Investing in eth2: What to Expect


Thanks To Danny And Joe For All Their Work.

As The launch of the Beacon Chain nears, it is important for the crypto community to become more familiar with the particulars of Ethereum 2.0 and the opportunities it presents. This article serves as a high-level introduction to the inner workings of Ethereum 2.0 and the incentives and requirements of investing in it. It Also, it is the basis for a series of articles exploring all aspects of being a validator.

The Phases

The Ethereum 2.0 project has made significant progress over the years, with parts of it becoming more interconnected while others have been separated. As of now, Phase 0 is set to launch as developers finish their client software. Meanwhile, the specification for Phase 1 is almost completed with Phase 2 currently in active research and/or development.

  • Phase 0 is responsible for the core of Ethereum 2.0, known as the Beacon Chain, which manages validators and shard coordination. It is the source for truth from which all other aspects of Ethereum 2.0 are based.
  • Phase 1 allows data to be broken down into smaller chunks. This component has a lower implementation complexity since the majority of the legwork was already done with Phase 0.
  • Phase 2 increases the execution capability of Ethereum 2.0, essentially upgrading it to a fully-decentralized computing platform.

What is Phase 0?

The Beacon Chain, as previously mentioned, tracks the state of the validator set and shards. This means that what you see on the Beacon Chain can be practiced and any information reported inside Ethereum 2.0 can be verified. Trust, but verify.

For a Proof-of-Stake system to work, it must be agreed upon who the validators are and what stakes are involved in determining how much each voter’s vote is worth. The Beacon Chain also manages Ethereum 2.0’s sharding components by assigning validation functions to each shard and tracking its current state.

What sets Ethereum 2.0 apart from other Proof-of-Stake systems is the sheer number and quality of validators that can participate in the protocol. Other systems don’t allow for more than 10, 100, or 1000 participants. Ethereum 2.0 scales up to hundreds of thousands, or even millions, of validators. This is possible thanks to groups of validators known as “Decentralization Groups” or “Committees”. The Beacon Chain uses its namesake, the Random Beacon, to assign validators to Committees that are responsible for evaluating fragments and beacons. The votes of each Committee are then cryptographically merged into an “Attestation”. Therefore, to verify the validity, only a small number of aggregate signatures should suffice to evaluate votes from many validators.

The Beacon Chain also tracks the Ethereum 1 chain and subsequent deposits. This allows new validators to join the Ethereum 2.0 network by sending 32 Ether to the Deposit Contract on Ethereum 1. As a result of Beacon Chain voting, Ethereum 2.0 will be able to improve the security of the Ethereum 1 network by providing an economic guarantee to lock blocks that are part of the canonical Ethereum 1 chain.

Nodes vs. Clients

Ethereum 2.0 differentiates between Beacon Nodes and Validator Clients. Validators need to use both for their respective functions. A Beacon Node (or Node by itself) is visible to validators and users. Validator Clients (or Clients by itself) handle the logic of a single validator. This is done by communicating with the Beacon Chain to determine

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