Ethereum 2.0 is an upgrade to the already existing Ethereum blockchain. It aims to increase the speed, efficiency, and scalability of the Ethereum network, enabling it to address the bottlenecks and increase the number of transactions. The pseudo names for Ethereum 2.0 are Eth2 or Serenity.
Ethereum 2.0 has some fundamental changes in its structure and design as compared to its previous version. The two major changes are “proof of stake” and “sharding.” Let us look at both these terms to understand the functioning of Ethereum 2.0
What Is Proof of Stake?
In a proof of stake consensus mechanism, there are validators instead of miners. Their major role is to propose new blocks, provide computing power, storage, and the bandwidth to validate transactions. The validators are given periodic payouts in ETH. There is a deposit contract of 32 ETH that should be locked in by these validators. It is a type of a security deposit that gets forfeited fully or partially in an event of any malpractice. This method is very effective in curbing malpractices.
What Is Sharding?
Sharding is the process of splitting one blockchain into multiple blockchains known as shards. It makes the entire network more efficient as a single validator does not have to handle the workload alone. Every validator maintains information related to “their” shard. These validators are also shuffled between shards regularly to avoid any kind of manipulation. The Beacon Chain is used for the communication and coordination of the shards.
How Does Ethereum Work?
The validators are the most important aspect of Ethereum 2.0 as they are solely responsible for its infrastructure and maintenance. Every validator has two keys: a signing key and a withdrawal key. A signing key is used to perform “work for the blockchain.” There are three main functions of a validator:
To propose and add blocks to the Beacon Chain or one of the shard chains.
To attest the validity of the beacon and shard chain.
To report malicious behavior by other validators.
Due to these reasons, the signing key must be online 24/7. The withdrawal key performs actions on the funds. It is not necessary for the withdrawal key to be available all the time. However, it needs to be secured as the person has control over all the funds. If you want to become a validator, you need to lock up 32 ETH in the beacon chain. Validators do not work alone. They mostly work in committees wherein groups of minimum 128 validators vote on the head of the blockchain. The votes cast are of different types. They are:
LMD GHOST votes: Attestations are for the head of the blockchain, specifically for the most recent block that the validators have agreed upon.
Casper FFG votes: Attestations are for the checkpoint in the current epoch.
A checkpoint is the most recent block in the first slot of an epoch. Epochs comprise of 32 slots. Once 2 or 3 validators agree upon the most recent checkpoint, it gets justified. Once the previous checkpoint is justified, the last block gets finalized. So, after two epochs one block is finalized.
What Is the Difference Between Ethereum and Ethereum 2.0?
The major difference between Ethereum 2.0 and its counterpart is the consensus mechanism which they use. Ethereum uses proof of work (PoW) mechanism, while Ethereum 2.0 uses proof of stake (PoS) mechanism.
The proof of work mechanism is an energy-intensive process in which complex mathematical puzzles are decoded by miners with the help of computer hardware processing power. This is also used to verify new transactions. Whoever decodes the puzzle first, adds a new transaction which contains the previous transactional records making up the blockchain.
In the proof of stake mechanism, crypto is used to verify a transaction by the transaction validators instead of miners. The validators must propose a depending on the time and amount of crypto they hold. When a majority of validators claim to have seen the block, it is added to the blockchain and they are rewarded for conducting the block proposition successfully. This is how “forging” or “minting” takes place.
PoS is a more energy efficient mechanism as compared to PoW since it uses less computing power to secure a blockchain.
How Will Ethereum 2.0 Be More Secure?
The most important advantage of Ethereum 2.0 is its scalability. Ethereum 2.0 will have shard chains due to which it can conduct up to 10,000 transactions per second whereas Ethereum can support only 30 transactions per second. This also leads to a lot of delays and network congestion which will not be the case in Ethereum 2.0 [2]. The implementation of shard chains speeds up the network and can scale more easily as the transactions are handled in parallel chains instead of consecutive ones.
The main idea behind devising an upgrade to the existing Ethereum is to exercise more safety in the entire transaction. Many proof of stake networks have a very small set of validators. This accounts for decreased network security. Ethereum 2.0 requires a large set of validators, approximately 16,384, which makes it more decentralized, secure, and less prone to manipulation.
The Future of Ethereum 2.0
Ethereum is the largest general purpose blockchain in today’s market since its launch in 2015. More than 1,400 Ethereum projects are being built [3]. The upgrade will roll out in three phases: phase 0, 1, and 2.
Phase 0 was launched in December 2020 with the implementation of the Beacon Chain. It stores the registry of validators and deploys the proof of work consensus mechanism.
Phase 1 is anticipated to launch in 2021 and the shard chains will be integrated. 64 shards are expected to launch.
The Ethereum 1.0 chain will become a shard of Eth2 in Step 1.5, and transfers will be enabled, resulting in Eth2 resembling a “perpetual debt- and equity-like bond” and a floating rate, as validators can now freely enter and exit the scheme.
In Phase 2, the shards will become fully functional and compatible with smart contracts. It is scheduled to launch in 2021/22. It will be an upgraded version with added features.
