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What to expect with the launch of Ethereum 2.0

Insights Crypto Industry

The launch of Ethereum 2.0

At the start of December, the Beacon Chain of Ethereum 2.0 went live, marking the long-awaited launch of the next generation, proof-of-stake Ethereum blockchain. Ethereum is the world’s second largest digital asset protocol by market capitalisation, and the leading smart contract platform, providing the technology to power tokenization and many decentralised finance (DeFi) applications. In time to come, it is fully conceivable that Ethereum may underlie many large-scale systems in finance – and the changes being implemented in Ethereum 2.0 are intended to ensure it is ready for this.

A significant amount of planning and work is going into this new version of the protocol, which is far more extensive than a simple upgrade. Ethereum has planned for the changes to happen in phases, starting with phase 0 – the launch of Beacon Chain, Ethereum’s new proof-of-stake blockchain. This will be followed by phase 1 – the launch of shard chains, allowing transactions to be validated simultaneously, and lastly phase 2 – the launch of execution engines, enabling smart contract systems. The full Ethereum 2.0 is only expected to be live in a few years.

Staking Ethereum 2.0 starts now, with high risks and high rewards

One of the key changes in Ethereum 2.0 is the shift from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism, which when implemented together with shard chains, increases the scalability of the network. In addition, a PoS mechanism benefits investors by providing a yield generating opportunity, allowing investors to stake their Ethereum in return for a reward.

Staking on Ethereum 2.0 is already available, and while being one of the early stakers on the network could provide very attractive returns (of up to 22.95 percent per annum), it also carries a corresponding risk. Existing Ethereum can be deposited with a deposit contract which will mint and stake new Ethereum 2.0 tokens, but it is unclear what will happen if the deposit contract is faulty. Further, the current software does not have any transfer functionality, and this will likely be unavailable for the next one to two years, meaning investors have no exit option should any issues arise.

Sygnum will ensure cutting-edge technology that is compatible to Ethereum 2.0

Like most of the community, Sygnum has been closely following Ethereum 2.0 and its developments. We are adapting our technology to ensure that it is compatible with the specifications of Ethereum 2.0, so that we can offer secure custody, brokerage, credit and staking services to clients once the network is more established and stable.

In particular, Ethereum 2.0 will move to the Boneh-Lynn-Shacham (BLS) signature scheme, which supports the aggregation of signatures. Without going into too much technical detail, this means that multiple signatures from different parties can be combined into a single validating signature, with a threshold for the number of signatures required. Sygnum is working closely with its hardware security module (HSM) partner to support BLS directly in hardware for the first time.

The roll out of Ethereum 2.0 is a dynamic process which will last for a few years, but if successful it will have a positive impact on the development of the digital asset industry and provide a compelling investment opportunity. Sygnum will keep pace with the progress made and we look forward to launching Ethereum 2.0 on our platform once the time is right – which if all goes well with the Phase 0 launch could be already in early 2021.

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This document is purely for educational purposes and has been issued by Sygnum Group. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such marketing communication. It does not constitute an offer or a recommendation to subscribe, purchase, sell or hold any security or financial instrument. It contains the opinions of Sygnum Group, as at the date of issue. These opinions and the information contained herein do not take into account an individual‘s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes personalized investment advice to any investor. Therefore, you must verify the above and all other information provided in the document or otherwise review it with your external advisors. Some investment products and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis. The information and analysis contained herein are based on sources considered as reliable. Sygnum Group uses its best efforts to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information indicated herein may change without notice.

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