. Doing so would end up with you losing your funds. In this tutorial, we will cover how to connect to the ETH staking contract through a validator node. Furthermore, we shall be using Allnodes, a non-custodial platform for hosting nodes.

    How To Set up an ETH 2.0 Validator?

    First, your Ethereum wallet should have the 32 ETH coins needed by the contract. Note that interacting with the Ethereum blockchain is done through MetaMask. Therefore, you need to fund your MetaMask through a hardware or a software wallet.

    The journey starts on Allnodes. The platform takes care of the technical bit of hosting nodes for a relatively low fee, although it depends on the hosting package chosen. The platform supports multiple payment methods, including Bitcoin and other cryptocurrencies.

    Click on Ethereum staking on the upper right corner, and on the new window that opens, select “Host ETH 2.0.”

    If you’re new to Allnodes, create an account; otherwise, login to your account.

    Select you’re your plan.

    Connect to MetaMask.

    ETH 2.0 Launchpad

    Click on “Open ETH 2.0 Launchpad” then “Get started.”

    There are subsections on the left pane of the welcome screen, such as introducing eth2 phase 0, signing up, and responsibilities, among others. In addition, it holds information on the expected income. On the responsibilities section, for example, it states that a validator node only earns rewards when it’s actively participating in the network. Unfortunately, the effects of a node being offline are equal to the profits of it being online.

    Other critical sections:

    • Risks of slashing – If a node gets compromised or it misbehaves, its stake is slashed, consequently reducing its staking power.
    • Backup Mnemonic – They are special words that are used for recovering deposited ETH. For maximum security, the mnemonic should be written on paper instead of saving on a computer.
    • Transfer delay – For now, interacting with the deposit address is one way. As such, you can only deposit and not withdraw or transfer the coins.
    • Long term committed – Ethereum has a commitment statement noting that validator nodes are in it for the long haul and they can’t go back to previous versions such as ETH 1.0.

    On the client selection pane, there’s the option to run ETH 1.0 client. While this is possible, it’s costly and needs some technical knowledge.

    Generating Key Phrases for ETH 2.0

    The next window is for generating key pairs. First, select the number of ETH 2.0 validator nodes you need. Note that each node requires depositing 32 ETH into the Ethereum staking contract.

    Next, select between Linux, Windows, and Mac operating systems.

    For this example, we’ll be setting up an ETH 2.0 validator node on a Windows-powered computer.

    The intimidating part about this part is that it uses a command-line interface (CLI) instead of a graphical user interface (GUI), which is what non-devs are used to.

    Downloading and Using CLI

    Download the CLI from Github by clicking on the link “get it from developers.” When on the download page, select the release that coincides with your computer’s operating system.

    Extract the zipped folder to reveal the file called “Deposits.”

    The “Deposits” file is a CLI interface.

    To get it to run as required, hold the SHIFT key and right-click on the file to bring up the option “Open PowerShell window here.”

    On the previous download page, below the list of available downloads, copy the command code and paste it on the open CLI window. Note that this window should have a blue background color.

    CLI window

    Follow the instructions on the screen for the command to run successfully.

    Choose language and select a password. PLEASE remember this password; we shall need it later.

    The CLI will generate a unique mnemonic. The mnemonic helps you unlock your staked ETH when transfers finally go live. Therefore, put it on paper for safety and press “Enter.” Input the phrase.

    In the folder with your CLI download, a new folder named “validator keys” will be created. Inside this folder, we have two files; Deposit data and Key store.

    Depositing The Files on Launchpad

    On the “Upload Deposit File” section, hit “add file” and drag and drop the deposit data file (Deposit.in).

    Click “Continue” and connect to your MetaMask wallet, which should have 32 ETH.

    Read the summary, “Initiate the transaction,” and double-check the Ethereum deposit address.

    Confirm the transaction on MetaMask. You can view the transaction status on Etherscan after it’s successful.

    Back To Allnodes

    Let’s pick up from where we left on Allnodes. Confirm that you’ve generated ETH 2.0 phrases, deposit data, and have put in 32 ETH to the contract.

    The next step is to choose the hosting plan.

    Drag the files in the specified order. That is, the deposit data file, key store file, and provide the password we generated earlier on the CLI interface.

    The next window on Allnodes shows the status of your node.

