Ethereum 2.0 upgrade next in line

Anders Nysteen

Senior Quantitative Analyst, Saxo Bank

Summary:  The initial phase of the Ethereum 2.0 release is expected to take place soon and is planned to boost both scalability and security and make it more sustainable. The current framework for validating transactions through mining will be gradually replaced by a staking framework over the coming years.


A major upgrade of the Ethereum network is close to launching its initial phase. According to ethereum.org, the vision is to make Ethereum:

  • More scalable - Must be able to support 1000s of transactions per second, instead of the current level of around 15 transactions per second.
  • More secure - An increased adoption of Ethereum requires an even better security protocol
  • More sustainable - The current technology relies on crypto mining which requires too much energy.

Up until now, transactions on the Ethereum network have been processed by a proof-of-work concept, where transactions are verified by mining – well-known from bitcoin – which demands huge amounts of computational power. In Ethereum 2.0 this will be replaced by a proof-of-stake framework driven by validators. Each validator will be staking 32 ETH to activate the validation software. By running the software they will receive rewards for validating transactions and creating new blocks. But they will lose their staked ETH if they try to cheat and manipulate the system, if they go offline or fail to validate in some other way. It will not be possible to withdraw the stakes before the entire network has fully progressed to proof-of-stake – see timeline below. This new validation scheme may be run on a simple laptop and thus minimizes the power consumption to run the network, compared to the current requirements.

Timeline – with stake-dependent launch date

The launch of the initial phase depends on 16384 stakes of 32 ETF which must be collected at least seven days before the launch date which currently is set for December 1, 2020. If these stakes have not been received by November 24, the launch will be postponed to seven days after the threshold have been reached. As of today, only around 60 % of the required stakes have been collected, so an overrun of the planned schedule seems likely.

The timeline for the three phases is:

  • Phase 0 (expected December) – The Beacon Chain: Launch of the Beacon Chain where early stages of Ethereum 2.0 with the proof-by-stake will be introduced, side-by-side with current, main proof-of-work network which will remain unaffected in this phase.

  • Phase 1 (expected 2021) – Shard chains: By introducing shard chains, validators will only need to run data on a part of the entire network – on their “shard” – and will speed up the process and minize the hardware requirements.

  • Phase 2 (expected 2022) – The docking: The final implementation of Ethereum 2.0 where it is merged with the main Ethereum network. This will make the end of the proof-of-work for Ethereum.

Impacts of Ethereum 2.0

The Ethereum community is hoping that the lowered requirements for participating by staking instead of by mining will increase the number of validators on the network, which eventually will make it more difficult to attack the blockchain. The major improvements of the network may attract more traders to ETH, but on the other hand the current lack of support for staking into the launch can turn out as a defeat for the Ethereum community.

Note: Current holders of ETH do not need to take any actions to account for the upcoming upgrade

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.