Eth2, Phase 0: Staking and the Beacon Chain

Eth2, Phase 0: Staking and the Beacon Chain

Ethereum is getting a big upgrade with transition to Proof of Stake and sharding. Find out how it will work and how it will affect ETH holders.


5 min read

Ethereum is getting a big upgrade.

As of right now, the Ethereum blockchain is only capable of processing around 15 transactions a second, which is not exactly considered ‘fast’. For comparison, Visa can currently process over 1000 transactions a second, which are speeds more suited for mass adoption.

Soon, big changes are coming to Ethereum that should improve every aspect of interacting with the network. Ethereum is becoming scalable for a global audience, with faster transactions (up to tens of thousands per second), higher security, and less dependence on energy for mining. They’re calling it Ethereum 2.0, Eth2, or ETH 2.0, depending on who you ask.

Don’t worry, casual and die-hard ETH holders alike won’t have to do anything for this upgrade. Eth2 will be fully compatible with the current Ethereum blockchain, ETH, ERC20 tokens, NFTs, DApps, and MEW.

The main goals of Eth2 are to highlight decentralization and put the power back in the hands of the users, while relying less on energy resources and more on the Ethereum community. This is going to be achieved through staking and shard chains.

Phase 0 of Eth2 is also known as the Beacon Chain, which is the first step in a long overhaul process that will likely take at least two years to finalize. Multiple phases are projected: Phase 0, Phase 1, Phase 1.5, Phase 2, and then presumably Phases 3+, which could expand to any number of phases by the time we get there.

It’s important to note that all ETH deposits for staking during Phase 0 will be locked into the Eth2 deposit contract. Transferrals and withdrawals of staked ETH will not become available until later Phases, which may not go into effect until 2022.


One way Ethereum is evolving is in the way it’s kept secure and active. The foundation of the Ethereum blockchain was based on a Proof-of-Work (PoW) concept. This is the traditional model developed by Satoshi Nakamoto for Bitcoin, allowing remote individuals called miners to expend energy and resources in order to validate transactions and create new blocks on the blockchain. Gas is paid to these miners in the form of ETH, with faster validation being rewarded with more ETH.

The main issue with this system is that every miner has to validate and check every single transaction on the entire Ethereum blockchain to validate and create a new block. This was fine in the early days, but the Ethereum blockchain is growing very rapidly. The massive amount of energy necessary to continuously run these nodes is not sustainable for long-term use.

With Proof-of-Stake (PoS), the concept being worked on for Eth2, users who hold ETH can offer up 32 ETH to become a validator themselves. Validators will need to use software on their computer or laptop to occasionally validate transactions, propose new blocks, and check block proposals. This will not only make validating more accessible, but will also replace the energy-dependent barrier to entry with a more community-dependent system, saving massive amounts of energy in the end.

In order to be a validator, you’ll need to have a computer connected to the internet 24/7, because there will be penalties for not doing your job. These penalties will be more fully expressed at a later date, as they won’t be relevant until at least Phase 1, but we know that bad acting can result in your staked ETH being slashed. Validators will be rewarded for proposing and validating blocks in a timely manner.

It’s important to remember that MEW is not building Eth2, staking, or shards chains. We can provide access to Eth2 services as they become available, but the technology is new and still in development, so do your research before jumping into staking your ETH. Staking is already available in MEW web and MEW wallet app, but the mainnet Ethereum chain is not expected to transition to a full PoS system before 2022.

The Beacon Chain

Eth2 is possible through the use of shard chains. Ethereum currently runs on one chain, the Ethereum blockchain. Shard chains introduce a concept of smaller new chains that run alongside the main one, making it possible to have a more energy-efficient process while also increasing the amount of transactions that can be validated at once. There will be 64 shard chains in total.

The Beacon Chain is the mother of all shards, the foundation for Eth2 as a whole. The Beacon Chain is where validators, after staking their ETH, can validate their shard chains and propose new shard blocks. The main purpose of the Beacon Chain is to record blocks from shard chains and verify that they are up-to-date, and that there’s no phishy business going on.

For example, this is a run-through of how a typical transaction would work on Eth2:

A user makes a transaction of ETH to another user on the Ethereum blockchain. A validator gets picked to validate this transaction from the pool of staked users, and they propose the block to the shard chain that the transaction is on. They are chosen through an algorithm that aims to alternate through validators fairly. Becoming a validator requires a stake of exactly 32 ETH. You can stake less via a staking a pool, so that you don’t need to run a node yourself, but still receive some of the rewards. It’s also possible to stake multiples of 32 ETH and run multiple validators to increase chances of being chosen to propose new blocks.

Some validators that aren’t chosen to propose the block will instead be asked to check it over to make sure everything looks good. This is called ‘attesting’ to the block, and this attestation is stored on the Beacon Chain. All of this is done through software installed on the validator’s computer, which should be connected to the internet 24/7.

Each new shard block will require 128 validators to attest to it before it’s recorded in the Beacon Chain as a new block. These validators are known as the ‘committee’ for the block. Each committee has to validate a new block within a certain timeframe for it to be legitimate. The time frame for the new block is known as a ‘slot’, and there are 32 slots available in an ‘epoch’, which refreshes every 6.4 seconds. That sounds confusing, so let’s say it again in a new way.

Every 6.4 seconds, a time-slot is created called an ‘epoch’, which is made up of a committee of 128 validators and is capable of recording 32 new shard blocks. Each shard block uses this committee of validators to make sure it’s accurate and secure, and this committee is refreshed and randomized every 6.4 seconds with the new epoch to prevent any bad-actors or phishy behavior.

All the details of rewards or penalties, new blocks, and validations are kept on the Beacon Chain and are finalized through ‘Casper’, which basically just makes all changes permanent to the Beacon Chain and unable to be reversed. In the end, this system saves everyone time and energy while making the blockchain more secure than ever.

To Phase 1 and Beyond...

While Phase 0 is launching and causing a lot of excitement, we won’t really start seeing the benefits of Eth2 until Phase 1 and beyond. Crosslinking, withdrawing staked ETH, shard chains, and more are coming in the next couple years. Make sure you keep an eye out for Eth2 news, and as always, MEW will be here with you every step of the way.

Learn more

Staking on Eth2 is one way to start earning passive income on your ETH, but there are other ways that don't require such a big up-front investment or such a long waiting period. See our DeFi article for more info:

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