    Note that you can use Allnodes to run multiple ETH 2.0 validator nodes.

    And, that’s it.

    Note that you can view the status of the deposit on the Beacon Chain by using the same address that you used to deposit your coins to the ETH 2.0 staking contract.

    Manage your Allnodes account

    To keep up ETH 2.0 node, you need to top up the node which requires a payment of around US$5 per month until the release of ETH 2.0. ETH 2.0 is expected to be launched in around 2 years. In return, at every epoch you would be able to earn a bit of ETH in return.

    Update: Returns on my Allnodes node?

    As of June 2022, my validator node balance is at 35.45202. This means I have earned a total of around 3.45 ETH since I set it up 2 years ago in 2020. Note that results may vary and those who set up their node earlier (as was in my case) were able to enjoy a 16% APY.

    Conclusion

    Ethereum 2.0 is being continuously developed by the Ethereum Foundation to be able to run on a wide range of computing devices. The above tutorial on how to set up an ETH 2.0 validator node using Allnodes covers every corner of the process. However, critical details such as mnemonics and passwords should be kept secure since they determine access to the deposited coins.

    In addition, it’s worth noting that the process happens on three platforms, Allnodes, ETH 2.0 Launchpad, and CLI. Therefore, the three systems must harmoniously work together to get the desired outcome.

    FAQs:

    What if You Don’t Have the Full Amount?

    Good question. First, NO. a validator node needs the full amount.

    Can the ETH 2.0 Staking Contract Take Less Than 32 ETH?

    However, you can still stake a lower amount only that it will be through third parties such as participating cryptocurrency exchanges such as Binance and Coinbase.

    Can I withdraw the rewards I earn from staking?

    NO, not until ETH 2.0 reaches Phase 1, which is likely to be in 1 year or possibly more.

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Ethereum ($ETH) Merge: What is it and everything you need to know

    Ethereum ($ETH) Merge: What is it and everything you need to know

    As Ethereum is steadily approaching the transition to a Proof-of-Stake mechanism, one notable thing that has changed, aside from further protocol development, has been the change in terminology.

    We have already covered Ethereum 2.0 extensively in one of our ongoing blogs where we go in-depth on everything you need to know about Ethereum’s transition to PoS:

    Let’s take a closer look at the rebranding from Ethereum 2.0 to the Ethereum Merge, as well as go over the most recent developments in Ethereum’s roadmap as of May 2022.

    Check out our latest video- Ethereum Merge: ALL you need to know (including ETHPOW)

    Ethereum Merge: ALL you need to know (including ETHPOW)

    And check out our video- Ethereum Merge: Things you don’t (but need) to know as an investor

    The Ethereum Merge: Why the shift from Eth2.0?

    The move away from using the former term “Eth2.0” that signified the final transition from PoW to PoS was a result of several different developments and considerations, both technical and cultural.

    On the technical side, the use of Eth2.0 started to become an inaccurate representation of the PoS transition. Originally, the Ethereum 2.0 roadmap envisioned that both the Phase 0 (Beacon Chain) and Phase 1 (Sharding) would be completed before the final transition. (Clonazepam) But the Beacon Chain was developed faster than expected, making researchers realize that the final migration to a PoS mechanism would be delayed by years due to the focus on sharding. In addition, the ever-growing pressure from the masses about the environmental impact of PoW chains made the migration to PoS that much more pressing.

    As the Beacon Chain was deployed, Ethereum L2 rollups started gaining popularity, demonstrating significant scalability potential even for a non-sharded Ethereum blockchain. This released some pressure on solving the scalability challenges that Ethereum’s L1 has faced for years, allowing the R&D team to focus on the remaining Ethereum’s upgrade plans both for the PoW chain, as well the Beacon Chain.

    From a cultural perspective, the use of the old terminology would’ve further perpetuated confusion about the nature of Eth1.0 and Eth2.0, making it seem like once Eth2.0 is launched, Eth1.0 will be gone, which is not the case. In addition, scam prevention was another consideration that favoured the rebrand, as the distinction between Eth1.0 and Eth2.0 would’ve likely resulted in scammers trying to convince users to swap their ETH tokens for fictitious ETH2 tokens.

