Ethereum 2.0 brings billions of new markets to the forefront. Here’s everything you need to know about PoS staking

The Ethereum beacon chain officially updated the Bellatrix fork upgrade last night (September 6). After the upgrade, the ETH price soared to more than $1,678. However, it then fell to around $1,500, almost eroding the gains after the Bellatrix upgrade. However, the Ethereum Foundation clarified that the Bellatrix upgrade is not a merger, but a key step in providing the Switch required for the merger.

In fact, Ethereum, which is positioned as the world computer, has set four development and upgrade plans from the beginning, namely Frontier, Homestead, Metropolis, and Serenity. At present, the entire network has reached the fourth stage. The first three stages belong to Ethereum 1.0, which is the current execution layer, and the last stage is what we often call Ethereum 2.0. The main task of this stage is to switch Ethereum from the current POW proof-of-work mechanism to a more energy-efficient POS mechanism.

The concept of ETH 2.0 was proposed by the development team in 2017, and the upgrade is planned to be completed in 2020. However, as of today, the upgrade plan of Ethereum 2.0 has not yet been fully implemented.

Later, with the continuous discovery of new problems and the development and improvement of the underlying blockchain technology, the Ethereum Foundation now combines Rollup technology to divide the last stage, Senerity, into the following three stages:

• Launch of the Beacon Chain: Launched on December 1, 2020, it is a key feature of the network's transition to the PoS consensus mechanism.

• Merge the beacon chain with the Ethereum main network, that is, switch POW to POS.

• Expand the shard chain.

Currently, Ethereum's upgrade is in the second merge phase.

The birth of POS

Consensus algorithms are the core elements of blockchain technology. From the perspective of classification, there are those based on block production, finality distribution, and those based on node selection. In the early days of blockchain development, mainstream blockchain networks were all based on the POW consensus algorithm, including Bitcoin, Ethereum, Litecoin, etc.

Due to the problem of resource waste in block production in POW, the research on consensus algorithms based on PoS has developed rapidly since 2017, and has been gradually launched in various public chains based on the PoS consensus algorithm in 2018.

So how do we understand the importance of consensus algorithms and their evaluation system? How do we recognize the current mainstream consensus algorithms and the development context behind them? Next, what are the trends and obstacles in the development of consensus algorithms?

The tortuous development of POS

2019 is called the "Year of Equity", with many companies committed to the development of products, services, projects, and investment products, as well as seeking to develop commercialization and advance equity models.

It has to be admitted that the pan-PoS ecosystem (including DPoS, masternode system, etc.) occupied a considerable proportion of the blockchain projects at that time. As a mechanism that is more flexible than PoW, what issues should be considered in the development of PoS?

All blockchain networks have one thing in common: transactions need to be verified. For example, Bitcoin uses Proof of Work (PoW), the so-called block production, which requires a lot of electricity. Proof of Stake (PoS) is another consensus mechanism, which has different evolutions and hybrid modes, which we call staking.

Token staking gives token holders some decision-making power on the blockchain network, as well as the ability to vote and earn income. This is very similar to how people earn interest by holding currency in a bank account and give their money to the bank for investment to earn returns.

There is no doubt that the development of Staking Economy was one of the biggest trends in blockchain in 2019.

Staking in POS is an important way for both institutions and individuals to participate in network construction. The fundamental meaning of the Staking Economy is to encourage coin holders to actively participate through incentives with annualized returns. But this does not mean that the PoS pledge economy has matured. There are still many problems to be solved, and continuous exploration and trial and error are needed. After the popularity of PoS, people gradually discovered the problem of participating in Staking.

From the perspective of system security, POS has at least some security risks, such as weak attacks and long-range attacks, POS's closed system and high inflation rate.

In addition to the risks, there are also many challenges: user education on the responsibilities and risks associated with staking remains a huge challenge; user experience is also a challenge; how to adopt the staking mechanism more widely in practical applications and find a good incentive mechanism without sacrificing decentralization is also a challenge; the sustainability and standardization of proof of stake and staking ; how users choose staking service providers, and many other challenges.

