Beacon Chain

beacon chain

In 2020, the Beacon Chain was launched as a landmark solution to Ethereum’s transition from proof-of-work to Ethereum’s consensus mechanism.

This separate but compatible Ethereum blockchain allowed transactions originating in the original proof-of-work chain to be securely bundled into blocks and organized using a based on Proof of Stake algorithm.

Mining operations stopped, and the network now operates solely on this new system, using blocks to carry out decentralized tasks. This is a major advancement for all decentralized networks.

What Is a Beacon Chain?

December 1, 2020 marked the start of an exciting new era for Ethereum as it switched to its ambitious Proof-of-Stake consensus system with Beacon Chain.

The launch of the Beacon Chain was a pivotal moment in cryptocurrency history. It marked the transition from a traditional proof-of-work-based protocol to a far more efficient and secure proof-of-stake consensus logic.

But why is the Ethereum Beacon chain important for users?

Ethereum leverages a comprehensive Proof-of-Work system, involving intense math problems solved by nodes in order to process transactions smoothly. Despite its rigorous design, the current Ethereum consensus layer is limited and can only accommodate approximately 12–15 transactions per second at peak efficiency.

To put this into perspective, an alternative such as TRON can handle 10,000 times more TPS due to its enhanced consensus protocol. Such low numbers may lead Ethereum users to face issues. Such issues may be network congestion and expensive transaction fees when trying to run smart contracts on the blockchain at high volumes.

How Does Beacon Chain Work?

The Ethereum 2.0 Beacon Chain provides an alternative consensus protocol to traditional Proof of Work by replacing miners with validators.

The way it works is that the active validators stake a certain amount of coins as collateral in exchange for the chance at rewards from verifying and processing transactions on the blockchain. Ethereum validators randomly assign blocks proportionate to their staked coin amounts, giving greater incentive for larger stakes.

Transition to proof of stake

Ethereum’s move from a Proof-of-Work consensus mechanism to one of Proof-of-Stake highlights this protocol’s advantages.

PoW involves “miners” completing an energy-intensive mathematical problem to be valid and add new transactions. But with PoS, select validators are semi-randomly chosen for block validation – called “minting” rather than mining.

By utilizing a consensus mechanism such as PoS, the computational power and energy required to mint a new block are greatly reduced. This is because not everyone is competing, making ethereum secure while also being eco-friendly.

This switch reflects Ethereum’s commitment to improve blockchain scalability and its dedication to sustainability within the space.

Becoming a Validator for Beacon Chain

Becoming a validator in the Ethereum network requires an initial deposit of coins. This is known as “staking” – similar to a security or collateral.

As part of the upgrade process for mainnet, one must stake at least 32 ETH per node.

The probability that any given individual will be selected is directly related to the size of staked funds. So, if Alice stakes 320 ETH and Bob stakes 32ETH, then Alice’s chance of being chosen increases tenfold.

After verifying all transactions within each block are legitimate, it’s up to these trusted validators to seal off state changes with approved blocks on the chain.

Ethereum validators are incentivized to act honestly on the Ethereum network through rewards and penalties.

The rewards and penalties vary depending on the specific scenario, but they encourage honest behavior. As such, the validators’ deposits can rise or fall accordingly, depending on whether they have been rewarded or penalized for their actions.

This system helps ensure that participants on the new network remain honest and trustworthy, creating a secure and reliable blockchain network.

When can validators collect rewards?

As the Ethereum blockchain continues to launch more innovative solutions, validators of ETH on Eth2’s Beacon Chain can now look forward to increased liquidity in their holdings.

Codefi Staking has created an API for exchanges and institutions offering users access to earn rewards while keeping the chain secure – a notable example being Coinbase recently announced it would be providing staking rewards soon.

LiquidStake allows holders of ETH committed as a stake into Phase 1 or later phases with greatly improved flexibility toward accessing loaned funds via USDC tokens.

For those staking ETH on the Beacon Chain, access to their funds may be restricted until Phase 1.5 or later. Fortunately, solutions are available to allow for more liquidity, such as LiquidStake, which provides users with a USDC loan against their staked ETH. Additionally, Coinbase is planning to offer a derivative product based on tokens locked in the Beacon Chain.

As the Beacon Chain progresses and becomes more secure, the ability to withdraw validator stakes and reward validators become an increasingly viable option.

Jeff Coleman has proposed Dirt Simple Withdrawal Contract as one such potential solution. Danny Ryan’s plan for Simple eth1 withdrawals (beacon-chain centric) is another option. Meanwhile, Jim McDonald believes that Simple Transfers of Excess Balance can help reduce validator churn when withdrawals become enabled.

Beacon Chain Impact

Ethereum has taken the next step in decentralization by introducing a staking system (PoS). Not only does this ensure network security and reliability, but it also provides validators with an opportunity to earn more Ethereum.

Participating in PoS is a cost-effective way to become an active part of the blockchain ecosystem. Compared to mining, there’s no need for large upfront investments such as hardware and electricity. You just need to simply lock up assets as collateral and run validator software.

The shift to Proof of Stake makes Ethereum more secure and decentralized than before. The more people that join the network, the greater its defense against attacks.

In short, the Beacon Chain is a new layer within the Ethereum community that introduces rewarding validators for securing the Ethereum network and transaction data.

All in all, the Beacon Chain promises to help Ethereum become an even more powerful force in terms of blockchain technology, by providing an incentive model to keep the network secure.

Setting up for sharding

Sharding is an important part of scaling Ethereum, allowing the network to divide large amounts of data into smaller chunks.

With 64 shard blocks, Ethereum 2.0 can spread the load and process more transactions simultaneously. In this way, improving speed and reducing congestion on the network.

Merging the Beacon Chain with the original Ethereum Mainnet has sparked a new interest in scaling the network. On the other hand, miners are not obligated to the network in any way under proof-of-work systems. They can easily disconnect their node software without repercussions. Furthermore, there is no registry of known block proposers and no surefire way to manage duties across the network.

However, the validators of the shard chains are responsible to validate blocks and enable secure cross-shard process transactions.

The Great Merge

On September 15, 2022 the Ethereum blockchain experienced an unprecedented milestone: The Merge. This revolutionary event marked a significant turning point in its transition to proof-of-stake consensus.

Ethereum 2.0 is changing the blockchain industry into bold, new territory with its innovative upgrades and features – transforming it completely.

The Ethereum Network is always pushing the boundaries of what blockchains can do. Through innovative development, it now processes larger transaction volumes quickly and cost-effectively using shards for verification.

Furthermore, the new Ethereum blockchain is more secure as it relies less on miners expending energy. This process relies on validators who need to stake tokens to ensure the trustworthiness of actions taken on the network.

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