    The result of all of this was a decision to move away from the confusing Eth1.0 and Eth2.0 terminology, and rather call the transition to the PoS mechanism on the mainnet The Merge. By choosing to name the process instead of the final outcome (which in reality remains, in essence, the same), a lot of headache and confusion has been avoided.

    Progress Towards The Ethereum Merge: Current status 

    Public testnets being battle-tested

    Deployed in late December 2021, the Kintsugi testnet was a public testnet meant to allow execution and consensus client developers and application developers to become familiar with the post-Merge environment. The testnet was bombarded with transactions, bad blocks, and chaotic inputs to battle test it and find bugs.

    A new specification for the proceeding public testnet, called Kiln, was published after edge cases from Kintsugi had been discovered. It’s expected to be the last new public testnet to be created before the existing ones are upgraded. Continued extensive testing of the Kiln has been taking place since The Merge took place on it on March 15th 2022. The Ethereum community practised running their nodes, deployed contracts, tested infrastructure, and threw everything they had at it to see if it breaks.

    Mainnet shadow forks

    Although a lot had been learned since deploying and testing Kintsugi and Kiln testnets, they were still very young testnets with little activity, which prevented proper stress testing of assumptions regarding syncing and state growth. And this is where shadow forking came in. Shadow forking makes it possible to fork an existing testnet, such as Goerli, and the mainnet (with a lot more activity), and add merge related properties to its config, thus allowing the fork to inherit the state of the original testnet.

    These shadow forks are short-lived, allowing for testing on them only for a few weeks until a new beacon chain has to be spun up.

    Three Goerli testnet shadow forks took place in January and March, and the first mainnet shadow fork happened on April 11th 2022, with the second one following on 23rd April.

    The results of the latest mainnet shadow fork have been described by Adrian Sutton from ConsenSys in his twitter thread. The team will continue stress testing main forks, and collaborate with client developers to make them even more robust against edge cases. From now on the main theme as we approach The Merge has been and will be – testing, testing, and even more testing.

    Wen Merge? The Triple Halvening, And Price Predictions

    As to when The Merge will happen is still somewhat up in the air. No one has, understandably, given any specific dates, but the general consensus is that late Q3 is the time when we are likely to see it finally happen. The dev team’s sole focus is on The Merge, with very little else discussed, as can be seen in the latest AllCoreDevs session update by Tim Beiko.

    Price predictions are also under hot debate, as, once The Merge is complete, two factors will influence ETH’s price, one emotional, the other baked into the protocol. Realistic estimates of the fair price of ETH fluctuate around $5000.

    The emotional aspect, as experienced by the market, will result from The Merge successfully completing, which will mark the end of the most significant change in the protocol in Ethereum’s history, and solidify the incredible technical competence of Ethereum core devs and researchers, further giving the market confidence in ETH as an asset and the ecosystem as a whole, driving up the price further.

    The technical reason for why price is likely to pump is due to the Triple Halvening, which will reduce Ethereum’s annual inflation rate from 4.3% to 0.43%. Following last year’s EIP-1559 upgrade, Ethereum now burns about 70-80% of the fees, with the rest going to PoW miners. Post Merge, these fees will go to the PoS validators. This means that ETH stakers will see their rewards rise to about 8-10%. Staking will lock in significant amounts of ETH, as staked ETH cannot be moved or used in the markets, making enormous amounts of ETH illiquid, further driving up the price. EIP-1559 and The Merge combined are predicted to cause the equivalent of 3 bitcoin halvenings, reducing ETH sell pressure by up to 90%.

    In addition, the move to an environmentally friendly PoS mechanism, which will reduce energy consumption by up to 99.95%, will make the asset much more appealing to institutional investors who might’ve been kept away from investing due to public’s pushback on Ethereum’s current energy consumption.

    Great progress is being made by the Ethereum team, and the continued successful merges of mainnet forks clearly demonstrate the culmination of 6 years of back-breaking work, and give hope that The Merge truly is just around the corner. For those interested in the nitty-gritty of The Merge preparations, it’s worth checking out The Merge Mainnet Readiness Checklist which lists in detail all of the various tasks that need to be worked through to make The Merge ready for Mainnet release.

    Why is the Ethereum Merge so important to crypto traders?