With its added advantages and scalability, Ethereum 2.0 will garner more and more interest from investors in the years ahead.
What Are the Risks Associated with Ethereum 2.0 Participation?
As an ETH holder interested in Eth2 by staking, the key risks you face are:
One-way Beacon Chain transfers and locked funds until Phase 1.5 (unknown timeline). The client app bugs (the software one runs as a validator) can be slashed.
Shutdown of the service provider prior to Step 1.5.
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大家会很形象的把公链比作操作系统，DAPP 类比的话就是 APP，那么预言机可以形象的比做 API 接口（API 是一组定义、程序及协议的集合，通过 API 接口实现计算机软件之间的相互通信）。这个类比虽然不准确，而预言机正是扮演这样的角色，预言机是区块链和现实世界之间的纽带，可以实现数据互通的工具。
先说 DeFi 领域的项目为什么需要预言机。类似 DAI 这样的稳定币系统，需要获取 ETH 的实时价格，来判断所抵押的加密货币是否达到了平仓价格进而触发平仓。假设有 1000 个节点，那就需要向交易所（比如币安）或 CoinMarketCap 的 ETH / USDT 交易对进行 1000 次的 API 数据请求 ，但是，由于 ETH 的价格是实时变动的，加上网络延迟、计算速度等原因，每个节点获取到的价格可能都不相同，这部分数据被输入到智能合约后，节点间无法达成共识，那么整个系统就会崩溃。
如果大家很感兴趣，可以看一下我男神 DOS Network 创始人@nrek jonny 关于《智能合约中的随机数》的分享。其实，早在 Fomo3D 这个游戏出来之后，以太坊的 Team Leader 就在推特上说过链上是无法生成随机数的。Dear devs… you can`t generate random numbers on chain！
The Grayscale Bitcoin Trust is a financial vehicle that enables investors to trade shares in trusts holding large pools of Bitcoin.
Shares in the fund track the price of Bitcoin, but only roughly.
Grayscale also offers several other exchange-traded products, tracking Ethereum, Bitcoin Cash and Litecoin among others.
There’s a way to invest in Bitcoin right on the stock market: the Grayscale Bitcoin Trust (GBTC). It’s one of several such financial vehicles enabling investors to trade shares in trusts that hold large pools of Bitcoin, with each share priced at near-enough the price of Bitcoin.
As of December 2020, the Grayscale Bitcoin Trust represents $11.5 billion of privately-invested Bitcoin assets. Grayscale, a US crypto investment firm that’s one of the largest purchasers of Bitcoin in the world, launched the trust in September 2013. It trades under “GBTC.”
The Grayscale Bitcoin Trust holds 546,544 Bitcoin, or 70% of the 775,137 Bitcoin held by publicly traded companies, according to Bitcointreasuries.org. As of December 17, GBTC currently trades at $30.16, and per official documents, holds 0.00095 Bitcoin (worth $22.52) per share.
The Trust has generated headlines due to its fast growth. On June 9, 2020, the Trust held 384,953 Bitcoin. That marks an increase of over 161,000 Bitcoin in just under six months.
🤑 Grayscale invites a private pool of rich investors to pledge money to the fund, which it uses to buy up huge amounts of Bitcoin.
🏛️ Then, Grayscale lists that fund on public stock exchanges, meaning that anyone can trade shares in it.
📈 Shares in the fund track the price of Bitcoin, but only roughly.
Shares in the fund can trade at either a premium or a discount to the actual price of Bitcoin. Historically, they’ve almost always traded at a premium. This is good news to Grayscale and its investors, who earn money from that premium, but bad news for investors.
So, why would investors buy shares in GBTC instead of just buying Bitcoin outright? There are a couple of reasons:
First, investing in a Bitcoin Trust allows people to gain exposure to Bitcoin without having to worry about how to store it, complying with the law or filing separate taxes.
If you’re buying Bitcoin, you have to manage a laundry list of concerns: How do you store it? Do you need to pay someone to hold custody over your Bitcoin? What happens if you lose the key or your Bitcoin wallet is hacked? As a publicly-traded trust, which reports to the US Securities and Exchange Commission (SEC), the Grayscale Bitcoin Trust makes this easy to forget about.
Coronavirus Has Been Good for Bitcoin: Grayscale Investor Study
Publicly-traded Bitcoin trusts come with various tax advantages. Certain IRA, Roth IRA and other brokerages and investor accounts that won’t give tax breaks on investments of Bitcoin, will give them for investments of publicly traded trusts. Grayscale’s Trust provides those investors with exposure to Bitcoin in a tax-friendly way.
You can’t trade Bitcoin against stocks in Tesla and Apple (without using crypto stock-derivatives platforms). That cuts off the crypto economy from the traditional one. However, as soon as you list Bitcoin on the stock exchange—albeit in a very expensive, limited way—traditional investors can invest in the crypto economy.
The Grayscale Bitcoin Trust is one of several publicly-traded trusts, although Grayscale is by far the largest. Rival ETC Group’s Bitcoin product has a market cap of $123 million, as of December 2020, and Wisdom Tree’s Bitcoin product has a market cap of $134.6 million.
