Previously, we looked at Ethereum's future goals- to become more secure, more scalable and more environmentally sustainable.
So now, let's look at The Beacon Chain & The Merge.
What is the Beacon Chain?
The Beacon Chain is a new chain at the core of the 'new' Ethereum. It's already live and launched back in 2020. This upgrade brought the proof-of-stake consensus mechanism and therefore staking to Ethereum, laying the basis for future upgrades.
Proof of stake: more secure & environmentally sustainable
As we mentioned previously, proof of stake is much more secure and environmentally friendly than the proof of work mechanism that the main Ethereum network still currently uses.
With proof of stake, holders stake their ETH to validate transactions and create new blocks. The network rewards validators for processing transactions, but it also 'slashes' their stake if they try to attack it, ensuring good behaviour. With proof of stake, it's also easier for more users and not just large miners to participate in the network.
The Beacon Chain will eventually lead Ethereum's new system and lays the foundation for the rest of Ethereum's planned upgrades.
Right now, the Beacon Chain exists separately from the main Ethereum network we use today. Holders can already stake their ETH on the Beacon Chain, but can't currently do anything else on it.
But eventually, the two chains will be 'merged' or connected so the main Ethereum network moves to the Beacon Chain. Once the 'Merge' is complete, Ethereum will no longer use proof of work.
When the main Ethereum network has merged with the Beacon Chain, the next update will introduce what's known as 'shard chains' to the network.
How does staking on The Beacon Chain actually work?
As we mentioned above, the Beacon Chain is already live and runs parallel to the main Ethereum chain. (The main Ethereum network still currently uses the proof-of-work consensus mechanism). Right now, you can't do anything but stake ETH on the Beacon Chain. However, holders can stake as much ETH as they like to become a validator and secure the Beacon Chain and earn rewards in returns.
Note that at the moment, staking on Ethereum is a one-way street. Once you've staked your ETH, there's no option to unstake it until The Merge is complete.
Eventually, when the main Ethereum network merges with the Beacon Chain, stakers will help secure all of Ethereum.
What do validators do?
While both proof of work and proof of stake help to secure the chain, they work in very different ways. Proof-of-work involves miners, while proof of stake involves validators (or "virtual miners").
The Beacon Chain is primarily composed of a list of validators and confirmations made by validators.
The Chain's virtual validators are activated and controlled by ETH stakers (in proof of work, users purchase physical hardware to become miners.) For every 32 ETH staked, one validator is activated.
The Beacon Chain is also divided into what's known as 'epochs.' And each epoch is further divided into 32 'slots.' Validators are evenly spread across these slots. For security, each slot has a 'committee' of at least 128 validators. This means an attacker has less than a one in a trillion probability of taking control of two-thirds of a committee.
Staking rewards & penalties
Validators help to secure the network and are incentivised by staking rewards, as well as penalties. They have three main functions: to propose and add blocks to the chain; to certify the validity of the chain, and to report malicious behaviour of other validators.
Validators get rewards for good behaviour. But they also receive penalties for bad behaviour such as dropping offline. The amount a stake can earn in rewards closely reflects the amount they may lose. A validator may make 10% in a year on rewards, but if they do a bad job, they may lose 7.5% of that.
Slashing is another type of penalty for bad behaviour. These penalties range from 0.5ETH to a validator's whole stake!
How to stake on The Beacon Chain
Staking is key to Ethereum's upgrades. And if you have ETH, you can already stake it on the Beacon Chain to help secure the network, and earn more ETH as a reward!
Staking can be done through the Ethereum staking launchpad or by joining a staking pool. To become a full Ethereum validator, you'll need to stake 32 ETH. But if you don't want to stake that much, you can join a staking pool where you stake less and earn a percentage of the rewards.
What is the Merge?
The existing main Ethereum chain will need to 'merge' with the Beacon Chain. This update will bring staking to the whole Ethereum network. It will also mark the end of energy-intensive Ethereum mining. This upgrade is known as The Merge and is expected in Q3/Q4 2022.
Why the Merge? The Merge will preserve the history and functionality of the old Ethereum network, while importantly switching its consensus mechanism from proof of work to proof of stake.
Note that the Merge won't resolve Ethereum's scalability issues straight away. This is where the next upgrade comes in: sharding
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