On First Anniversary Ethereum 2.0 Beacon Chain Solidifies Proof-of-Stake Shift
On the first anniversary of the Ethereum 2.0 Beacon Chain a road map for DeFi's big blockchain has opened up.
By: Samuel Haig •Byte
The Ethereum community is celebrating the first anniversary of the Ethereum 2.0 Beacon Chain, which set the network’s roadmap toward Eth2 into motion with its launch on Dec. 1, 2020.
According to data aggregator Staking Rewards, Ethereum 2.0 is now the second-largest proof-of-stake network by staked capitalization with $38.4B locked up.
While Solana currently leads with nearly $88.2B, 77.4% of SOL’s supply is locked in staking compared to just 7.10% of Ether. Many analysts believe it’s only a matter of time until Ethereum ascends to the top spot. Ethereum’s upcoming chain-merge is expected to increase staking rewards by several multiples.
The Road to Eth2
Since the Beacon Chain’s launch last year, Ethereum has completed several major upgrades in its Eth2 roadmap and shift from proof-of-stake consensus.
In April, Ethereum’s Berlin hard fork was successfully executed, driving prices to what were then record highs above $2,200. The Berlin upgrade encompassed four Ethereum Improvement Proposals (EIPs), including measures to reduce the costs associated with specific transactions, simplify the processing and bundling multiple transactions into a single transfer, and increasing the expense associated with launching Denial-Of-Service (DoS) attacks.
While Berlin was seen as producing little impact for the typical Ethereum end-user, the upgrade paved the way for Ethereum’s next upgrade, London.
The London upgrades went live in August, launching five EIPs designed to reform Ethereum’s fee market.
The most notable EIP contained in London was 1559, which introduced a base fee that is burned alongside a tip for miners for every transaction executed on Ethereum. According to Ultrasound Money, nearly 1.088M Ether (almost $5B at current prices) has been destroyed since 1559 went live, driving significant deflationary pressure on Ethereum’s supply.
London also contained EIPs designed to reduce the volatility of Ethereum gas prices.
Ethereum’s most recent upgrade, Altair, went live at the end of October, pushing prices into new all-time highs above $4,400.
Unlike Berlin and London, the Altair upgrades were made to Ethereum 2.0’s Beacon Chain, introducing the first changes since it went live in December 2020.
In an interview with CNBC, Ethereum developer Tim Beiko described Altair as testing that the Beacon Chain “works properly” and paving the way for its forthcoming chain-merge with the existing Ethereum network.
“It shows we are able to upgrade the PoS mechanism, and that’s a precondition to the migration next year,” he said. “It means there’s a slightly higher chance that things will go well for the [Eth2] transition next year.”
Altair also enabled support for validators using “light clients” including the operation of low-powered devices such as mobile phones in a bid to enable broader participation, and increased the slashing penalties for validators that misbehave or go offline.
Looking forward, the Ethereum community is anxiously awaiting the existing network’s chain-merge with the beacon chain.
The merge will abandon Proof-of-Stake consensus, transferring all transaction validation to the beacon chain and stakers. With the merge set to do away with Ethereum’s block rewards and reduce emissions overall, many analysts are predicting that even greater deflationary pressure will be placed on the Ether markets.
While no firm date is currently set for the merge, Beiko has recently estimated the upgrade may ship during the second quarter of 2022.