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June 1, 2023
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ETH staking has attracted more and more attention since the Shapella upgrade. We at Verilog Solutions are releasing a three-part research on ETH staking, Liquid Staking Derivative, and LSDFi to help the community navigate through this field. In this first part of the series, we briefly reviewed the history of ETH staking, the mechanism of ETH PoS, and the steps to becoming a solo-staker for ETH PoS.
In December 2020, Ethereum launched the Beacon Chain, which was the first step towards transitioning from proof-of-work to proof-of-stake.
At the time (December 2020), the Beacon Chain operated as a separate blockchain that runs alongside Ethereum's proof-of-work mainnet.
However, upgrading Ethereum to proof-of-stake is challenging because Ethereum is not operated on a single server but rather on thousands of computers (nodes) that run one of the open-source Ethereum software implementations known as a client. The analogy of Ethereum as a spaceship helps to understand the challenge of upgrading Ethereum to proof-of-stake. The Beacon Chain is like a newly built engine that can replace Ethereum's existing consensus mechanism while still retaining its history and functionality. This approach allowed developers to test the new engine while keeping everyday users' assets separate until the developers are confident in executing the upgrade. Implementing the upgrade from proof-of-work to proof-of-stake is like replacing the engine while the spaceship is still sailing.
The Merge Explanation Graph. Source: Ethereum Foundation Documents
The red line represents the Ethereum Mainnet (PoW): consensus based on the Proof-of-Work.
The green line represents the Ethereum Mainnet (PoS): consensus based on the Proof-of-Stake.
On September 15, 2022. The 2 systems finally merged together into one PoS blockchain network.
Here is an analogy of the merge from Ethereum Documentation:
Imagine Ethereum is a spaceship that launched before it was quite ready for an interstellar voyage. With the Beacon Chain, the community built a new engine and a hardened hull. After significant testing, it became time to hot-swap the new engine for the old one mid-flight. This merged the new, more efficient engine into the existing ship enabling it to put in some serious light years and take on the universe. - The Merge | ethereum.org
The merge was a great milestone for Ethereum entering into a new era where the consensus behind the system shifted to a more eco-friendly Proof-of-Stake. The energy consumption dropped by an estimated 99.95%, furthermore, this upgrade enabled Ethereum to be more scalable and a step closer to achieving the Ethereum vision.
To ensure the security of the PoS Mainnet, Ethereum introduced Eth2 Validator. Essentially, users/validators who want to join the consensus of Ethereum need to deposit 32 ETH to activate the validator node.