    Many cryptocurrency and particularly Ethereum ($ETH) traders are eagerly anticipating the Ethereum Merge because afterward, the issuance of ETH is expected to be reduced by about 90%. This means there will be less ETH in circulation, and in turn, the lower the supply, the higher the demand- potentially resulting in Ethereum prices going up.

    ETH Merge is a huge success!

    On 15th September 2022 at 06:42:42 UTC at block 15537393, the Merge was completed.

    Missed our historical LIVE Merge party? Check it out here!

    Ethereum Merge Party – Watch the Merge live!

    How have Ethereum ($ETH) prices reacted to the Merge?

    Ethereum ($ETH) prices showed a slight pump in the hours following the Merge. Prices hit a peak of over US$1,640 before coming back down to just under US$1,600. The next crucial point in terms of where ETH prices would go would depend on whether there is any hard fork.

  • Will the Launch of Ethereum 2.0 Crash Crypto Prices?

    Will the Launch of Ethereum 2.0 Crash Crypto Prices?

    Ethereum 2.0 is coming soon and the question everyone wants to know is “will it cause crypto prices to crash?” This is particularly as markets around the globe are not looking great, and that includes the crypto industry. Everything has been bleeding heavily for months without a sign of stopping, as central banks keep hiking rates, global supply chains struggle, and spending and investment dry up. Stagflation is a very real possibility, and there is no telling how long it will take for us to cool down the overheated markets that have been going only up since the last recession more than ten years ago. 

    The aforementioned notwithstanding, active development in the blockchain space continues to march forward. Although investments might drop significantly, many builders keep on building no matter the state of the markets. As Ethereum is steadily approaching the long-awaited transition from proof-of-work (PoW) to proof-of-stake (PoS), dubbed The Merge, it might be interesting to think about potential impacts of The Merge on the crypto market prices, especially in the context of a potential extended bear market.

    Learn more: 

    Ethereum 2.0 is coming- Here’s what you NEED to know

    Proof of Stake (PoS) explained

    Ethereum ($ETH) Merge: What is it and everything you need to know

    Plus check out our video!

    About Ethereum 2.0

    In short, The Merge will result in Eth2.0’s Beacon chain (the coordination mechanism of the new network) merging with the current Ethereum mainnet, signifying the move to a fully PoS chain. To secure the network, enormous amounts of ETH will be staked in addition to the ETH already staked in the Beacon chain, making all of this locked ETH illiquid. Combined with the EIP-1559 upgrade, which now burns 70-80% of the fees, The Merge is expected to cause the equivalent of 3 bitcoin halvenings, dropping Ethereum’s inflation rate to 0.43% and locking up a lot of ETH, potentially reducing sell pressure by up to 90%. In addition, the PoS mechanism will reduce Ethereum’s energy consumption by up to 99.95%.

    So all is looking great for Ethereum and projects building on top of it, right? Possibly. However, there is still a decent chance that, given the current market conditions, ETH’s price pump might be short-lived, and would continue to drop, bringing down a lot of other projects with it.

    The Potential Impacts of The Merge

    There are two possible scenarios to look at when discussing the downside impact of The Merge on crypto prices:

    1. The external effect would be caused by Ethereum sucking out liquidity from other PoS alt-L1s and the projects built on top of them (especially if they’re EVM-compatible), as one of the more critical selling points compared to Ethereum is environmental sustainability.
    2. Beacon chain staked ETH unlocks, extended bear market, and poor treasury management of Ethereum-backed projects could see more capitulation events as HODLers and projects sell off their ETH to stay afloat as new investments dry up and stagflation looms.

    1. Ethereum Sucks Liquidity From Other PoS alt-L1’s

    By offering lower gas fees, fast transactions, and relatively high throughput at the expense of decentralization and economic sustainability, many PoS chains have attracted developers, investors, and NFT ecosystems to their networks away from Ethereum. Ethereum’s high demand (=high fees), poor L1 scalability, and the concerning PoW mechanism have severely limited its growth. (https://rpdrlatino.com) Understandably, regular people simply do not want to pay exorbitant fees when minting and trading NFTs, and developing inaccessible dApps on a network that is supposedly destroying trees and warming up the planet.

