Opinion

A Dive into Ethereum 2.0 and CoinDCX’s Support to its Users

Snapshot

  1. Phase 0 of Eth2 is set to start in December 2020.
  2. Not only is it important for a technological point of view but also from an environment-friendly way to adopt Proof of Stake as a consensus mechanism.
  3. CoinDCX extends its support to the upgrade by providing staking facilities for those users who cannot maintain the high fund requirement of 32 ETH, cannot take care of the technicalities and the infrastructure and worry about the liquidity of their funds.

Eth2 Upgrade

For a long time Vitalik Buterin, the founder of Ethereum, has claimed that Ethereum is expensive to use as its blockchain has been almost full. The lack of Ethereum’s scalability has continued to be a bottleneck that restrains the addition of more decentralized applications (Dapps) and organizations. This is because the addition of more organizations would only mean making the blockchain more full leading to even higher costs.

An upgrade in the network’s consensus mechanism has always been a topic of discussion. Ethereum 2.0 is the next upgrade in the Ethereum network that is planned to release in multiple phases starting with Phase 0 in December 2020.

With the long-anticipated Eth2 or “Serenity” finally round the corner, the network is expected to remove all bottlenecks once all the phases of the upgrade are achieved. Users will then be able to process more transactions at a lower cost and in an environment-friendly way. 

One of the most significant changes that will be seen on the network is its shift from the Proof of Work consensus mechanism to the Proof of Stake (PoS) consensus mechanism. While Proof of Work compels miners in the network to compete with one another to win rewards, nodes or validators in the Proof of Stake protocol leads all nodes to work together to validate transactions. This shift will not only solve the scalability and accessibility issues but also be more environment-friendly. 

How will scalability and accessibility improve with the shift to PoS?

Unlike Proof of Work, where miners compete with each other to add data to the blockchain, the validators in the Proof of Work consensus protocol do not compete, rather work together to add this data. This means that validators do not consume a lot of energy or hash power to validate transactions. The scalability issue in the network is solved by this additional feature of sharding.

Sharding is a type of database partitioning that separates very large databases the into smaller, faster, more easily managed parts called data shards. The word shard means a small part of a whole.

Unlike PoW, where electricity and hardware plays a significant role in how a miner performs, validators on Ethereum 2.0 will have to stake a minimum of 32 ETH by depositing them in this contract. Once that is done, validators will be able to download and run the software needed to attach blocks to the Ethereum 2.0 network. 

To ensure that the network is secure and is running properly, validators who keep attaching blocks to the network will be rewarded based on their stake. But staking on Ethereum does not mean sitting back and earning staking rewards. Those who fail to stay online or act maliciously, can be penalised.

There are 2 types of penalties in ETH 2.0. Inactivity leaks happen if your validator node goes offline for 18 days, and the beacon chain is not finalizing, then your balance will be reduced by up to 60.8% slash in 18 days. Slashing happens if a validator behaves provably maliciously. A minimum penalty is 1 ETH is slashed from their stake and this goes up linearly in the number of people slashed at the same time as you.

What do the phases look like?

Eth2 will be launched in phases with Phase 0 – The Beacon Chain launching in December 2020. There will not be any shard chains operational as there is nothing that needs to be in sync. The major role of the Beacon Chain is to ensure that the data on the shards has the most up-to-date data. Its role initially will only be to bring all validators onboard.

Once everything is set, we will then meet the Shard Chains in Phase 1. These will be PoS chains where validators and not miners will create blocks. Phase 1 is expected to start with 64 shards but they will not support accounts or smart contracts right away.

Everything until Phase 1.5 will be done on the Proof of Work blockchain. It is only when the mainnet becomes the shard in Phase 1.5 will the transition to PoS take place. We expect this transition to be seamless and can expect it to happen sometime in 2021.

The fully formed shard of Phase 2 is expected to be seen beyond 2021. Shards should be fully functional chains which will then be compatible with smart contracts and be able to communicate with each other more freely. Developers may even be able to design shards in their own ways.

Problems related to Eth2

Although becoming a validator in a PoS mechanism is cheaper than being a miner in a PoW protocol, the fact that not many people own 32 ETH or are willing to stake at least 32 ETH (~ $13,400 at ~$450 per ETH) is also true. Imagine staking 32 ETH and losing some or all of it because of some technical issues. Pretty scary!

CoinDCX’s take on Ethereum 2.0

CoinDCX has always been at the forefront of embracing new innovations in the crypto industry. We extend our support and eagerly wait to see what lies ahead of Phase 0 launch for Ethereum 2.0. 

With regards to staking 32 ETH and earning staking rewards on one of the most renowned networks for smart contract development, we have come up with alternative solutions to circumvent logistical challenges related to ETH 2.0 staking and making the entire process hassle-free for all the users of CoinDCX. 

After careful observation and working out different possibilities, we have decided to offer a user-friendly way to stake ETH without any high fund commitment or any technical hassles. We have devised a smart contract driven solution to pool to stake ETH in the deposit contract of ETH 2.0. The contract will allow users to stake ETH  as low as 0.1 ETH to 1000 ETH in a single transaction via the staking option available on CoinDCX. Multiple validator management, hardware cost, uptime and infrastructure will be managed by CoinDCX.

Users of CoinDCX can now stake their ETH on CoinDCX and earn staking rewards just like they would have, had they staked their ETH on the network.

Users on CoinDCX do not even have to worry about liquidity. ETH 2.0 staking is one-way staking, making the staked funds illiquid for at least a year. We are planning to offer different liquidity options which will be confirmed based on suggestions from the users. This product is for the users and we welcome inputs from the community.

Adding to our low fund requirement and absolutely no hardware maintenance, we are making the system on our backend to protect our users from getting penalised by pre-planning the functions and running rigorous checks to avoid those.  

I am sure our users are going to love this. Our team is very excited to launch this feature on Stake. 

To know more about No Stress Staking with ETH 2.0 click here.


Written by – Neeraj Khandelwal

Neeraj Khandelwal is the co-founder of CoinDCX, India’s largest cryptocurrency exchange. An engineer with a keen understanding of blockchain and emerging technologies, Neeraj spearheads the technical development of all CoinDCX products. Prior to his role at CoinDCX, he served as Vice President of Engineering at Holachef and Chief Technology Officer at Doormint. Neeraj holds a degree in electrical engineering from the Indian Institute of Technology Bombay.

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