Grayscale Secures Over $1 Billion in Q3 Cryptocurrency Investments
Digital currency asset manager Grayscale Investments today announced its Digital Asset Investment Report for Q3 of this year. The company revealed that it has raised $1.05 billion in its inves…NewsBusinessScott ChipolinaOct 14, 2020
The future success of Grayscale’s trust is far from secure. The shares of its competitors could represent Bitcoin’s price more than Grayscale’s, or they could charge lower fees.
GBTC vs Bitcoin ETF
In addition, Grayscale’s model benefits from the absence of a Bitcoin ETF, or exchange-traded fund. To invest in a Grayscale Bitcoin Trust, you’re buying up shares in a trust; with an ETF, you’re investing in a fund that directly tracks the price of Bitcoin.
Still No Bitcoin ETF in the US: What’s Happening?
Bitcoin ETFs aren’t legal in the USA right now. The SEC has denied multiple applications for a Bitcoin ETF on the grounds that Bitcoin’s price can be manipulated. While US investors wait for a Bitcoin ETF—one that the SEC may never approve—Bitcoin trusts are the next best thing.
Grayscale also generated its own headlines in 2020 with a massive ad campaign that encouraged investment in GBTC.
Speaking in June 2020, Grayscale’s director of investor relations, Ray Sharif-Askary, explained some of the rationale behind the company’s Bitcoin investments, noting that 2020’s macro instability was driving institutions towards alternative hedges such as Bitcoin.
Bitcoin ETFs are exchange-traded funds that track the value of Bitcoin and trade on traditional market exchanges rather than cryptocurrency exchanges. They allow investors to invest in bitcoin without having to go through the hassle of using a cryptocurrency exchange while providing leverage to its price.
How It Works
An ETF (exchange-traded fund) is an investment fund that tracks the price of an underlying asset or index. Today, ETFs are available for several assets and industries, ranging from commodities to currencies.
A Bitcoin ETF would work the same way – the price of one share of the exchange-traded fund would fluctuate with the price of bitcoin. If bitcoin increases in value, so does the ETF, and vice versa. But instead of trading on a cryptocurrency exchange, the ETF would trade on a market exchange like the NYSE or TSX.
Advantages of Bitcoin ETFs
1. Convenience
Investing in a bitcoin ETF provides leverage to the price of bitcoin without having to learn about how bitcoin works, having to sign up for a cryptocurrency exchange, and taking on the risks of owning bitcoin directly. For example, bitcoins are held in a wallet, and if an investor loses the password to the wallet, their bitcoin is lost forever. A bitcoin ETF simplifies the process of investing in bitcoin.
2. Diversification
An ETF can hold more than just one asset. For example, A Bitcoin ETF could comprise bitcoin, Apple stocks, Facebook stocks, and more—providing investors with the opportunity to mitigate risk and diversify their portfolio. Similarly, by trading on a regulated market exchange, a bitcoin ETF would provide investors with the chance to diversify their existing equity portfolios.
3. Tax efficiency
Given that bitcoin is unregulated and decentralized, the majority of the world’s tax havens and pension funds do not allow for purchases of bitcoin. On the other hand, a bitcoin ETF trading on traditional exchanges would likely be regulated by the SEC and eligible for tax efficiency.
Disadvantages of Bitcoin ETFs
1. Management fees
ETFs usually charge management fees for the convenience they provide. Therefore, owning a significant amount of shares in a bitcoin ETF could lead to high management fees over time.
2. ETF inaccuracy
While ETFs track the price of an underlying asset, they can also have multiple holdings in a bid to diversify the portfolio. However, this suggests that a 50% rise in the price of bitcoin may not be accurately reflected in the value of the exchange-traded fund due to its other holdings. Therefore, while an ETF provides leverage to bitcoin’s price, it may or may not be an accurate tracker of its price.
3. Limits to cryptocurrency trading
Bitcoin can be traded for other cryptocurrencies, like Ethereum, Litecoin, XRP, and more. A bitcoin ETF would not be eligible to trade for other cryptos, as it is not a cryptocurrency but simply an investment fund that tracks the price of bitcoin.
4. Lack of Bitcoin ownership
Bitcoin serves as a hedge against central banks, fiat currencies, and equities. By being independent of central banks, bitcoin provides a way to mitigate risks associated with the financial system. Bitcoin also protects users and investors by providing privacy through the bitcoin blockchain. A bitcoin ETF would be regulated by the government, eliminating these benefits.
Do Bitcoin ETFs Exist?
No, there are no bitcoin ETFs as of yet. It is largely due to the unregulated nature of bitcoin and the cryptocurrency market, which makes the bitcoin market easy to manipulate by investors with large holdings. The U.S. Securities and Exchange Commission (SEC)‘s blocked several proposals for bitcoin ETFs on the grounds that the market is unregulated.
While there is no bitcoin ETF, there are publicly-traded funds that invest their money in bitcoin. Unlike bitcoin ETFs that directly purchase bitcoin, shares in the funds represent a pool of money invested in the cryptocurrency. Another way to gain exposure to bitcoin without actually purchasing it is to invest in cryptocurrency and blockchain companies, which provide leverage to the crypto market.