    The environmental argument will be completely invalid after the merge. Coupled with the enormous innovations in Ethereum’s L2 ecosystem, which have already reduced transaction fees to sub-$1 with no signs of stopping, Ethereum is set to once again become the most sought-after smart contract development platform. As post-Merge buy pressure of ETH increases and scalability improves, alt-L1’s could struggle to offer any significant unique selling points, making new projects opt to build on top of the most secure, established and decentralized smart contract chain out there.

    As more and more people flock to Ethereum, established projects might also decide to migrate to the platform with the most demand and upside potential, effectively sucking out liquidity from other chains, and leaving them dry with evaporated treasuries, limited runway, and reduced demand. The strategy of subsidizing transaction fees during a bull market when funds are plentiful will likely not work when no new investments are coming in during a bear market, and an exodus of users is reducing demand and network revenues.

    Of course, there is plenty of room for growth in this space, and projects existing on other chains might not find it too beneficial to move to Ethereum even though short-term liquidity issues might prove challenging.

    2. Beacon Chain ETH Unlocks in Extended Bear Market Cause Mass Capitulation

    The Merge will unlock a lot of ETH, resulting in a potential aggressive selling spree that might have trickle-down effects on a lot of other coins, especially those that have tight correlation with their ETH pair, are ERC-20 tokens, or have been sitting on ETH treasuries to fund their development. A lot more downside risk due to a selloff is also a very real possibility for ETH and other coins simply due to bad timing (i.e. bear market – with recession slowly creeping into our daily lives due to central banks raising interest rates, supply chain issues, energy crises etc.), the unlocked ETH might serve as a critical lifeline for those who had confidently staked their ETH during the bull market.

    During the bear market, investments will be scarce, and projects that during the bull market had made the decision to not convert their treasury ETH to stablecoins are now seeing their wallets drop in value significantly, forcing them to capitulate by selling at low prices to cover their expenses.

    However, it is important to note that the ETH unlocked from the ETH staked on the Beacon chain will not be immediately available right after The Merge. Rather, this feature – EIP-4895: “Beacon chain push withdrawals as operations”, will be enabled during the Shanghai upgrade. It will probably be deployed much later after The Merge, with estimates ranging from a month to 6 months. This means that any amount of potential sell-off of unlocked ETH would come with a significant delay post-Merge, at which point it’s impossible to predict where the market might be in 6-12 months and how it will behave, with contradicting bullish and bearish narratives clashing against one another in an attempt to drive price in either direction.

    This option does seem a bit far-fetched, however, and no one knows how much more pain we will have to suffer before the momentum shifts towards the upside, so it’s best to be prepared for both the upside and downside, and not fall prey to only bullish narratives.

    Conclusion

    As outlined in the two main points, post-Merge many alt-L1 coins could face a risk of crashing even further due to risks associated with reduced liquidity in a bear market (for non-Ethereum coins), liquidity that might flow towards the Ethereum ecosystem due to its established security, track record, and newly acquired environmental sustainability.

    On the other hand, ETH and other ERC-20 tokens living on Ethereum also run a risk of crashing, if the post-Merge ETH unlock from the Beacon chain results in a mass sell-off of ETH, which could crash other coins and project treasuries.

    As this will be the first time the crypto industry experiences a recession or a stagflation, there is a lot of uncertainty about how low the market could go and, most importantly, how long it could stay so low. This is uncharted territory, so making comparisons with past cycles might not be particularly useful. Nations and companies will keep tightening their belts, and spending will significantly decrease across the board, leaving risk-on markets such as crypto vulnerable to a continued mass exodus to safer investments.

  • Ethereum 2.0 London Hard Fork Roll Out

    Ethereum 2.0 London Hard Fork Roll Out

    (as of August 24th, 2021)

    This is an update of an older article on Ethereum 2.0. Click here to read the previous version.

    London Hard Fork

    The highly anticipated Ethereum London Hard Fork upgrade went live on August 5th, 2021, which sent the price of ETH rallying to above $2,800 for the first time since June 7th on bullish sentiment. 

    The upgrade includes a fee reduction feature called EIP 1559, which burned more than 3,000 ETH in only a few hours since taking effect.

    The latest backward-incompatible upgrade to the Ethereum blockchain introduced five new Ethereum Improvement Proposals (EIPs), ushering in a new era for the transition to Ethereum 2.0. 

    EIP 1559, EIP 3554, EIP 3529, EIP 3198 and EIP 3541 are code upgrades that aim to improve the network’s user experience and value proposition.

