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The Big Questions of Ethereum 2.0: What are the most common questions people have?

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The Big Questions of Ethereum 2.0: What are the most common questions people have?

Since its launch in 2015, Ethereum has grown to become the second largest cryptocurrency by market capitalization and is now poised for a major upgrade this year. "Ethereum 2.0" is expected to transition to a Proof of Stake (PoS) mechanism and improve transaction throughput. Blockchain development firm ConsenSys has compiled the most common questions about Ethereum 2.0, including basic product overviews and the investor's primary concern of staking.

What is Ethereum 2.0?

Ethereum 2.0, also known as Eth2 or Serenity, will transition to 2.0 and enter Phase 0, beginning a series of updates in multiple "phases" to enhance Ethereum's performance in various ways.

What are the differences between Ethereum 1.0 and 2.0?

2.0 introduces two major improvements: Proof of Stake and sharding.

Proof of Stake:
Currently, Ethereum 1.0 operates on Proof of Work (PoW). With Proof of Stake (PoS), there is no longer a need to waste energy to compete for the right to validate transactions, effectively addressing energy issues and improving security, scalability, and efficiency.

Sharding:
Sharding is a scalability mechanism that significantly increases Ethereum blockchain throughput. Sharding involves grouping Ethereum blockchain nodes, assigning transaction processing tasks to "different groups of nodes" or "shard chains," with each shard chain acting as an expanded lane, upgrading from a single-lane road to a multi-lane highway for parallel processing to enhance throughput. Shard chains are expected to be introduced in the first phase of Ethereum 2.0.

What will happen to the Ether I currently hold?

No action is required; Ether (ETH) will remain fully functional on the existing 1.0 chain. At some point, the 1.0 chain will become part of Ethereum 2.0, and Ether will continue to operate without any action needed.

How can I participate in staking rewards?

ETH holders can participate in staking rewards in two ways: by staking 32 ETH to run a validation node or by participating through staking platforms, where users can stake any amount of ETH and receive rewards proportionate to their stake.

What are the risks of staking ETH and becoming a 2.0 validation node?

Validation nodes can earn ETH rewards but may also face the risk of being penalized for "not doing anything," resulting in potential financial loss. As a validation node, being consistently offline or failing to perform duties correctly (such as blocks not being confirmed by votes) can result in mild penalties (Slashing), while malicious behavior Slashing ranges from one ETH to the total amount of ETH staked by the node, depending on other factors.

Previous calculations on Ethereum 2.0 staking returns have been made, with a calculation of staking 32 ETH for returns after over five years based on the ConsenSys Codefi spreadsheet showing a 100% return on the amount staked.

In addition to the Bitcoin block reward halving, Ethereum 2.0 has garnered significant attention, with recent comparisons between Ethereum's DeFi ecosystem and staking. Some crypto communities believe that DeFi will compete with staking for users in the future. In response, Ethereum's founder emphasized on Twitter:

I won't believe the hype that "PoS won't succeed because lending markets outweigh staking demand," and neither should you.