What do you think about POS?

As of March 26, 2019, there were already 11 PoS projects with a market value of more than $100 million. All holders can participate in the ecological construction through Staking and obtain benefits.

Therefore, as mentioned above, the POS project is expected to have a market value of tens of billions of dollars in 2019, which will generate billions of dollars in staking income per year.

Faced with such a big Staking pie, the most sensitive capital has already begun to lay out. Focusing on the PoS ecosystem and Staking Economy, in April 2019, Plain Language Blockchain interviewed Wen Hao of Bitpie Wallet on the rise of Staking, risks or trends, layout, and problems faced.

Regarding the development of ecology and layout, Vernacular Blockchain also interviewed HashQuark CEO Li Chen and Wetez Wallet Operation Manager Zhang Qizhang. From the perspective of PoS delegation service providers and wallets, they helped everyone understand the ecological panorama of Staking Economy, and expressed their views on the existing Staking problems, multi-chain nodes and security, factors to consider when choosing a Staking delegation provider, and whether PoS blockchain can be equated with "interest on deposits".

On November 4, 2020, Vitalik Buterin published an article stating that PoS is a superior blockchain security mechanism compared to PoW. There are three reasons: PoS provides higher security at the same cost; PoS can easily recover from attacks; PoS is more decentralized than ASIC. This has caused extensive discussion in the community.

Possible investment opportunities

As a major upgrade of Ethereum, the launch date of Ethereum 2.0 was determined after the number of validators’ stakes exceeded the set value, that is, on December 1, 2020, the beacon network was launched, and Ethereum will officially enter the 2.0 era. This is called "Phase 0".

In other words, this public chain project, which has a market value second only to Bitcoin, a super high adoption rate, and a strong developer community, is likely to bring about a new wave of wealth effects and certain opportunities to get rich. If you still want to participate in staking after recognizing the above risks, you can start by understanding ETH2.0 staking first...

Ethereum 2.0 has entered Phase 0. It has made great progress in 2021. The London upgrade brought about the demand for burning. According to relevant data at the time, as of 11:00 on December 24, 2021, the total destruction of Ethereum reached 1.25 million, with a total value of more than US$5 billion.

In addition, the Ethereum 2.0 staking that started in 2020 has also had a significant impact on the continued tight demand for ETH from another dimension.

However, for most ordinary users who want to participate, due to some unique mechanism designs in Ethereum 2.0 staking, directly participating in Ethereum 2.0 staking actually has certain thresholds and risks:

1. Capital threshold: 32 ETH. When participating in Eth2 staking, you need to deposit at least 32 ETH (or multiples of 32) into the deposit contract. 32 ETH is worth more than tens of thousands of dollars at market price, which is undoubtedly a high capital threshold for most users.

2. Technical threshold: Slash penalty. Slash penalty refers to the penalty imposed on the staking node for not complying with the agreement, that is, deducting the at least 32 ETH staked in the node. The conditions for triggering Slash penalty are basically centered around the technical operation and maintenance level, such as signature errors, long-term node disconnection, etc.

3. Funding efficiency threshold: Liquidity lock-up The ETH staked on Eth2 will remain locked, along with the potential earnings, and will not be unfrozen until Ethereum Phase 2 (or Phase 1.5).
From the above, we can see that the inability to participate due to small amounts of ETH, the technical threshold for verification nodes, and the liquidity issues of staked tokens are issues that ordinary users need to pay direct attention to when participating in Eth2 staking .

This year, the mainnet merger in September mentioned by Vitalik should be the biggest benefit for ETH.

So regarding this positive news, you should pay special attention to the following things: Why does ETH have to switch to POS? Why is the merger from POW to POS a big positive? After the merger, will the huge amount of ETH staked be unlocked and the market will crash? In the ETH2.0 era, where will Layer2 go?

summary

When Ethereum can be used for staking, the demand for deploying stablecoins and similar banking services in DeFi is also rising. As a newcomer who wants to join the development of Web3, it is necessary to understand the principles behind it.