    It is fair to say that the London upgrade received more media attention than previous upgrades, but rightfully so as this upgrade represents an important step forward for the cryptocurrency, proving that the Ethereum ecosystem is able to make significant changes. 

    That’s in stark contrast to Bitcoin, which is so decentralized that changes to its blockchain network are incredibly difficult.

    The Ethereum blockchain still has major changes ahead, most notably its transition to a proof-of-stake (POS) system from a proof-of-work (POW) system. One of the biggest criticisms faced by Ethereum is its heavy energy usage and carbon emissions released during ether mining through proof-of-work.

    A proof-of-work system relies on a network of computers around the world constantly running to solve complex problems to support and validate the blockchain. A proof-of-stake platform, which does not incentivize heavy energy consumption, allows users to put up their own tokens as collateral to support the blockchain network.

    According to its founder Vitalik Buterin in an interview with Bloomberg, the change to proof-of-stake will reduce carbon emissions related to the mining of ether by 99%. Buterin expects the merge to Ethereum 2.0 to take place in early 2022 but it could come as early as late 2021. 

    The London hard fork “definitely makes me feel more confident about the merge.” Buterin told Bloomberg, going on to add that the transition to a proof-of-stake system would eventually change the economics of ether, such as a supply cap similar to bitcoin’s 21 million coin limit.

    EIP 1559 – Making Ethereum less inflationary

    The EIP 1559 upgrade is the most discussed code change of the London hard fork, altering the transaction fee structure for the Ethereum network. Instead of fees going directly to the miners that process and validate transactions, a base fee would instead go to the miners and to the network before being burned and removed from circulation.

    EIP 1559 removed the first-price auction as the main gas fee calculation, where users typically bid a dedicated amount of money to pay for their transaction to be processed on the Ethereum blockchain. 

    Gas fees are fee payments required from users who create transfers or transactions on the Ethereum blockchain. Previously, users paid these fees without knowing the exact price to pay beforehand. In order to make sure the transaction gets processed, some users overpaid to ensure the transaction went ahead smoothly. Other users who paid less faced the uncertainty of whether the transaction will get processed in a timely manner.

    The EIP 1559 changed the method by which transactions are processed on the blockchain by enabling clear pricing on a base transaction fee paid to miners in ETH to validate the transfers. A small amount of the tokens will be burnt and taken out of the circulating supply permanently. Users may also choose to include an optional tip, a “priority fee,” along with their base fee to incentivize miners for a quicker process if desired. 

    As a result of its activation, EIP 1559 improved user experience by automating transaction prices and taking the guesswork out of an opaque auction process, while still allowing miners to earn from tips and block rewards.

    EIP 3554 – Defusing the difficulty bomb

    EIP 3554 delays the “difficulty bomb” that is coded to make mining more difficult, essentially “freezing” it in preparation for Ethereum’s transition away from a proof-of-work model. 

    Also called the “Ice Age,” the difficulty bomb is intended to disincentivize miners from using proof-of-work once Ethereum 2.0 is ready by making block rewards much harder to come by. EIP 3354 pushes the Ice Age back to December 1st, 2021, hinting that the merge with Ethereum 2.0 may happen at the end of the year. 

    This is the fourth time that the difficulty bomb has been delayed, and unless the network is finally ready to move to proof-of-stake by the end of the year, it’s likely to be delayed once again in yet another network upgrade.

    EIP 3529 – Reducing impact-less refunds

    EIP 3529 reduces gas refunds, which were typically used to incentivize developers to reduce or delete unused smart contracts and addresses on Ethereum. 

    “Gas tokens” like Chi and GST2 gamed the system by taking up space on the network when gas fees were low and reaping the benefits by deleting their data when gas fees were high. With the implementation of EIP 3529, these tokens will become obsolete.

    EIP 3198 – Improving smart contract UX

    EIP 3198 improves the user experience of smart contracts by adding an operation code (opcode) that gives the EVM (Ethereum Virtual Machine) access to the block’s base fee.

    The base fee is a small amount of Ether paid for each block created which can help with gas efficiency and reduction in transaction costs. Some applications will be able to use this fee, and other applications may choose not to use this opcode in their smart contract code if they do not need it. 

    This improves the user experience of smart contracts by increasing the security for state channels, plasma, optimistic rollups and other solutions that prevent fraud. 

    EIP 3541 – Making future updates easier

    EIP 3541 sets up future upgrades to the Ethereum Virtual Machine (EVM) by removing the ability to start new contracts with “0xEF or Executable Format.” 

    Although it won’t have an immediate effect on the network, it sets up future changes and restricts the EVM from consuming specific data types. 

    ETH 2.0 Becomes The Leading Holder of Ether

    At present, the staking contract of Ethereum 2.0 has become the largest holder of Ether (ETH).

    According to blockchain analytics provider Nansen, the ETH 2.0 staking contract has surpassed Wrapped Ethereum (wETH) to become the single largest holder of ETH. Unlike Ether, Wrapped Ether adheres to the ERC-20 standard, making it the favored representation of ETH among decentralized finance protocols that use ERC-20 tokens.

    Alex Svanevik, the CEO of Nansen, put up his findings on Twitter on August 16th, 2021. According to the available data, the Beacon Chain’s deposit contract holds 6.73 million ETH – worth roughly $21.5 billion at current prices.

    nansen analytics data Ethereum 2.0
    Nansen analytics data

    By contrast, Nansen’s data suggests the Wrapped Ethereum contract holds 6.7 million ETH ($21.4 billion), followed by Binance with 2.29 million ETH ($7.3 billion).

    The quantity of Ether locked and staked on ETH 2.0 currently represents 5.7% of Ethereum’s circulating supply, according to CoinMarketCap. There are now 210,000 validators for the ETH 2.0 network, according to Beaconcha.in.

    Currently, Ether staked on ETH 2.0 is locked up and cannot be withdrawn from the contract until Ethereum’s forthcoming chain merge, which will meld the Ethereum and ETH 2.0 networks.

    According to Staking Rewards, ETH 2.0 is currently the third-largest proof-of-stake network by staked capitalization, ranking behind Cardano’s $49 billion and Solana’s $27.5 billion.

    FAQ

    What is the London hard fork?

    Ethereum’s London hard fork is an irreversible network upgrade consisting of five Ethereum Improvement Proposals (EIPs), all of which are code upgrades paving the way for the network’s transition in the future from proof-of-work to proof-of-stake.

    What is EIP 1559?

    EIP 1559 changes how transaction fees work on the Ethereum blockchain in two ways. First, it adds a base fee to every transaction that takes place on Ethereum. This base fee aims to lower overall costs to the user, because it will improve gas fee estimations.

    Second, transaction fees will no longer go to miners, but to the Ethereum network itself, before being burned and taken out of circulation.
    These base fees are set using an algorithm and there will be an additional option to pay a tip to the miners to prioritize a transaction.

    Burning base fees could result in a decreased supply of Ethereum, making ETH a deflationary currency.

    What are the other key takeaways from the London hard fork?

    The upgrades will provide a better smart contract use experience. Future updates of the network will become easier with the new proposals.

    The network delayed the difficulty bomb to provide more time for the transition towards Ethereum 2.0.

    Did the London hard fork create another token?

    No. Often hard forks will lead to the creation of another token (such as the fork that created Ethereum Classic in 2016). However, in this case, the London hard fork can be considered as a network upgrade. Ethereum protocols will change, but it will still be the one and only Ethereum.

    When is the transition to Ethereum 2.0?

    The merge to Ethereum 2.0 is expected to take place in early 2022 or possibly in late 2021.

    Sources:

    https://www.fxstreet.com/cryptocurrencies/news/over-9-million-ether-burned-following-ethereum-london-hard-fork-as-network-gears-up-to-eth-20-202108060156

    https://markets.businessinsider.com/news/currencies/ethereum-london-hard-fork-eip-1559-vitalik-buterin-carbon-emissions-2021-8

    https://www.coindesk.com/ethereum-hotly-anticipated-london-hard-fork-is-now-live

    https://cointelegraph.com/news/eth2-staking-contract-ranks-as-single-largest-ether-hodler-with-21-5b

    https://www.coindesk.com/valid-points-eip-1559-hasnt-affected-miner-revenue

    https://www.fxstreet.com/cryptocurrencies/news/what-is-ethereum-eip-1559-and-how-will-it-affect-eth-price-202108030445